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How to know if your startup is overspending

How to know if your startup is overspending

5 min read

Bootstrapping and budgeting are the name of the game when it comes to startups. As a result, the success of a new business venture depends in large part on the owner’s ability to scale as well as knowing when & where to crack down and stop overspending and regain cash flow.

When it comes to growth and performance, scalability affects the speed at which your startup can successfully add employees, products, facilities, supplies, etc. More often than not, a new small business tends to scale too soon. Here are a few of the most common ways in which new small businesses tend to overspend and a little savvy about how to avoid getting in the red.

How to audit your startup in 5 steps

1. Audit your supplies and service to cut costs

Frugality is your friend! Instead of purchasing the newest software and technology, consider utilizing free software to facilitate operations.

For example, use good resources for free video conferencing like Skype and Google Hangouts. Hootsuite offers limited social management tools for free. Asana and Wrike offer free project management systems. WordPress, Wix, Drupal, and others offer free content management. Insightly has a free customer relationship management system, and so on.

There are many other free, “freemium” or free-trial software that smaller enterprises can use as they grow. This will help the business operate more efficiently, save costs on budget and allow the company to fully evaluate the software before making the investment in paid suites. Just make sure that you subscribe only to platforms you actually need and use, and cancel them when they are no longer in use. Virtual cards come in very handy for subscription management!

2. Check in on your employees

The success of your business depends in large part on the people who work for you. With this in mind, many startup founders make the mistake of prematurely hiring too many specialists. While a CFO or a system administrators have a great deal to offer, most entrepreneurs in early startups can’t afford to pay these professionals their rates.

To lower spending, new businesses should limit managerial hierarchies and utilize freelancers when appropriate. While you pay a higher hourly rate for a freelancer than a full-time employee, contractors tend to have copious amounts of varied experience, meaning they require less management and even less of your valuable time. Writers, designers, software developers, and marketing experts are just a few of the roles that many startups hire on a freelance basis in order to cut spending. Additionally, freelancers can work out of their own homes, saving you money on office space and other resources.

3. Review the needs of the office space

In its early stages, you can save a great deal on rent, utilities, and supplies by running the business from your home. By reducing overhead costs, a home-based business allows you to reinvest revenue into the company instead of facilities. As an added bonus, you and your employees will likely enjoy saving time and money commuting to work every day.

Of course, some businesses require a retail space or office to operate effectively. To minimize costs, consider joining forces with another small company to rent a shared office. You can split expenses and utilities down the middle, and even go in together on office supplies and furniture.

4. Assesses your marketing budget and design needs

Instead of hiring that top-rated design agency, consider performing some of your marketing efforts in-house. By developing your website and improving your social media marketing strategy, you can reach your audience without spending a fortune. As an added bonus, startup founders performing some of their own marketing have the opportunity to gain valuable insight by interacting directly with their customers.

5. Integrate better travel & expense management

An often overlooked consideration of new startups, travel and expense (T&E) actually make up the second largest operating expenditure after payroll. According to a recent Entrepreneur article, overspending actually eats up a fifth to a third of total T&E on average.

As a startup, you have the power to tackle this trend upfront, before it becomes an issue down the line. Typically, if no policy exists, or the policy does not set clear limits, employees pick the airline, hotel, restaurant, and/or rental car of their choice—usually with convenience, not money in mind. People tend to spend more when it’s not their money.

The simple solution: Divvy

Divvy is the first free and fully automated spend management platform.  It includes all of the features of cloud-based automation, without the pesky hidden costs. Within a matter of minutes, Divvy gives you visibility and control to every part of your businesses finances, including travel.

For example: setup budgets and company spending policy down to each employee. Get real time spend insights. Send/block funds in real time. Generate IRS compliant digital receipts on all company purchases (AKA no more manual reimbursements or filing expense reports). Did we mention it’s free? Try Divvy today!

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