Top 8 Tips on Managing Your Startup Business Costs in 2022
It's important to keep your startup budget under control at all times. Follow these tips on how to manage your startup business costs in 2022.
Entrepreneurs must learn a lot of company-related information to successfully run a startup. This can be overwhelming to some, causing them to neglect essential business matters.
This includes meticulous planning and accounting preparation necessary for managing startup business costs.
Most startups start out strapped for cash. Handling startup costs, cash flow, and business funds can be a struggle to manage.
Every business plan needs a section dedicated to startup costs. This includes pre-opening and post-opening startup costs.
Pre-Opening and Post-Opening Startup Costs
Before you can manage costs, you first need to know what they are. New owners need to consider pre-opening and post-opening startup expenses, including:
Pre-Opening Costs (costs that occur before opening the business)
- Business plans
- Research expenses
- Borrowing costs
- Expenses for technology
- Legal, taxes, licenses, dues, and permit fees
- Real estate/office space/construction costs
- Payroll fees
- Website development
- Initial inventory
- Opening promotions
- Administrative costs
- Professional consultant fees
- Equipment/office supply costs
- Filing cabinets
- Paper clips
- Office cleaning supplies
Post-Opening Costs (costs associated after opening the business)
- Employee expenses
- Unexpected expenses
- Customer acquisition and retention costs
- Recurring costs to keep the business up and running
- Maintenance costs
- Resource fees
- Outsourcing costs
- Extra costs
Startup costs you experience depend on your business model. This includes sole proprietorships, partnerships, and corporations.
During the planning stage, review the Small Business Association’s (SBA) state-by-state breakdown. This is effective in determining how much it will cost to incorporate a company in your state.
Keep in mind, some pre-opening costs are one-time expenses, while others are recurring. This means that some items will carry over from pre-to-post-opening startup costs.
Understanding Recurring vs. One Time Costs
Most startup expenses are going to be recurring costs. Thus, you will need to create an on-going monthly or annual expense plan.
Other expenses, like incorporating fees or office furniture, are one-time costs. But maintaining and cleaning office furniture is recurring.
Knowing the difference between what items are recurring vs. one-time costs is vital. When you are calculating your startup fees, financial preparation is critical.
A good rule of thumb is to be able to cover at least six months of expenses upfront.
Do not wait to use your business’s revenue to start paying for costs. This is mismanagement of finances and a profound and costly mistake that can be hard to bounce back from.
Knowing how to manage startup costs can make 2022 a year for your company to grow.
8 Tips for Managing Startup Costs in 2022
Launching a new business can be invigorating. But too much excitement can lead to colossal money handling mistakes. This can cause some entrepreneurs to neglect the details.
Startup Business Cost Management Tips
To reduce or prevent financial errors, use the following eight money management tips.
1. Stay on Top of Payment Deadlines
Knowing when your bill payments are due is a critical part of your job. You need to know the deadlines of every bill. This includes accounts payable, business loan payments, and credit card payments.
If you do not know, you might not have enough cash on hand at the time payments are due. This will cause your startup to fall behind on bills, incur late fees, or add interest.
These setbacks can lower your business credit, sour lenders, and hurt vendor relationships.
To avoid missed bill payments, stay on top of your deadlines. Record payment deadlines, set up reminders, and get on a consistent payment schedule.
2. Track Your Spending
Tracking your spending is how you can avoid racking up bills. This misuse of funds can put you in debt immediately, and an overspending cycle can occur.
Track your business's several bank accounts to stay on top of your account balances. This includes checking accounts, business accounts, savings accounts, and credit card accounts. Make sure you know how much you can withdraw or spend at all times with each account.
When monitoring spending, you should also factor in uncashed checks. When you write a check, the recipient does not always cash it right away. If you forget to watch spending, you could end up with an overdrawn account and overdraft fees.
Do not underestimate the importance of tracking your spending. It is easy to get caught up in small to sizable expenses that can accumulate over time.
3. Separate Your Business and Personal Funds
You are not required to separate business from personal funds, but you should do it anyway.
It is crucial to make money management a priority.
Having separate business bank statements from your personal ones is very useful. Independent reports help with tracking profitability, reconciling your books, and monitoring spending.
If you lump your personal and business funds together, this will muddle your records. Messy documents can lead to overspending, extra fees, and missed growth opportunities.
If you do not separate bank accounts, you are prone to dipping into business funds. You may end up using your company profits for personal use and vice versa. This makes it difficult to disclose what money belongs to your business.
You will soon realize how much of a headache this can be when tax time comes around.
4. Time Your Purchases
Low cash flow is something you do not want your business to experience, especially when it is avoidable. Thus, you must time your purchases.
Only make buy items after you have paid your bills and have enough cash on hand to cover any new expenses.
In another instance, you can time your purchases to decrease your tax liability. Before the end of the year, you might consider purchasing tax-deductible items (e.g., supplies) to claim them on your tax return.
5. Create a Conservative Budget
Being too liberal with your funds will create unnecessary debt, which is why a conservative budget is necessary.
Creating and keeping up with a small business budget can simplify the way you manage money. Budgets are crucial in money management for they help with setting up expense and revenue goals.
Your budget lays out the expenses needed to operate your business and forecasts the amount of revenue it will receive. When you know how much you can spend, you can more easily manage your spending money. If funds are low, you can find methods to increase it faster with a budget.
6. Manage Inventory
Too much or not enough inventory are both significant problems that cost your business money. If you see a dusty collection of items or find that you are continually running out of goods, these are big red flags.
Avoid turning away customers due to a lack of products or wasting cash on having too many. You must improve the inventory and money management of your business.
Record inventory purchases and sales in your books and spend time monitoring how much you have on hand before ordering more.
7. Cut Costs and Increase Revenue
If you are having a difficult time managing business funds, look for ways to cut costs, and increase revenue.
To cut costs, you must analyze your expenses. Review your current spending to identify areas where you can scale back on or cut out altogether.
To increase revenue, offer discounts, promote products, and establish a loyalty program.
8. Have a Cash Reserve
Ensuring that a cushion of funds is in place is a smart way to start a business. Putting practical money management tips into practice can significantly improve cash flow control.
But unexpected things happen when running a business, which you will need to cover as an emergency expense.
Keep a small business cash reserve and regularly contribute to it to help you manage money when a crisis occurs.
Starting a business is not an easy process, but it can be gratifying. Entrepreneurs need to analyze, plan, and manage startup costs to ensure business success.