If you’ve suddenly been tasked with having to cut costs and reduce expenses in your startup, but don’t want to risk sacrificing your growth goals, you’re not alone.
A common problem is getting the balance between optimising spending and investing for growth just right. This can be tricky, because if you cut costs too deep, business growth, business success and customer satisfaction may all be severely impacted. However, if you don’t cut costs enough, you’re likely to run into cash problems down the track.
Finding this balance may seem daunting, but is achievable. There are ways to bring your costs under control and find a balance in a way that doesn’t compromise your growth goals. Here’s how to do it.
Cut costs in line with strategic objectives
Rather than simply cutting the most expensive items in the budget, you’re better off reviewing your business strategy and ensuring your cost optimisation strategy is aligned. For example, if your budget reveals that reducing headcount will be the quickest way to cut costs, you may be tempted to let people go. However, you need to understand how losing those people may impact your strategy first. If you automatically reduce headcount without understanding how these people contribute to your startup, you may be left under-resourced, unable to operate effectively and unable to grow.
To develop a cost optimisation plan, begin with examining your startup’s overarching business goals, then consider what can be cut without significantly impacting the achievement of those goals.
Optimise headcount
Optimising headcount can be an efficient way to cut costs, so long as it doesn’t significantly impact your business strategy. To optimise headcount, your startup may leave vacant positions unfilled, restructure or consolidate roles where employees are underutilised.
Focus on your team
Focusing on your team to maximise employee satisfaction within your startup is also essential when you cut costs. This is because retaining talent after reducing headcount or making deep cuts can be challenging. Taking steps to support your remaining team through this process will help ensure lower employee turnover.
Systemise and outsource
As a startup trying to cut costs, another option is to reduce the time dedicated to and money spent on labour intensive tasks. For instance, your startup could utilise technology to automate certain processes or could outsource particular tasks offshore to cheaper labour to save time and money.
Rethink the workplace environment
Now is the perfect time to consider whether to change up your workplace environment. With the pandemic normalising working from home, you should consider whether your startup could transition the office to become partially or completely virtual. Enabling remote work within your startup can cut costs through reduced rent, lower energy consumption and reduced office overheads. Rethinking your workplace environment can also have other benefits such as attracting talent.
Evaluate your financing
Your startup may be able to cut costs through shifting your strategy around financing. See whether you can consolidate any credit cards to one with a lower rate, change banks to a more cost-effective facility, or make any other changes which will reduce financing fees for your startup.
Stop paying late fees and seek out discounts
Continuously paying late fees on loan payments or overdue bills is an unnecessary expense which will be impacting your startup financially. This can be solved by evaluating your current cash flow and seeing how you can get it under control, establishing an automatic payment system or setting up a reminder system to make these payments.
On the flip side of the coin, have you considered seeking out discounts? Often, you can do this by consistently paying bills early if you have the cash flow, or by switching to a yearly rather than monthly fee.
Trim expenses
There are multiple ways your startup can trim expenses without sacrificing growth. For example, it’s a good idea to start with any non-essential, discretionary costs such as entertainment or gift giving. This can be an easy way to cut costs significantly. You should also consider going paperless to reduce printing and paper costs. Your startup could also renegotiate supplier contracts or seek out other cost-effective alternatives where possible as well.
Although you may struggle to cut some costs as you believe they’re essential to the growth of your startup, consider consolidating them to reduce your overall spend instead. For example, you could combine activities, events, celebrations or training sessions.
To cut costs as a startup whilst not sacrificing growth may seem impossible, but with the right support it’s very doable. Speak to your accountant about your specific situation and how to approach it. With these strategies, cost optimisation does not need to be as painful a process.
Need help optimising costs in your startup? Keeping Company has worked with hundreds of high-growth startups to manage costs, secure profitability and extend their runway. Contact us today.
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The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.