In a business’ early stages, it’s crucial to stay lean and limit expenses not directly related to product development and generating sales. Here are seven ideas for limiting overhead expenses in the startup phase.
1. Look for shared office space
To keep overhead low, many startups begin as home-based businesses. As profits ramp up and expansion occurs, they move to bigger space. When you’re ready to move your startup out of your home, sharing office space with other businesses may be a good first step that can minimize overhead costs. Rather than committing to a large space that won't be fully used every day, look for opportunities to occupy space that is shared by multiple startups.
2. Negotiate favorable lease terms
If your startup’s needs have outgrown your garage or shared space and it’s time to negotiate a lease for its own space, work with a landlord to find mutually beneficial ways to lower costs. Signing a longer-term lease may hold down rent expenses or limit future increases. Negotiating other lease contracts, such as those for office equipment, may also present an opportunity for cost savings with favorable terms.
3. Reduce paper consumption
Environmental awareness has made businesses and consumers highly conscious of paper usage, but the reduction in overhead costs is another good reason to reduce paper in the workplace. Emailing invoices can save money on both paper and postage. Scanning, rather than copying, documents is another way to cut paper usage. Going paperless can yield other savings by reducing the need to purchase expensive printers, copiers, and fax machines and by lowering utility bills that would otherwise be driven up by these machines. Paperless files also require less storage space in the office — possibly saving you money on rent for additional square footage. (Note: It is essential to understand and honor federal state and local record retention laws. If the regulations allow and you decide to store records electronically, ensure you will be able to retrieve those records for the required length of time.)
4. Consolidate vendor services
You could save money by consolidating paid vendor services as much as possible, as bundling services with one vendor can often yield significant cost savings through loyalty discounts.
5. Buy in bulk
Small companies with limited storage space may not be able to purchase office supplies in bulk, but even doubling amounts purchased at one time, or waiting for sales and then stocking up, can yield expense savings.
6. Use cloud-based software
Rather than pay for expensive data storage and systems stored on in-house servers, use cloud-based software to secure important company information while improving cash flow. An online accounting system, for example, gives you all the benefits of traditional accounting software, but for a low monthly subscription fee rather than a large upfront purchase cost and additional charges whenever new features and functionality is added. Cloud software can also potentially save data recovery costs and limit system downtime, which can add expenses to your bottom line.
7. Automate for efficiency
Startups may be able to reduce overhead by automating tedious administrative processes. By using an online accounting system, staff member responsible for finances may spend less time on the manual bookkeeping processes. Automated payroll processing can save time and also reduce manual errors that can be costly and time-consuming for staff to research and correct.
Overhead costs can make or break a startup. The less money that new businesses spend on administrative expenses, the more resources can be directed toward producing a high-quality product, attracting investment, and turning a profit.