How to manage costs in a new business

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Date: 27 February 2020

Two start-up entrepreneurs discuss costs and how to maintain a steady cashflow.

Before embarking on your start-up business adventure, you should spend time budgeting for the various expenses and operating costs you will encounter. Only when you are clear on what all the funding is being spent on and how you will reinvest profits into the company, can you start.

Businesses that manage to budget well give themselves a good foundation for growth, but what happens as the company expands? New costs begin to creep up, and business owners should have an effective plan to deal with these when they arise.

From set-up to business as usual

In the early days of a start-up business, entrepreneurs have to contend with investigatory and pre-launch costs. The business owner may have funding from various investors that they can use to cover the bases in their business model.

However, it isn’t until the general running of the business gets underway that they know what kind of profits they are going to be making. This is when some hidden costs begin to emerge as well.

Therefore, after the company has been running for two or three months, it is important to take a close look at finances and see if they are still being distributed correctly.

Businesses can manage expenses in many ways, once they get a clearer picture of general operating costs. The experts emphasise the importance of renegotiating contracts on a regular basis, as prices are often based on buying volume, with smaller shipments costing relatively more than bulk orders.

As a business expands and takes on more orders, it is going to need to increase the amount of stock it gets in from suppliers as well. When this occurs, it is a prime opportunity to strike a new contract or take your business to a different supplier.

Budgeting for the unexpected extras

A business that wants to expand is likely to see a need for larger amounts of stock coming. But there are some costs that an initial business plan is unlikely to anticipate. There are hidden business costs that you may not have thought about before, such as upgrading or maintaining machinery, having to apply for new licences, or shrinkage costs due to a loss of inventory.

Or, consider the costs incurred on trips to meet clients or potential business partners in different countries. Imagine you need to go to Spain to strike a deal with another business: you'll need to consider hotel costs, meals, perhaps car hire.

Using sites that provide car hire in Malaga, you can find reasonable deals for car rental. Meanwhile, Airbnb is a modern way to find a reasonably priced place to stay. If you go for regular business trips, these minor costs will soon add up.

To make sure that your business is in a good position to deal with any costs that may spring up, you may need to set aside a larger proportion of your profit than you had previously planned. This is how to ensure your business is never strapped for cash.

Copyright 2020. Article written by Maria Adeva

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