When starting a business, you want to get the most out of your investment. This involves knowing how best to distribute your money between each of the startup costs.
There are some aspects that aren’t worth spending a huge amount on as you won’t get any better results by doing so. On the other end of the spectrum, there are some startup costs in which spending a little extra can be financially beneficial in the long run. Here is a breakdown of all the major startup costs and whether you should splurge or save in each instance.
There are three main ways to fund a business: use savings, seek investment or take out a loan.
Most people choose the third option because it tends to be the easiest. There are plenty of lenders out there willing to give loans to budding entrepreneurs. However, some of these loans can have high interest rates which could result in you spending a lot of money in the long run.
There’s no advantage to opting for a high interest business loan. Most people settle for these loans because they don’t require you to have a good credit score, whilst lower interest loans do require a good credit rating. Taking time to clean up your credit score could allow you access to a lower interest loan, which could then allow you to spend less money in the long run. Banks and peer-to-peer lending sites offer some of the best interest rates.
In the beginning, you don’t need a fancy office. In fact, you may not need premises at all – many start-ups can be run from home. This is because the majority of work nowadays can be done digitally. Space is no longer required for giant paper filing systems and meetings can be conducted over the phone or via videoconferencing. Even retail companies no longer need premises thanks to the rise of ecommerce.
By not having physical premises, you’ll save money on energy bills, rent, maintenance and all manner of other costs. Running your business from home could also cut out commuting – which could be another small cost saved.
Of course, there are some businesses that cannot function without separate premises. You can’t run a restaurant or a gym from home – in both cases, you’ll need to invest in commercial property. Splurging could be required in such cases as cheap property is likely to be lower quality and poorly located, possibly affecting your ability to draw in customers.
When it comes to equipment, you don’t want to be skimping. Paying extra for equipment will guarantee better quality – which will pay off in the long run. Higher quality equipment tends to be more durable and requires less maintenance. It’s also more accurate, which means less costly mistakes. Finally, premium quality equipment tends to also be safer, reducing the likeliness of lawsuits from possible personal injury claims.
It is possible to splurge excessively on equipment and buy kit beyond your needs. However, in most cases you’re better spending that little bit extra rather than going cheap.
You also shouldn’t skimp on technology. Most modern businesses need the latest technology to thrive and compete with established businesses. Technology can help speed up processes through automation, saving you time and money on resources. It can also help you to stay organised, which can be important for your company’s reputation.
Paying a little extra for technology can also generally guarantee better security for your company. Small businesses are often the target of cybercrime, which means you don’t want to resort to cheap digital security that may not be strong enough to defend you. Consider spending extra for software that can defend you against serious threats like ransomware. You’ll hopefully never need this security, but having it in place can put your mind at rest.
Marketing is something that you need to do a lot of when starting a business. Without marketing, no-one will know that you exist. However, despite the importance of marketing, it’s not an area that you need to splurge on when starting a business.
A lot of effective marketing strategies can be DIYed. This includes building your own company website with a free website builder, using social media marketing and networking in person. Hiring a marketing company to do this is generally unnecessary unless you’re a niche business that needs a more specialist form of marketing.
A lot of startups spend far too much money on hiring their first employees. Consider whether you really need a full workforce to begin with or whether you can get by using part-time staff and outsourcing. Not only will this save you having to pay a full wage, but it could also save you money in associated admin.
Of course, for those companies that can’t function without hiring employees, you don’t want to skimp too much. Being able to afford the option to offer company benefits and having enough money to pour into effective recruitment is important.
Research is an expense that is often overlooked when starting a business, however it can be very important and is often worth splurging on. Research could allow you to fine-tune your startup model before you launch it, so that you can spot any costly faults and iron them out before you open your doors for business.
The most common form of business research is market research. This involves tasks such as organising focus groups and creating online surveys. You can also invest in software that is able to do analytic reports. Spending more money on research can guarantee more reliable data, so that you’re making valuable improvements to your company.
This is an expense that you shouldn’t really try to save or splurge on. Insurance, licensing and permits tend to be compulsory, which you don’t want to skimp on them and risk getting fined. That said, there may be no point paying extra for these legal fees either – splurging on every type of optional insurance will likely cause you to spend unnecessary amounts without ever truly getting the benefit of these schemes.
It’s best to find out exactly what kind of licensing you need so that you’re only paying for what you need.