Q&A: Limiting start-up costs

Geoff Wightwick of accountancy and business service provider Baker Tilly watches the pennies and provides advice on how to start up on a shoestring

Why do I need to keep my start-up costs down?

The less you spend, the less you’ll have to turnover to breakeven, plus, the more likely you’ll be able to afford any unexpected costs. Also, it’s a good discipline to get into right from the beginning. It pays to establish good habits and stick to them. 

Can I start a business on a shoestring?

Depends on what you are doing. You can’t start some types of business without investing, while others can be started with very little expense. With some types of business, it doesn’t pay to pinch the pennies too much, as this can hinder performance or even put off customers. 

How can starting my business from home help?

After wages, premises are usually the second highest overhead. If you can start your business without having that burden, you’re more likely to survive. There’s nothing wrong with starting your business off from home and then taking on premises when necessary or when you can afford them. However, make sure you have dedicated space, maybe a spare room, garage or even garden shed. If you need to meet people, you can do this in a coffee shop. Serviced offices are a popular and relatively cheap option, plus, generally, you don’t have to sign up for long terms.

How important is it to be creative?

When they need something, many people instinctively focus on buying, it’s become a natural reaction, but there are alternatives – you need to be resourceful. Look for no-cost or low-cost alternatives first; paying top-dollar for new goods or premium services should be a last resort if you want to save cash.

Where do people usually waste money when starting up? 

Advertising and marketing items, when low-cost or no cost methods, such as a card in a newsagent’s window or word of mouth can be more effective. Expensive premises are another common mistake. Unless you start a business that genuinely relies on its image, don’t pay a fortune for a new logo, smart business stationery or fancy website. Every penny you spend must earn money for your business – otherwise you're wasting money.

Should I use my home-based PC? 

Definitely. Using a home-based computer can save you a lot of money on many business tasks, from producing stationery and building your own website to doing your own simple accounts. It can also help with market research, as well as networking and finding new customers. If you’re going to do your own stationery, etc, make sure you have a good printer, because putting poor quality stuff out there will make you look amateurish. And, having a professional looking, well functioning website is crucial, so pay someone else to do it if your skills are lacking. Set an affordable budget and get them to work within this.

What about borrowing things?

This can help to keep initial costs down, but consider what you would do if the lender asks for the borrowed item back at an inconvenient time for you, which inevitably happens. Also, borrowed items have a habit of breaking, which means you might have to buy a replacement.

And second-hand stuff?

Depends what you’re after, but absolutely - eBay, local auctioneers, charity shops, newspaper and trade publication classifieds are good places to look, too. Often when firms move to better premises they’re glad to sell off or even give away old furniture and office equipment.

Can I exchange goods and services with other businesses?

Depends what you do, but yes, you might be able to offset some or all costs by doing a ‘contra deal’. Another option is sharing costs, of course, commonly, businesses share space. An established business might even let you rent a small amount of space for a small amount.

How important is it to find the cheapest suppliers?

Don't confuse cheapest with best value. Often, it’s better to pay a little more for better quality - especially if it's for a customer-facing item. Focus on customer expectations when making such decisions. But, where quality is less important, then go for cheapest. Without being unreasonable, drive a hard bargain with your suppliers, but learn to recognise when you’ve got a good deal.

Obviously, you wouldn’t advise doing anything illegal or morally wrong…

Absolutely not. However much you’re determined to save money, never do anything improper or illegal – it isn’t worth it. Having a strong moral and ethical approach to business pays off in the long term – and people will remember and respect you for it.

Any other advice?

Don't be embarrassed to ask for help. You'd be surprised what many established businesses will offer if they think they can gain in the long term. Also, speak to your local enterprise agency, chamber of commerce or trade association to find out whether there are any grants or interest-free loans available in your area.

You might also like to read:

• How to negotiate a purchase
• How to purchase effectively
• How to control costs