Office space, office supplies, POS systems, inventory, furniture, contractor payments, taxes, business software, computer equipment – the cost of some or all of the above may be weighing heavily on your mind as you start your small business. Many business owners look for small ways to reduce small business startup costs, as every penny saved adds up in the end.
But why waste time pinching pennies when there are 3 strategies you can follow to significantly reduce small business startup costs? We will outline those strategies below. You can implement one or all three of these plans to cut down on your initial investment in your business and start it off on a good note.
3 Strategies to Reduce Small Business Startup Costs
1. Take tax deductions upfront
Did you know you can write off a large portion of your startup costs and company expenses during your first year of business? Depending on your expenses and startup costs, you can write off up to $10,000 if either type of expense is more than $50,000.
Here’s what the IRS has to say on the subject:
“Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.”
Cost saved: Up to $10,000 in your first year
2. Forget about hiring full-time for a while
If you’re looking to maximize profits and minimize costs, start with your hiring plans. Instead of looking for full-time employees that must be paid a salary with benefits, search for contractors and third party business service providers.
When you hire a contractor or service provider instead of a full-time employee, you save the cost of a yearly salary and the benefits that are required to go along with it.
Some of the best roles to outsource or hire contractors to fill are:
- Web designers
- Marketing associates
- Writers and content specialists
Additionally, you only work with the contractor or provider as long as you need their services – if you decide you’re ready to hire full-time, finish the project they were working on, or simply choose to end your involvement with a contractor or provider, you’re free to without penalty. That’s not necessarily true with full-time employees.
Cost saved: Up to $100,000 in salaries and benefits during your first year
3. Plan for costs and budget accordingly
Finally, the last strategy on our list: Planning for costs and budgeting accordingly. It sounds so simple! But if budgeting were easy, it wouldn’t be listed here as a strategy. There are three steps to planning and budgeting your startup costs.
I. First, create a comprehensive list of everything your business needs to start up.
Here are some examples of what you’ll include on your list:
- Office space
- Office supplies
- POS systems
- Contractor payments
- Business software
- Computer equipment
II. Develop a working, realistic budget that accounts for these items.
This budget should contain everything you need for your business to get off the ground, and every cost should be estimated as closely as possible. Include any loans or grants you’re expecting to receive in your budget as well.
Don’t include things you don’t urgently need on your startup budget – it’s smarter to delay those purchases until you’re bringing in cash. Plus, all purchases made once the business is operational can be fully written off in the first year of business instead of depreciating over several years.
III. Stick to the budget and refer to it often.
This is the hardest part of this strategy. You have to refer to a budget in order to stick to it. Think of your budget as a reference book, or a list of commandments: Thou shalt not purchase things that are not on this list!
If you know your costs ahead of time and are able to plan for those to be covered, you won’t be surprised with any heart-stopping bills or expenses later on. This will help you save money and put your investment toward what you actually need to start your business.
Cost saved: Up to $5,000 in unplanned expenses
With planning and a little organization, it’s not difficult to significantly reduce small business startup costs. We know that many small business owners manage to start viable businesses on a shoestring budget – if you’ve ever started a company for very little money, we want to hear about it! Email firstname.lastname@example.org to have your story featured in an upcoming article.