So 50% of business start-ups fail within the first 3 years. Is this because most start-ups are doomed to fail? Is there no room for new businesses to grow? Or is this just bad planning?
Many of us get over excited about a new business idea that we think will suddenly be the key to retiring to our own island! I have worked with many businesses of various sizes and many many business start-ups. I often have a gut feeling which ones are likely to be successful and which ones may fail in the long run.
Sometimes this is down to whether the idea itself has longevity and whether there is a market out there willing to pay for the product or service. Sometimes there are amazing ideas that simply don’t have a financial value to them!
More times than not though, success is dependant on how well that business idea has been thought through. How much experience that person has with developing a business and how committed they are to making it work on those days, weeks, months where things become hard.
The most successful entrepreneurs have all failed at some point (Richard Branson, Steve Jobs, Elon Musk etc). They have all made bad decisions or launched ideas that have fallen completely flat. However, they have learned from the mistakes and have been confident (or stubborn) enough to try again….and again…..and again.
Controlling Income vs Expenditure is key to business success
Watch Dragons Den and you’ll often wonder ‘what were you thinking’ especially when some bizarre idea has already accumulated astronomical costs!
There’s no getting away from it, setting up a business WILL cost money and if you don’t factor in ALL the costs then you will get a nasty shock. It’s very easy to get carried away in order to get your business up and running, but then completely ignore the fact that you will have on going expenditure to keep your business running.
There are many ways to reduce these initial costs in order to improve initial profit margins and by getting your business breaking-even or in-profit as early as possible will maximise your chances of long-term success.
Top five tips to keep expenditure under control
Top Tip 1: Create a detailed business plan
Launching a product or service without proper budgeting, strategy, execution and marketing will mean you’ll be broke and back in the job centre in no time.
So you need to a business plan. If you don’t know how to do one then learn quickly! Yes, its time consuming and may not be the most exciting thing to do in the early stages, but a good business plan will save you time and put you on the path to success.
Do as much market research as possible. Get statistics, research your potential competitors, and be 100% honest with what costs you will incur in the first year….then double it because you’ll always forget something. Work out your expected income….then half it. It you’re still in proft then you could be onto a winner!
Top Tip 2: Can you work from home or will you need office space
If you can start from your home or garage instead of renting office space then this will keep costs down immediately. However, can you concentrate on work at home? You need to put the hours in to grow your business. I have met many people who say they have trouble working from home. Your business will not grow if you are dealing with kids, doing the washing, making endless cups of tea and meeting friends for lunch.
If you cannot motivate yourself at home then think about where you could work. This could be a coffee shop, a hot desk or maybe even a friends house when they are out (as you’re less likely to sort through their washing or other home distractions!).
Small businesses and freelancers can start with a Virtual Office where you pay from as little as £15/month. The Virtual Office service can include the use of a business address, a dedicated office phone number and even an answering service. This helps keep costs and commitment to a minimum.
With many virtual office you then have the option of ‘upgrading’ to a hot desk or part-time/full-time office. This means you can keep the same business address so you are not forking out for new business cards/stationary and wasting time letting clients know of your new details.
Top Tip 3: Use contractors instead of employing staff
If your business grows you will need more people to support you. Recruiting too early, or recruiting badly, can send your expenditure souring and if staff are not bringing that worth back into the business then the blood, sweat and tears you have put in could all be wasted. Remember, they probably won’t care about your business as much as you do.
So consider using a freelancer or contract work to a small agency. You may pay a slightly higher day rate but you’ll save money and time on the usual recruitment costs including fees/equipment/payroll etc. They will always be committed to achieving results because their business is reliant on their own success and achievements with clients. Also, if your business changes you have much more flexibility to amend how much you use them.
Top Tip 4: Monitor your expenditure
Don’t ignore your bank account! Review your expenditure every month. It’s easy to forget about all those direct debits and small invoices. Think about any areas where you can reduce income without it having a negative impact on your business.
Similarly, could upgrading a service actually help your productivity? Expenditure may go up slightly but if it saves you time and hassle so you can focus on delivering your service then it will definitely be worth it.
For example, I recently upgraded my dropbox account because every week (actually every day!) I was wasting time trying to manage the limited storage capacity. So for the sake of £10/month it’s saving me hours a month which I can now spend time directly on client work.
Top Tip 5: Marketing your business effectively
I can hardly go a whole blog without mentioning marketing! Finding the most cost effective ways to promote your business is essential to generate sales and grow your start-up. Spend too much though and you’ll be throwing money down the drain.
No, marketing is not brain surgery, but it’s amazing how many people get it so badly wrong. If you can get advice from a marketing consultant early on then you will save money in the long run as DIY marketing can result in a huge wasted cost over the years.
One of my strongest pieces of advice is that you need to write down all the communication channels available to you and your budget. But don’t rely on just one channel and don’t choose a channel just because you personally use it (ie Facebook). Think carefully about which marketing channels your target market and competitors actually use.
Social media is low cost and can be incredibly effective in generating business, but it will take time to build up your following with genuine prospects. Cheap websites can be very restrictive but expensive websites often result in on going costs when changes are needed. Advertising and exhibitions can be time intensive and costly but effective IF done properly as part of a larger campaign. Seek free partnerships with businesses and networking opportunities – online forums can also be a useful tool without the cost of travel. If you are focussed on a local area, then a flyer drop could cost as little as £100 and be hugely effective. Always carry a business card and/or flyer with you – a chance encounter costs nothing and can reap huge rewards!
I guess this leads nicely into a quick plug for Empower Marketing! Our ethos is to deliver effective marketing to businesses without high costs either the short-term or the long-term. If you have the time then there are many marketing strategies that we can show you how to manage.
Websites are a perfect example, why should you pay a low level marketing person or admin person at an agency to update your website when you could probably do it yourself? We can build websites that are user friendly and can train staff to take over the editing of the site.
So please contact us if you have any questions about your business.
Running costs are inevitable if you are going to grow your business, but by building up your start-up with a low but effective budget will maximise your chances of success. Good luck all!