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Business Capital: 7 Ways of Reducing Startup Costs

BUSINESS CAPITAL- 7 Ways of reducing startup costs

Are you doing a business for the first time and with limited resources? Do not fret. There are now ways of reducing how much business capital you need.

Many of the fears people have when it comes to starting a business are actually unnecessary. You will agree if you have been in business for a while. The number one fear people face is the fear of start up capital. As I’ve said many times, capital can really be over-rated. Rather than focusing on the availability/unavailability of business capital, your focus as a businessperson should be on self development, acquisition of soft skills and continuous learning.

There are many ways one can reduce start-up costs when considering starting a business. We would study a few of them below.

QUICK NOTE: Even if you have the money you need to start a business, don’t put all the money in the business without going through this, especially IF you are starting a business for the first time. I have seen and heard of so many people who lost their pension, savings, inheritance, etc just because they misunderstood the role of money in business. To understand this point better, think about this. Imagine having 5 million dollars in your account and an infant at home. Will you feed the child based on how much money you have or based on how much the child needs? You are right! Treat your business that way.

Lets consider the ways in which one can reduce business capital one after the other below.

1. Website versus office

In these days of digital explosion, one can now start a business without bothering about having an office somewhere. People now prefer to handle everything about their daily life online. This is why startups like Konga.com, tolet.com.ng, Jobberman and a host of others are making tremendous progress.

So instead of looking for money to pay for an office space, raise a little money to build a website. All you need to do after that is to find someone you can use his office “address.” It is as simple as that. I used this strategy many times in the past. It works! At the time the business has made money and can afford an office space, move!

2. Mobile vs land line

I do not know about now, but having a landline number on your business card used to lend some form of credibility to what you do. Well, NITEL (Nigeria Telecommunications) isn’t what it used to be anymore. That has automatically transferred the responsibility of dishing out those landline numbers to mobile telecommunication companies. The so called land lines of these days are actually mobile phone  numbers that start with 01, 09, 052, or any other number depending on which city you are doing business in. In my opinion, the extra cash paid to get these lines is not worth it, especially for a new startup. Instead, buy a small dual sim card Nokia phone for about N3000 (less than $3)

3. Stocking Vs Bridging

Rather than buying goods to keep (stocking) before you start selling, you can reduce how much business capital you need by entering into a deal with someone who is already in that business and has enough capital to stock. Through the deal, you can sell by “bridging” between the merchant and your target custoner. If you do this, your profit margin may not be as good as it would have been in you were stocking. But the fact is that this will give you a chance to build your customer base with less risks.

4. Services vs products

I do not like products based businesses. That is why all my businesses right now are service based. The only tangible products I presently have are my books. Maybe that will changed soon. But the fact is that I think it is far easier to start a service based business than product based one, if you do not have much money to invest as business capital. But if you must sell products, I suggest you bridge rather than stocking.

5. Address vs office space

Getting an office for your business in a place like Lagos, Nigeria will cost almost a fortune. Even rent in average areas of the city is also expensive. That is why many people people live in the neighbouring state – Ogun State and work in the city. Rather than spend money to rent an office space, it is wiser to simply get an address for your business.

There are two ways of doing this. You can either look for a friend or acquintance who has an office and use their address until you can afford to rent a place. I have noticed that clients won’t come to your office. They’d rather that you go to them. If anyone (maybe 5 in a hundred) wants to visit your office, simply arrange with your friend or benefactor.

The second option is to pay for a virtual office. Some virtual office arrangements will not only give you an opportunity to get an address, they will also provide professional reception services and allow you to use their board room for a few times a month for free. A number of them are in Lagos now. I have used Workbay before and they are good. This will drastically cut down on how much business capital you will need to kick-off.

6. Support Personnel Vs Staff

Human resource is very important. Your organization is only as good as the people driving it. But human resource is also very expensive. So, how do you cut down on how much business capital you need here? Simple! Simply get support personnel instead of permanent staff. My business partner and I used this many years ago. We only employed people when we NEEDED them and on short term basis. We even used to employ people for as short a period as a weekend.

We were able to do this because we had many friends who loved what we were doing. So whenever we needed their services, we’d invite them to the office and tell them how long they will work and what they will earn. Some of them were not even after the money. They were just excited that we were bold enough to step out and put this little venture that is now blossoming together. Some of them even had full time jobs.

If you want to use this option, there is no need to look too far. Look amongst your peers and their friends.

7. Digital vs traditional Marketing

Traditional advertising is still expensive. Television, billboards, vehicle branding and so on. Rather than use these, you can cut down on start-up costs by going digital. Concentrate on digital marketing. Use the social media to promote the business at a very low cost. It is even better compared to traditional means because it is easier to calculate its return on investment.

Again, rather than just visiting every potential client, you can decide to instead send them all an email and see who indicates interest. That’s whom to pay a visit first. Concentrating on digital marketing rather than on traditional one will reduce your costs.

8. Starting small vs starting big

Many entrepreneurs do not like to start small. But it is beautiful to start small. Starting small will not only reduce how much business capital you need, it will also reduce what you are putting at risk. I once packaged a business idea and needed a lot of money to start. So, I approached a friend of mine. Merely looking at the business website made him promise to give me the money I needed to start. Even though I was excited, I have learnt not to believe all the promises people make to me because for no fault of theirs sometimes, people fail in their promise. So I decided to create another budget for start-up which I called the “lean version” of the first one.

When my friend did not come through, I didn’t feel bad. I already had my plan B and C in place. I tried to launch with plan B but it was a little too draining. So, I started with plan C. Now, the business is growing gradually but steady. I am even somewhat glad that he did not invest. As it is now, I have been able to demonstrate cashflow. The terms I was offering then are now too good for a would-be investor. I am reviewing that!!!

9. Cashflow projection

Creating a cashflow projection of between 24 and 36 months will help you to see through the business and cut out excesses. I have done an extensive article on this subject. Click the link to read it. Cashflow Projection: How One Can Save You.

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Thank you for reading this. I hope you have learnt something. Kindly leave a comment below.

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