When you’re first starting a business, it can be a challenge to budget properly and as a result, you could end up spending more that you have to on certain things.
The business failure rate in the U.S. within the first year is nearly 20% — 18.4%, to be exact — and so it is important to take certain tips on-board before you go head-first into starting your own business.
You may well have experience starting business in the past, and may have been successful with it too, but since the Covid-19 pandemic, there are certainly some pieces of advice on-board when you’re setting up a new business.
Create a Budget and Stick to it!
The first step to saving money when starting a business is by creating a budget.
Developing (and following) a budget is one of the most effective methods of saving money to start a business. Successfully budgeting helps you keep your money organized and serves as an outline of the amount of money you actually have to spend each month to be able to save.
It’s important to remember to be frugal wherever you can to save as much as possible while also being realistic about the amount of money you need to be comfortable.
Steps to Take to Create a Budget
- Determine the amount of money you bring in every month.
- Calculate your expenses, such as rent, payments, and utilities.
- Identify any discretionary spending or amount spent monthly on unnecessary items and activities.
- Calculate the average amounts spent on groceries, clothing, and other items monthly.
- Set limits for your spending and eliminate frivolous, discretionary spending.
If you’re like most entrepreneurs, you have big dreams for your business. While this is a great mindset to maintain, starting small and working toward the milestones you have in mind is important to saving money and building a strong foundation for your business.
- Be honest about your strengths and weaknesses, then structure your business around your skill set.
- Identify features and inclusions that aren’t necessary to the product or service that are costly.
- Be conservative with your budget, acknowledge where you could be more frugal and still start your business off strong.
Only Spend Money on Essentials
Refer back to your budget, and review unnecessary spending habits, otherwise known as discretionary spending. Keep in mind that any money you spend on nonessential items and activities is money that you aren’t saving to put toward your business.
Discretionary spending can mean dining out instead of cooking at home or a bad shoe shopping habit. To identify your discretionary spending habits, take a look at your bank statements, and calculate the amount spent on nonessential items and activities. Pay close attention to repeat purchases, as these are spending habits you may not have been aware of.
Reinvest Any Profits
The final rule of thumb is simple in theory, yet challenging in practice. While your natural inclination is to start spending the money you make from your new business, it’s a much more sound practice to reinvest your profits. This will allow you to continue growing without needing to take on debt.