17 May Emergency Cost-Cutting: 7 Ways to Save Money in Your Startup Immediately
Plans change quickly in a startup, and it’s not always by choice. When it becomes clear that your company won’t survive without drastic changes, barring an influx of cash from an investor or huge sale, cutting costs is your best option to extend the life of your company.
If in a place where severe changes need to be made to survive, here are seven places to look to cut costs and extend your runway:
Note: Before making cuts, work with an accountant (or your CFO if you have one) to get a clear financial picture of your business. For cuts to have a positive impact on your business, they need to be part of a financial plan geared to grow your company and get out of the financial mess you’re currently in.
The first place you should look is your monthly and yearly subscriptions. Depending on the companies you use for services and the nature of your business, these may account for a few hundred dollars a month or a few thousand.
Anything that isn’t vital to your business should be canceled. If you’re in the middle of a billing cycle, consider contacting the business to see if you can get a partial refund for what has already been paid and not used.
One place few people look when cutting costs is insurance. Insurance providers frequently requote policies and lowering your monthly premiums can put a dent in your expenses and lower your burn rate.
Technology and equipment
Outside of employee salaries, the equipment and technology you use are probably your biggest expenses. If you haven’t reevaluated your needs in the past year, work with your team to see what you may be able to get rid of, downsize, or change vendors.
Expenses to pass on
Service-based companies too frequently take on expenses that could or should be passed on to their customers. This can be difficult to do after a relationship is already established and must be handled delicately.
Service-based companies can fall into the trap of doing administrative duties in addition to their advertised services. Be sure your employees aren’t doing any extra work that eats up their time. Every hour they spend doing extra work for the client is an hour they could’ve spent working with other clients.
Create new policies outlining the changes (what costs customers will be paying and why) and inform your clients in-person or on the phone on why you’re making the change and what they can expect. It’s a risky move, but one that can increase profits and lower expenses.
I’ve worked with several small businesses owners who were in a position where they needed to decide whether to cut their own salary or risk losing their business. Unfortunately, not every entrepreneur is willing to cut their salary to save their business. If you are willing to consider cutting your salary, don’t make this decision without carefully looking over your personal finances to make sure you can survive on reduced pay.
Pay cuts are never a popular decision, but to save their job, some employees may be willing to accept one. They won’t, however, like it. Because of the impact of asking employees to take a pay cut will have on employee morale, you should outline a plan of how and when their salaries will be restored. It’s important to be completely transparent during this process; otherwise, you will quickly lose your employees’ trust.
As a business owner, you have to be able to make tough decisions. Laying off employees, even to save your business, is never easy. If you’re letting go a significant portion of your workforce, or long-term employees, be transparent with the rest of the company and explain what’s being done and why it’s being done.
When employees lose their job due to layoffs intended to save the company, other employees will start to look for employment elsewhere. By being transparent, you may be able to keep your most valuable employees who you’ll need to turn the company around once you’re once again on steady ground.