Start-ups are booming in the UK. Despite the political upheaval following the snap election and concerns over Brexit negotiations, the UK is a welcoming place to start a new business. Research carried out by StartUp Britain found that in 2016, 80 new businesses an hour were registered at Companies House by budding entrepreneurs.
Central London was the most popular place to start a business, but Lichfield in Staffordshire, Warrington, and East Hertfordshire were not far behind. What this tells us is that now is a great time to be an entrepreneur. What the figures don’t reveal, however, is how many of these businesses failed in the first 12 months.
The Dangers of Excessive Spending
Sadly, the statistics are not great. On average, 9 out of 10 new startups fail in the first year. There are many reasons why this is the case, but the overriding one is poor cash flow. There are no guarantees when starting a business and a great idea is not always enough. Unless you rein in your costs in the first year, your chances of making that elusive first anniversary intact, are slim.
Excessive spending can derail even the most promising new business. The more money you waste, the more likely it is that your cash flow will dry up. It’s important that you spend money on the right things. Product development is good; booking First Class flights to meet a client is bad.
Mission Critical Expenses
To save money, stick to mission critical expenditure and pay attention to the following areas:
- Be aware of the difference between profit and revenue. It doesn’t matter how high your turnover is -if the business is not making a profit because operating costs are out of control, you are in trouble. Aim to win a few smaller clients rather than one large client. This should keep your supplier and client servicing costs down.
- Keep a close eye on your supply chain costs. Work closely with suppliers and make sure supplier terms are competitive.
- In the early days, renting a luxury office suite in Knightsbridge is a bad idea. You can keep your costs down by starting the business from your living room or hot desk in a co-working space for startups. If you feel a prime office location is important to attract more lucrative clients, sign up for a virtual office from BeOffices. A virtual office gives you the benefits of an exclusive address in a prime location, at a fraction of the cost. You can hold client meetings in luxurious meeting rooms and a receptionist will take calls on your behalf. It’s a win-win for startups who need to impress important clients.
- Don’t hire more staff than you need. Run a skeleton crew and outsource tasks where possible. It is often cheaper to hire a virtual team rather than pay in-house employees.
- Take advantage of SaaS tools to manage your startup and do more for less. Slack, MailChimp, Trello, GoToMeeting, and Salesforce are all must-have tools for tech-savvy startups.
Watch the pennies and the pounds will take care of themselves. Work hard to keep your operating expenses to the bone, but make sure you have access to working capital if cash flow falters. With the right approach, your startup will reach its first birthday intact.