Setting up a business can be a costly endeavor. All that capital to finance everything doesn’t come cheap. But it turns out that many of the costs new entrepreneurs think they have to pay aren’t necessary, with some being outright deadweights on the company’s budget.

The entrepreneurs who are most successful are those who get the finance side of their businesses right. They know that achieving healthy margins early on is essential, even if it means skimping on some bells and whistles for their businesses temporarily.

So, why is setting up your business costing you so much? That’s the topic of this post. It discusses some of the traps people fall into, especially when they are considering setting up a business for the first time.

Reducing Start up costs: A Masterclass

Underestimating Technology Cost

One problem is underestimating technology costs. As consumers, many budding business leaders like to think they know a thing or two about desktop and laptop prices. But when it comes to corporate software and implementation, prices are often significantly higher. It’s all too easy to rack up massive costs without seeing much of a return for all that investment.

The trick here is to adopt an organic approach and start lean. While it might be nice to have the latest CRM or email marketing tool, you don’t need these systems if you only have a handful of customers. A simple spreadsheet will usually suffice. It’s only worth putting money into these once you reach a certain scale. Before then, it is simply spending money for the sake of it.

Most companies only invest in expansive software after launching their minimum viable product. In the meantime, they use all the free tools, like Canva and Google Docs to get 80% of the results they want.

Lacking A Scalable Model

Building a business can also cost a lot of money if your model isn’t scalable. You keep finding more customers, but it is like you’re banging your head against the wall because your margins refuse to go up. In fact, you sometimes fear taking on new clients, just in case you wind up losing money.

Finding yourself in this situation is common. Often, it comes down to inefficiencies or failing to follow industry best practices. But it can also be something that’s intrinsic to what you do, particularly if you’re an artist.

The fix for this is to orientate your business around scalable solutions. Whether you want to use cloud-based systems or create workflows for future growth, these approaches make it more likely that you will be able to scale without seeing your costs rise dramatically over time.

Lack Of Vendor Negotiation

It’s also common to see business owners fail when it comes to vendor negotiation, leading to higher costs and expenses. New entrepreneurs don’t always understand the game and wind up paying more than they should.

This problem is particularly common among people coming from careers who expect the price to just be the way it is. This lack of scope means that there are often missed opportunities to benefit from significantly lower costs, especially when buying in bulk or over long time frames.

The trick here is to shop around and look for deals that are within budget. Finding lower costs for high-ticket items is essential.

Brokers offering commercial car insurance made simple are one option. These can help you shop around for the best deals for fleets.

Supply chain managers can also help if you want to cut input costs. These professionals can work with manufacturers and distributors to negotiate and figure out lower costs with them.

DIYing Everything

DIYing everything is another trap businesses fall into. Many founders believe that doing everything themselves will save them money and help them reach their objectives.

But, of course, that’s not how it works in practice. Companies find it significantly more challenging to grow if they insist on doing everything themselves instead of outsourcing it to an expert provider.

It is, of course, tempting to DIY more things in businesses, especially if you run a startup. You want to preserve as much of your capital as possible.

However, this approach is generally the wrong one. Advanced entrepreneurs know that starting a firm is a leap of faith. You have to spend money to get the ball rolling and create a decent chance of earning a reasonable income. If not, then it won’t work.

Focusing On Luxuries, Not Essentials

Your business setup costs could also be running precipitously high if you’re focusing on luxuries and not essentials. Concentrating on the wrong targets is a bad idea and can lead to overspending on things that, ultimately, don’t make much of a difference.

Yes, it’s nice to have premium office spaces decked out with the latest equipment. But when you’re starting up just gaining a reputation with a few buddies besides you, this approach isn’t necessary. Most global firms today started as small operations in sheds, garages, and cheap out-of-town units with rock-bottom rental prices.

If you’re the type of person who’s tempted by the glitz and glamor of business, simply remind yourself that it’s something that will come with time. Most businesses, even with mediocre concepts, can make it quite far as long as they have decent management. Firms that adopt best practices and aren’t afraid to try new things frequently go a long way, even if they are minimalist for a long time.

Failing To Plan Financially

Failing to plan financially is another reason your business is costing you so much. Not putting in the time to figure out where the money will go and what your bank balances are likely to be at any given point in the future is a terrible mistake.

The fix is to work with a financial advisor if you don’t want to do the accounts yourself. They can introduce you to all the usual industry tools that take care of this sort of thing for companies in your sector.

Once you start planning, it is interesting the problems that can crop up. For example, you might discover that on your present trajectory, you will run out of cash and will need to take out a line of credit next summer. Identifying these issues in advance lets you avoid costly borrowing and keeps the business on the right path.

Overplanning

Finally, overplanning can sometimes be your downfall and cause the cost of your business set up process to rise. Spending too much time thinking about every little detail instead of diving straight in is a grave error.

Overplanning is risky because it often means that you compensate for contingencies that aren’t going to play out in reality. Instead of reacting with the resources you have to what is happening in the real world, you’re spending money on the imaginary.

That’s where starting lean and just going for it can help a lot. There’s value in having faith and taking the plunge, even if you don’t think your product is perfect yet. Okay, a few customers might not be happy. But they will provide you with valuable feedback, showing you what you can do to improve your current offering.

So there you have it: why setting up your business is costing you more than you think. Often, it is a combination of factors that are holding you back and preventing you from achieving the margins you want.

The good news is that you can often get around these issues with some simple planning and common sense.