How to start up on a shoestring

Covering the costs you’ll incur in turning your business idea into reality can sometimes feel like too big a barrier to overcome. We’ve also all read the stories about new businesses seeking large amounts of funding from the outset but starting a business doesn’t have to be costly.

 When you’re starting up, no matter what your budget is, it never seems quite enough. When you’re starting out on a truly small scale it can be hard to know what to prioritise.  You’ll be juggling the time, money, skills and resources you’ll need to invest in getting your idea off the ground. Starting your business on a limited budget allows you to start small and grow steadily, learn gain a wide variety of business skills, forces you to be more efficient with your resources and makes you think creatively.

Think lean

When you start to plan a business, it’s tempting to write a wish list of all the things you think you need to buy. You’ll be thinking about the equipment you need – maybe you’re considering renting an office or hiring staff to help you. Stop,  think and identify what is absolutely essential to purchase in order  to launch your business and start trading. 

• Premises – You might be able to work from home to begin with (although make sure you’re aware of any permissions or restrictions). If not, have a look at co-working spaces where you can rent a desk instead of an entire office. If you want to sell products directly to the public, think about selling online instead of having a physical shop. You might even be able to find short term opportunities, like a pop-up shop, to help you test the market.
• Equipment – Perhaps you could manage with the equipment you already have. If you really do need to invest, look at the second-hand and reconditioned markets. And if you need to buy new, find ways of spreading the cost over a manageable time period, through leasing, for example.
• Staff – Employing staff comes with a huge overhead and responsibility, but it’s often essential to help you grow your business. Look at the roles that are necessary for the business at the start and make the most of flexible ways of working. Consider offering part-time roles or bringing in freelancers as and when you need them. You might even be able to call on the help of family and friends to begin with.
• Stock – Holding lots of stock means that you have cash tied up, which isn’t ideal when there are other start-up costs to cover. Look at ways to manage stock levels, maybe through small manufacture runs or making your products to order.

Thinking lean doesn’t mean cutting corners, but it might mean a bit of shopping around and looking at your business plan differently.

Manage cash flow

When you’re building a business, you’re juggling lots of different tasks, and it’s easy to lose track of things. But cashflow is something you need to keep an eye on every day, because you can quickly lose track of the money coming into, and going out of, the business. It’s easy to say yes to a large order from a new customer, but what if you don’t have the cash at hand to fulfil it? You might have had a really busy couple of months, but what happens if you forget to send out invoices? Managing your cashflow means you can carefully manage a small budget. Every business should:

• Send your invoices promptly and chase late payments – Late payments are a big issue for SMEs, so it’s important to send invoices promptly, make your terms and conditions clear, and chase payments as soon as they’re late.
• Ask new customers to pay deposits or upfront fees – There’s no reason why you can’t ask for this. Not everyone will be happy to, but it’s important you manage your own risks when selling to new customers for the first time.
• Pay your own bills on time – Not only does this help you forecast your expenditure, it also means you’re building your business credit score and reputation as a good customer.
• Spread costs – For example, you might be able to pay your insurance monthly by direct debit rather than in a lump sum.
• Track your spending and stick to your budget – Realistically your budget will require flexibility but if you find yourself over-spending on things, it’s time to revisit your forecasts.

It makes sense to get into these good habits from the start. They become part of your routine, and you’re more likely to stick to them as the business grows.

Focus on customer acquisition

Customer acquisition is about getting customers to buy from you, and when you’re first starting up you want this to happen as quickly as possible.  Realistically few people will know about you, your company, and your products and services, but there are ways you can quickly start to generate sales.

• Target market – If you’ve done sufficient research, you should know who your ideal customer is. By focusing on selling to those customers you’ll not waste money on trying to convince everyone else to buy from you, at least not at the beginning.
• Ask for referrals –Your first happy customers are the best people to sell on your behalf, so ask them to refer you and your goods/services. This can be far more effective than spending money on a marketing campaign.
• Do your own sales – Not everyone loves selling, but your business relies on it. If you can be hands-on at the start, you’ll learn so much from the customers you speak to. As the business grows you can look to bring in staff to help you.
• Go to the crowd – This might be virtually through a crowdfunding site, or in person at a pop-up shop. Think of the creative ways you can get in front of an audience.
• Create content – Content helps drive traffic to a website and raises your profile. It can be time consuming, but it enables you to tell your story and that of your brand, which customers love.
• Incentivise – We all love to think we’re getting a good deal. What incentives can you offer to draw your customers in, without it having an impact on your pricing?

Your business might need external funding, but whenever you can, find ways to generate revenue. It helps build value and working capital into your business from the start..

Do one thing well

There’s a danger that a start-up will try to be all things to all people, but when you have a limited budget you can’t afford to do this. Instead, focus on doing one thing incredibly well.

• Make the business easy to understand – Customers will switch off if they don’t understand your product or service. The initial idea for Twitter was incredibly simple: create a way for people to share brief ‘status’ updates about what they happened to be doing. It was fun, simple, and friendly and it took only a moment to understand how it worked.
• Strip away the bells and whistles –The more complicated you make something, the more expensive it is to produce and the harder it is for customers to understand.
• Focus on what you do best – The denim company, Hiut, sums this up perfectly: “We make jeans. That’s it. Nothing else. No distractions. Nothing to steal our focus. No kidding ourselves that we can be good at everything. No trying to conquer the whole world…That’s why we stick to just making jeans. Yup, we just make jeans. That’s all folks”.

You’ll probably want to start introducing new products and services or exploring new markets further down the line. But by taking the approach outlined above will help you get the basics correct right from the outset and give you a solid platform from which to build from. 

Go digital

Digital tools can help keep costs down and make sure you’re being smart about how you manage your business from the outset. Start-ups can benefit from myriad digital tools that didn’t exist a few years ago, and some offer a free option for basic services.

• Websites and ecommerce – There are lots of pay-monthly options for creating a website and adding ecommerce capability. Most give you the flexibility of choosing from templates to get you started. You can also become more searchable using tools like Google business profiles.
• Mobile apps – Using tools such as AppInstitute you can create an app for your business without needing any coding knowledge.
• Social media – Look at competitors and speak to customers to work out which will be most impactful for your business.
• Collaboration – Digital collaboration platforms enable you to interact with your team – and clients – without needing to be in the same physical location.
• Feedback – Survey platforms enable you to gather customer feedback quickly and cheaply.
• Payments – Make it as easy as possible for customers to pay you. And if you shop around, you won’t always need to commit to lengthy contracts.
• Tracking and analytics – Google Analytics provides a wealth of tools to help you track engagement on your site and the impact of your digital marketing campaigns.
• Accounting – A good accounting package will help you with all aspects of running your business’ finances. As your business grows you can add more users and more functionality.

The tools you need will depend on your business, so it’s always worth asking other business owners what they find most useful. 

There will undoubtedly be times as you start and grow your business when you need some financial support. But why give away more equity than you really need to, or borrow more money than absolutely necessary, when you can apply a real bootstrapping approach to getting your business off the ground?