How Startups can Reduce Costs and Boost Profit

How Startups Can Reduce Costs And Boost ProfitHow Startups Can Reduce Costs And Boost Profit

Startups are considered the new engines of economic growth regardless of which part of the world you are in. This is because small business accounts for nearly 100% of new businesses registered every year. In the United States, there are approximately 25 to 27 million startups which comprise 99.7% of all firms and account for nearly 50% of the country’s Gross Domestic Product. In Australia, according to the Australian Bureau of Statistics (ABS), there are 1.96 million small businesses which account for 96% of all businesses registered in the country.

While the definition of what constitutes a startups varies from country-to-country in terms of number of people employed, its sheer volume and representation in the business sector leads to the same conclusion: Startups stimulate the economy because they generate employment. Thus, small businesses may hold the key to how economies can survive during these periods of intermittent recession.

Governments are working to develop assistance packages for startups in order to keep them afloat. Among these programs include tax incentives for investments, access to capital through government assisted loans, tax cuts for businesses on an expansion program and promotional assistance from the government on exports.

However, the numbers supporting the viability of startups are not promising. Only 47% of startups continue to operate five (5) years after commencement of services. In 10 years time, approximately 35% of businesses remain operational. The number one reason why startups fail is lack of experience. This inevitably leads to poor decisions which further exacerbate the misfortunes of the business.

Startups generally have constrained budgets and limited access to capital. It is not unusual for them to have a tight rein on spending and to cut corners when running the operations of the business. Most entrepreneurs tend to do everything themselves instead of hiring people in order to save money. But by doing so, they compromise productivity. Lack of experience leads entrepreneurs to focus too much on cost-cutting. Eventually, the cost-cutting programs will reach an equilibrium point whereby productivity yields a negative return.

All businesses regardless of size have a common objective and that is to profit. But the profitability equation has two variables: revenues and expenses. In order to realize profits, the business owner must focus on programs that generate revenues and implement strategies that introduce efficiency in order to streamline costs without compromising productivity.

Here are three effective strategies an entrepreneur can implement in order to generate higher revenues for his startup:

1: Hire a consultant on a retention arrangement.

If you do not have experience to manage an enterprise, you need someone onboard to guide you through the process. The consultant should be someone you can trust and has enough experience developing businesses. An accountant would suffice as a consultant as it is important to keep track of expenses. At the same time, the accountant can teach you how to read, analyze and prepare the crucial financial statements such as cash flow and the income statement. If the accountant is someone you know dearly, he or she may agree on a reduced hourly rate for retention services.

2: Outsource non-essential services

You need to allocate most of your time attending to functions that directly affect the enterprise. But back office and administrative tasks also have to be attended to because these support operations. The most cost-effective and productive option is to outsource these services to a Virtual Assistant. A Virtual Assistant is only paid for hours worked without overtime and other benefits. But virtual assistants have the prerequisite skills and experience to get these tasks done efficiently and effectively.

3: Implement digital marketing strategies

A consistent top 5 reason why startups fail is the unavailability of a website. Only 46% of  new businesses have websites and nearly 50% fail in the first few years of operation. There certainly is a correlation between the absence of a website and sustained success. Three Billion people are online everyday and more than 70% of businesses use the Internet to source for suppliers and open up new markets. A website is an absolute necessity to develop a business. With a website, you can work to build new markets for your business through a mix of online strategies such as social media, e-mail marketing, link building and SEO.

On the cost reduction side, here are three strategies you can implement to streamline operations without affecting revenue-generating activities:

1: Use technology.

The use of landlines, mobile phones are largely unmitigated and results in blown up expenses for telecommunication. Technology has made it possible to communicate effectively with least cost. Instead of direct mobile-to-mobile calls, have your staff register their numbers with Viber, an online service where you can call other registered numbers free of charge. If you need to meet with your staff, conduct these through an online platform such as Skype which offers free audio conferencing. Or send a group e-mail on the agenda and require everyone to submit a response or comment on the issues within a day from receiving it. If you have a sales team, assign VOIP phones for their use. There are carriers that offer heavily discounted rates for unlimited calling.

2: Re-assess your place of work.

Rent can often become the biggest culprit in managing the expenses of the startup. If the amount you pay for rent close to 20% of what your business is generating, you should consider other venues for work. An option would be to establish a home-based business. You will have to spend for the facilities to support your business but the cost savings from rent will quickly cover these expenses. If you have a team working for you, have them work at home and connect with them through various online platforms. If you need to share files, you can opt to convert one computer into a proxy server to support your File Transfer Protocol or FTP or avail any of the cloud based file sharing systems online.

3: Regularly maintain hardware and update software.

The most overworked asset in your business is the computer. If you are using a desktop, have it undergo regular maintenance check-ups or hardware upgrades. You should also update software whenever these are available to keep operations running efficiently. Most of these updates are free but if there are costs involved, these are usually minimal.

Running a profitable business does not happen overnight; it requires consistency, dedication and attention to detail. You should not only focus on cost-reduction strategies because the savings you generate will not approximate the income you would earn if you also allocated resources on programs that improve productivity.

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