Top 7 Tips For Reducing Startup Operating Costs

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Insubstantial funds at the beginning are a significant impediment hindering the maturation of many startups. In addition, a startup operating cost can be overwhelming, making it difficult for your yet-to-be-established venture to keep its doors open. Therefore, it’s paramount for all startup owners to be savvy in reducing business operating expenses in every department. Not to mention, lowering operating costs is the most practical way of boosting your entity’s profitability. 

On the other hand, reducing overheads can be pretty intimidating, as it’s equivalent to doing without something you would prefer to have. Non-strategic cost reduction can be detrimental to your startup’s health. Moreso, it can impact the ability of your venture to generate revenue. For instance, when cutting down expenses, you can easily skimp on the quality of your services to customers. 

This post will cover valuable insights on operating expenses, and from it, you can deduce strategies to lower costs and maintain a healthy bottom line. 

Top 7 tips for reducing a startup’s operating costs

In most cases, cutting marketing and employees’ salary expenses are the first things to cross an entrepreneur’s mind when reducing operating expenses. Well, that’s not necessary, considering there are several other opportunities. But unfortunately, there isn’t a hard and fast rule in determining the overheads to downsize. Again, this is because every business’s circumstances are different. 

Nonetheless, creating a budget based on your average monthly income, considering the needs of your startup model and your clientele expectations, is foundational when reducing operating costs. Not to mention gleaning insights into how money flows in and out of your business. 

Here are the most general and effective strategies for cost reduction applicable to many businesses: 

1. Automate time-consuming tasks

Integrating Professional Service Automation into most of your startup’s operations streamlines the day-to-day functions. What’s more, automating various time-consuming tasks such as accounting, website hosting, marketing communication, payroll, etc., eliminates work-intensive processes and consequently cuts several administrative tasks. 

Thanks to technology, there is software such as accounting, supply chain, and project management tools that cover a variety of tasks. These programs enable business owners to manage and measure service delivery at scale. Even better, automation minimizes errors, promotes efficiency, and allows team members to focus on other essential roles. 

Other notable benefits of automating various tasks in your startup include:

  • Better customer experience.
  • Real-time reporting.
  • Analytics and forecasting.
  • Offering solutions to administrative hiccups.
  • And notably, reducing operating costs. 

2. Adopting a hybrid or a remote work system

The Covid-19 pandemic revolutionized the workplace. Working from home amidst the height of the pandemic made the global workforce question the essence of the traditional work model. The abrupt and mandatory shift to the remote work model might have brought a lot of uncertainties about the future of the workplace. Still, it ultimately proved to be a feasible, lucrative, and productive model.

A hybrid or a remote work system reduces office space, transport costs, and employee overheads. Technology has made it possible for team members to conduct their day-to-day duties remotely, regardless of their locales. Communication tools such as Skype, Zoom, Microsoft tools, collaboration software such as Trello allows colleagues to stay in virtual contact, view timelines, assignments, and be up-to-date with their work. As such, it’s prudent for your startup to capitalize on these work models to save on several operating costs. 

3. Inventory management

Excess, insufficient or worse, lack of inventory is the backbone of a high operating cost. High taxes, space requirements, potential wastage from spoilage, or obsolescence can rack up in exploiting your startup’s resources. Inventory management will go a long way in helping startup and SME owners keep track of their supply, and in return, manage the costs and strains associated with overstocking or running out of supplies. 

4. Outsourcing and digital hiring

Outsourcing is an excellent way to get vital startup projects done on time, expertly, and better while still saving money. For instance, it can be pretty high-end to hire an in-house financial controller to spearhead your startup’s accounting duties. But on the other hand, outsourcing controller services are more affordable, and your team members can focus on other tasks to get your startup off the ground. 

Similarly, adopting digital recruitment processes in favor of outdated and conventional hiring processes can reduce your startup’s operating costs. It eliminates the tedious, lengthy and unpleasant process of contacting and scheduling interviews with prospective candidates. In addition, you can seamlessly contact high-quality talent quickly and efficiently via the vast digital tools. 

5. Settle bills in advance

Paying bills on time is an essential aspect of taking control of your startup’s financial life. This is especially critical when settling taxes, as it helps avoid paying hefty penalties and interests. In addition, knowing the due date of your bills and, significantly, paying them in advance can reduce financial stress and save you money. This is also the case for loans and debts you might have taken. 

Most vendors offer discounts if you settle an invoice early. In addition, paying your bills on time creates a history of positive payments, enhancing your credit score, and getting lower-interest credit.

6. Eliminate some employee benefits and perks

Cutting employee benefits and perks can save substantial funds without impacting the service of your products. Although it might not sit well with your workforce, you can lucidly explain to them that the changes are only momentarily as you try to resolve the financial mishaps. Also, if your staff members aren’t fully utilizing the benefits you offer, then it’s only reasonable to eliminate such perks and channel the funds elsewhere. 

In addition, establishing strict rules on your employees’ spending behavior can help reduce your startup’s operating costs. Most entrepreneurs overlook minor habits such as misplacing pens, unnecessary postage, and printing. On the contrary, you will be surprised to learn that you can save substantial funds by gaining insights into your employees’ spending habits, especially when traveling or out of the office. 

It’s always essential to ensure spending and employee benefits and perks correlate with increased productivity.

7. Go green

Making your office space as green as possible can reduce energy usage, reducing overall operating costs. For instance, the high electricity bill is a big mystery for many individuals. The good news is that you can save lump sums by using compact fluorescent lighting in lieu of regular light bulbs. In addition, improve your insulation and windows to lower heating and cooling expenses. Finally, cut back on the volume of physical waste. 

Final thoughts

Reducing your startup’s operating costs can be challenging, but it isn’t impossible. First and foremost, you must be acquainted with the intricacies of your operating costs as your business grows. Also, your team members need to be a part of your approach to minimizing expenses. The above top tips for reducing a startup’s operating costs will set your venture to optimal success.