Starting a business might seem like an expensive enterprise. Costs can soon mount up and you may find yourself quickly burning through money before earning any from customers. But by keeping a tight lid on expenses and adding a dash of creative thinking it’s possible to start a business on a shoestring.
Launching a start-up doesn’t have to be costly. There are plenty of ways to spend less so your business generates more profit. On average, new UK businesses have a launch budget of around £5,000 according to research by The Company Warehouse. Over the first 12 months, the average UK start-up spends around £23,000 according to a survey by Grant Thornton on a mix of marketing, salaries and overheads.
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Start-ups and small budgets
New businesses tend to fall into two camps – those that require lots of funding to get off the ground, and those that are initially self-funded, often with support from a small business loan. The latter is known as ‘bootstrapping’, where the owner funds the business without seeking investment from venture capitalists and therefore retains 100% ownership of their business.
The challenge with bootstrapping a business is that it can take longer to build a large, scalable business. Money is tight initially, meaning you’ll need to monitor costs and look for ways to save money as your business grows. The advantage is that you benefit from your business success, rather than having to share profits and control with external investors.
When starting a business on a shoestring, you need to make smart decisions to make your money go further.
Tips for starting a business on a shoestring
1. Know your strengths and build on your skills
Starting a business that capitalises on your skills, experience and industry knowledge is a major money saver. You’ll be able to hit the ground running and draw on an established network of expertise. From social media marketing experts and graphic designers to personal trainers and academic tutors, launching a business off the back of your career means you understand what’s involved, what to offer and how to price your products and services. You’re also less likely to make costly errors or need to spend money on hiring experts.
2. Plan carefully and research your business idea
Do your homework before opening the door to your business. It’s a good idea to research competitors. Examine their prices, assess their marketing and make some assumptions about how many customers they have and the amount of revenue they might generate.
3. Work out your costs and a budget
Starting on a shoestring means you need to have a clear idea about costs and stick firmly to a budget. Before launching, write down a list of all possible costs and calculate how much revenue your business needs to make to cover them. Don’t forget to include your salary. Create a monthly budget for the first six months of trading and put in place some contingency. Think about how you can save costs – such as lowering how much you pay yourself or choosing cheaper office space – if revenue doesn’t meet your targets.
4. Only buy what you need
It can be tempting to splurge cash on equipment for your new business. Instead of buying the latest and greatest, make sure you only buy what you need. Rather than a powerful laptop, source a refurbished or second-hand computer if all you’re using it for is internet access, email and writing documents. Source second-hand office equipment, such as desks or chairs, or opt for cheaper flatpack furniture. Consider leasing equipment to keep costs low during the early stages of your start-up, and ask yourself if a purchase is essential for the success of your business.
5. Make use of coupons, discounts and freebies
New businesses are a magnet for discounts, coupons and freebies. Suppliers are keen to sign up businesses in the hope they become long-term customers. Deals can include marketing, advertising, software and services – all of which can save you money. Advertising platforms such as Google Ads and Facebook routinely offer coupons and free credit. Online start-up discount sites such as AppSumo and StackSocial offer lifetime discounts to a variety of software used by small businesses.
Start Up Loans provides access to a range of savings and business offers for all successful Start Up Loans applicants, from discounted recruitment to savings on accounting software.
For more marketing tips, read our guide to marketing on a shoestring.
6. Outsource effectively
Where possible, the shoestring start-up owner is likely to do it themselves. From launching a social media channel to answering the phone to customers, the early days of a start-up on a budget are hectic, albeit tremendously satisfying. As your business grows, you may need to bring in additional expertise – but you don’t have to spend a fortune to get skilled support. Freelance matching sites such as Fiverr, People Per Hour, UpWork and Worksome have sprung up offering by-the-hour freelance support for everything from web design and graphic design to content writing and administrative tasks. Make sure you choose services carefully – many are great, but some freelancers can lack quality.
7. Collaborate with other businesses
Bartering your expertise with other small businesses can be a cost-effective way of expanding your capabilities. Use networking sites and your own contacts to seek out small service businesses such as marketing, sales, social media and IT support. Explore if they are willing to trade time for services. For example, a small accountancy firm may be able to help a small marketing business with their bookkeeping in exchange for helping market their services to the local area.
Alternatively, look for complementary businesses where you can refer customers to each other. For example, a local garage may be willing to refer customers to a car valeting service and vice versa.
8. Keep track of finances
Make sure you’re aware of what is being spent and how much money your business is making. Many cloud-based accountancy services have free or very cheap basic services that are tailored to start-up businesses. These can help you record expenses, see an overview of your costs and generate invoices to send to clients. Start with a basic accounting package – you can always add additional features as you need them. Keep on top of invoicing, and chase late-paying customers for overdue payments.
9. Get funding
You’ll need relatively deep pockets to start a business without funding. Many new business owners apply for funding, such as a Start Up Loan, to help fund the initial months of getting a business off the ground. When taking out a loan it’s important that you have a clear business plan and budget and that you stick to this, keeping tabs on expenses so you nurture your investment into a successful business.
Want to better understand business finance? Check out our free online courses in partnership with the Open University on finance and accounting. Our free Learn with Start Up Loans courses include:
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Disclaimer: While we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.