Every year, thousands of entrepreneurs search for funding to keep their operations running. Though a significant number of them are able to access some form of funding, a good number fail to convert this infusion of capital into tangible business growth.
In the startup world, about 70% of businesses shut down just 20 months after the first round of funding. Out of those, 29% failed after running out of cash, which was the second-most common reason for startup failure identified in a CB Insights report.
Smart, money-saving practices aren't reserved for million-dollar startups in Silicon Valley. Entrepreneurs, especially those with businesses that have secured a loan or investment opportunity, need to find ways to prioritize expenses and stave off the temptation to splurge. Poor money management remains one of the leading reasons why relationships between entrepreneurs and their investors sour, which contributes to the high failure rate for businesses with a history of one or more rounds of funding.
While all businesses can benefit from money-saving strategies for the office, newly funded enterprises need to go the extra mile to keep investors happy. Here are a few ideas to build an efficient, money-saving entity that will not only keep current investors satisfied but also improve your chances of getting subsequent rounds of funding.
1. Implement lean management practices from the start.
One effective way to save money within your company is by infusing the principles of lean management early on. First popularized within the manufacturing industry as a way to reduce waste and boost efficiency, lean management principles can be applied at all levels of your business. This is one of the best ways to show your investors the practical steps you're taking to run your business efficiently.
In addition to reducing waste and boosting efficiency, lean management principles can help your business reduce operating costs and eliminate things that don't add value to your young business, which is something that any investor will appreciate.
To get started, eliminate wasteful tendencies around the office, including poorly run meetings and excess inventory that ties up capital. Automate as much as possible to save time for the most important elements of your business, and use free trials and cheaper alternatives when it comes to software and applications.
Seek out additional ideas to infuse lean management principles into your everyday operations for maximum savings.
2. Look for ways to run efficient, measurable marketing campaigns.
While marketing remains one of the most important pillars of a growing business, a poorly designed marketing and advertising campaign can quickly gobble up resources, leaving you scrambling to re-strategize.
Indeed, there's no shortage of horror stories about entrepreneurs who burned through investor funds via their marketing campaigns. Perhaps the most memorable example is Fling, a social media startup that went bankrupt a few years after raising more than $21 million in funding. Among the company's many excesses was a wild social media campaign immediately following its launch. Even though the campaign saw app user numbers rise by the thousands every day, the numbers took a wild dip after marketing funds ran out – a direct result of the company concentrating on inorganic instead of organic traffic.
There are many ways to mess up your marketing, especially when you have a whole chest of investor funds to play around with. To stay on the safe side, concentrate on purely measurable marketing efforts.
Measurable marketing involves focusing your time and money on tactics that generate revenue as opposed to those that generate business – at least early on. Take for instance Facebook Messenger, one of the fastest-growing marketing platforms on the planet. It provides a powerful and personal avenue for B2C connections, thanks to the 47% of active Facebook users who access this platform on their mobile phones. Including this and related strategies in your marketing plan is an affordable way to track the impact of your marketing efforts while creating an avenue for both revenue generation and organic business growth.
Because your cash reserves are limited, you want to use your funds for campaigns that generate actionable data, which you can use to improve your future marketing campaigns.
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3. Take advantage of tax deductions and exemptions.
While taxes can be a painful expense item on an income statement or balance sheet, there are several ways you can use tax deductions to save significant cash. Possible tax deductions include everything from auto expenses and employee benefits to little-known items, such as the interest on your loan, that the IRS has defined as "helpful and appropriate."
There are additional savings to be made, thanks to the tax reforms that have swept the corporate world over the past couple of years. According to legal firm Batson Nolan, the $5.6 million tax exemption that went into effect in 2018 could have significant effects on income and corporate taxes for individuals and businesses, which startups should watch out for over the coming years.
In addition to the IRS website, the U.S. Small Business Administration provides information on tax deductions and exemptions that may apply to your business. Your tax or financial advisor can also help you identify opportunities for savings, so make sure there's at least one person on your team keeping tabs on all business expenses and reporting the same as the deductions on your returns, helping you save significant sums of cash for your business.
4. Streamline your HR functions.
One of the biggest perks of being a business owner is the ability to manage a workforce, which, for newly funded startups, shows investors your determination to achieve your business's goals and objectives.
Human resource departments, however, are among the biggest culprits of financial waste within organizations. Businesses can lose money on many HR elements, including long and expensive hiring processes, high employee turnover, duplicate job roles, and – perhaps the biggest headache for investors – litigation as a result of poor employee relations. By making your HR department run more efficiently, you create real opportunities to save money – not only within the HR department, but across different levels of your business structure.
One effective way to start is by employing technology to manage some of the functions that require hands-on labor. Hiring, one of the most resource-intensive elements of a business, can be done online, saving time and resources on the process of applications and interviews.
You can also save money by using cloud-based HR software to help with employee relations, payroll, and training – and as a base for your employee retention program, which is another important money-saving practice.
5. Make technology work for you.
In addition to using tech as part of your HR strategy, you can stretch it into other facets of your business – not only to save money, but also to provide accountability and visibility into your business operations, which would offer a significant boost to your investor relations.
There's nothing you can't automate around the office. From billing, procurement, and invoicing to file sharing and collaboration, technology provides a host of money-saving opportunities for small businesses.
Still, poorly thought-out IT policies can cause your business to spend more money than is feasible. Too often, businesses redirect significant chunks of investor funds into the latest tech – including expensive certification and technical training – without conducting proper cost-benefit analysis to determine whether these expenses are worth it. Then, when things go wrong, these businesses often find themselves burning through available funds to fix these problems.
For instance, while an integrated payments system might improve checkout speeds on your website, downtime and vulnerabilities might cost you dearly if you don't have an internal mitigation strategy.
Consequently, it is important to identify opportunities that add value before you invest in new tech. To this end, make sure you and any fellow founders understand the intricacies of the new technology before committing any of your investors' money. Prepare a comprehensive IT strategy that includes everything from BYOD (bring your own device) policies to an analysis of how your IT backbone aligns with your company's strategic goals. This way, you reduce the risks associated with poor, costly IT decisions on one hand, while keeping your investors happy on the other.
6. Outsource staff instead of hiring W-2 employees.
There are plenty of high-quality workers out there who can handle your tasks on a contract basis, especially with the gig economy growing three times faster than traditional jobs. When you outsource, you don't have to pay employee benefits such as health insurance and paid time off.
There's no need to supply outsourced employees with a computer, phone or office space either. As an industry norm, outsourced staff expect to use their own technology from their own office space. You're also free to give outsourced employees less work as needed. This flexibility can be helpful as your company's sales fluctuate.
7. Eliminate or cut down on in-person meetings.
Some people love meetings; they can sit in them for hours. However, time is money, and meetings are proven time-wasters. For example, the average worker spends an hour and nine minutes simply preparing for each meeting.
Instead of holding formal in-person meetings, utilize video conferencing, email, chat or phone calls. Two particular types of meetings are easier to eliminate than others:
- Status meetings. Use a project management tool instead so each team member can check the status of any project at any time.
- Feedback meetings. If you need feedback from your team, consider emailing them a survey instead of holding a meeting. You can create a survey with a tool such as Google Forms within minutes.
If you still need to have some in-person meetings, try to keep them under 30 minutes, and send attendees an agenda at least 24 hours before each meeting. Only include key stakeholders or other people who absolutely need to attend.
8. Reduce or eliminate office space.
Since COVID-19 hit, many businesses have found that they can run remotely. If a physical office is a necessity for your company, consider choosing a smaller space and allowing employees to work remotely on a staggered schedule so they can share workspaces.
If your employees can do their jobs remotely but you still require them to come into the office, what is holding you back from allowing them to work from home? Perhaps you think it will hurt productivity or collaboration. However, thanks to technology such as video conferencing, remote collaboration is easier than ever. As far as productivity goes, there are project management tools that are significantly cheaper than having a physical office, which includes rent, technology, utilities, office supplies and perhaps even parking.
By switching to a remote workforce, you may even save money on sick days and improve employee retention. Since 2016, studies have shown that home workers take fewer sick days than professionals who work in the office. A 2019 Airtasker report found that remote employees work 1.4 more days per month than their office-based counterparts, and they are also healthier in terms of exercise.
9. Use a project management tool.
While most project management tools have a small monthly fee, they essentially pay for themselves, considering the increase in productivity that can come from using them. Some project management tools even have free plans for small teams.
With so many tasks on your team's plate, keeping track of each one can be difficult. A project management tool can help your business save money by serving as a central location where every project is tracked and maintained. In addition, project management tools keep communication open among teams and can monitor daily project costs. Some project management tools you may want to consider are Asana, Trello, Basecamp and Wrike.
At the end of the day, you don't want to give painful explanations to your investors for how you used your previous batch of funds. By instilling elements of agility and efficiency within your business, you'll be more likely to convert your investment into growth and close a subsequent round of investment.
Business.com editorial staff contributed to the writing and research in this article.