How to save money running a startup

Knowing how to save money running a startup not only helps the competitiveness of a business, but can also benefit the business owner and the valuation of the business itself. Cost management is an essential aspect of business management especially during times when revenue is lower, and affordable business financing is harder to come by.

The startup money saving tips in this article target key areas in a business including  (1) administrative costs, (2) operational costs (3) financing costs, and (4) overhead costs. Lowering costs can also be considered in terms of whether or not the cost is recoverable or non-recoverable. Non-recoverable costs are expenditures that can be recovered in part or in full as assets. Non-recoverable costs on the other hand cannot be recovered except indirectly in the form of sales.

• Pass through business structure and tax deductions

Sole proprietorships and S-corporations are pass through businesses meaning income and expenses from the business pass through to the owner(s). By setting up one of these businesses, any qualifying expenses from the business can be used to reduce personal taxes as well.  In this sense, proper allocation of costs ends up saving money on taxes for the owner through running the startup.

To illustrate the advantages of pass through businesses a hypothetical example of Mr. Jones a consulting agent is used. Mr. Jones owns a consulting company that's revenue is $80,000 for one year. Mr. Jones decides to purchase a vehicle and deducts it as an expense from his business income because he can't deduct it from personal income. Thus, if the vehicle costs $25,000, the total remaining taxable income is only $55,000 instead of $80,000. 

In addition to company asset deductions, by qualifying for home office deductions, a startup business can save money on the cost of rent or mortgage costs per proportional use of living space used for business operations. This is another tax benefit of earning money through and utilizing a business for a higher retained income. For example, if 20% of rent is a home office deduction and the rent is $1000, $200 taxable at 25% is $50 in savings assuming the business is profitable enough to benefit from the deduction.

• Energy efficiency and Overhead savings

Money can also be saved running a startup with lower overhead costs. Overhead can comprise a large portion of a non-recoverable business expenses; finding ways to reduce these costs can potentially have dramatic affects on liquidity, and asset value. The more costs that don't increase a startup businesses value, the less profitable and valuable a business becomes. Anything that maximizes efficiency and lowers cost without negatively impacting revenue is probably a beneficial cost savings and utilization technique.

1.  Mortgage commercial property

2. Reduce square footage with vertical usage of space

3. Adjusting lighting: High efficiency lights have the same output for less 

4. Operate business in a lower cost

5. Install self-generating energy equipment

6. Lower storage requirements with supplier shipping

• Non-overhead expense reduction techniques

Non-overhead startup costs are those costs associated with running specific tasks within the business. For example, if a telephone is used to set up appointments it is a non-overhead costs. Reducing these costs without hampering the functionality of a startup business is another way to improve a business' competitive positioning, efficiency and profitability. Whenever considering a cost, it can be helpful to ask if it is available elsewhere for free or lower cost, how essential it is to the business and what can be used as a lower cost alternative.

1. Store information digitally

2. Use an online fax and web based telephone

3. In-source services with existing staff

4. Market via the internet and word of mouth

5. Obtain marketing research via low cost contract

• Financing

Cash flow and necessary equipment are important aspects of a start up business. Knowing how to save money running a startup business can also be achieved by adjusting cash flow and equipment financing.  For example, by combining a line of credit with accrual accounting a cost free cash conversion cycle can be implemented which affords businesses greater payment options for its clients.

1.  Use accrual rather than cash accounting

2. Establish an interest free 30 day business line of credit

3. Purchase using no money down, interest free financing options

4. Buy used or seek out free or low cost business necessities