|Posted on March 7, 2018 at 5:00 PM|
At AngelytiX Consulting, we are huge fans of helping start-ups build their business without outside funding and we do this by helping clients optimize on every cent spent. A business without funding should always have multiple game plans: two or three assuming they get different amounts of capital and one more assuming that they have to bootstrap it. You can achieve greatness when you are pushed to doing so.
It all comes down to building and optimizing a budget which should not be taken lightly - it is something we do for our clients as soon as their finances are in order. Without this proper planning, it is very difficult to have a roadmap, a benchmark, or discipline. A budget should be split into three categories:
1) Costs of goods/services sold: If you are selling a product, this is the cost to produce the product and get it into the hands of your customer. You can typically never eliminate this cost and often in the early stages of business struggle to keep these down. Your goal here is to ensure that you at least have a pathway to minimizing them and that you have a proper cash-flow management strategy in place. A strategy takes into account payment terms across the complete path of money out, to money in, and ensures constant liquidity to remain in a comfortable position. It is a balance between not growing too quickly that it creates cash-flow constraints (or finding a way to do so) and growing fast enough on a sustainable trajectory. These costs will increase in relation to your sales increasing, therefore is important to track at every stage of your business.
2) Fixed non-discretionary costs to be in business: These are inevitable costs that are needed such as salaries, utilities, rent, etc. Often it takes innovation to minimize and sometimes avoid these, such as partnership deals, utilizing consultants as opposed to employees, etc. While you are in the early stages of your business and concerned about meeting expenses these are important to keep low. Later on, it matters less and less as these expenses do not increase at the same rate as revenue increases (they increase only at certain jumps in revenue as you need to expand office space or hire new administrators for example), and, therefore, it becomes less impactful on a relative basis at the later stages of your business.
3) Fixed discretionary costs to be in business: These are costs that are more growth orientated costs to get you to scale as opposed to just keeping your lights on. This includes marketing costs, consulting support, networking expenses, etc. Often getting these right is the difference between success and failure. While controlling these is important, this is often the area that start-ups hold back on and thus make errors. A growth strategy is vital to any business - if you are just meeting necessary expenses, you are operating more from a space of urgency and reactiveness as opposed to importance and proactiveness. Not investing here means that it is unlikely that you will improve the business since you are doing nothing more than surviving. Again, having the right budget strategy here is important as there are many companies that will take your money before assessing the fit. At AngelytiX we like to always find the way that we can charge you the least by only doing what is adding value and not charging for anything else, so that your growth is not compromised. Try finding the support from people that have this same attitude and keep them for the long-term to really maximize value.
Having said all the above, it is also important to realize that focusing all one's energy on minimizing costs is not healthy either. There are a limited amount of costs that can be saved and so only a limited amount to be gained by focusing efforts here. On the other hand, focusing efforts on increasing current and developing additional revenue streams can have unlimited benefit and thus is often more rewarding to spend one's time and energy on (even though this is often an unnatural way to think).
Managing Consultant | AngelytiX Consulting