Unless you are really lucky and have a massive savings account to use, you will be starting your business on a shoestring. Even if you are lucky and have a pot of cash, you should still start up as if it’s not there and use every means possible to keep your overheads down.
This makes sense in the short term and the long term, if you want your business to survive.
In the short term, there is no point spending lots of money on office space, equipment, software or other things that people associate with a business. Of course there are certain items of equipment that will be essential but you do not need everything at first and you don’t need the latest, best equipment. Invest in only the essentials and build up to newer, better kit as you start to make a profit.
Use free options, for now
Julie was a lady who I’d met at a networking meeting. I liked her but she was someone who didn’t always think about long term consequences. Julie and I were at a breakfast meeting once, sat with six other small business owners when someone asked what invoicing software everyone used. Various answers came back. Some people were happy with theirs, others not. Some were paying for software, others were making their own invoices and tracking payments manually.
I explained that I used an online package which had all sorts of useful features - predominately it accepted online payments and it automatically sent reminder emails to people who hadn’t paid so I didn’t have to waste time chasing people. It was also free until you started generating more than 1,000 ledger entries a year. All in all, perfect for a small business.
Julie was a freelancer writer and was always chasing work. She was just starting out and needed to start making an income.
I sat listening to everyone else explain the pros and cons of the various finance packages before sitting bemused as Julie said she was going to opt for the £120 a year finance system.
Why would she commit herself to more expenditure when a free alternative - even creating her own invoices and keeping track of payments manually - would be far more suitable at this point?
Julie worked from home on her laptop - she had no business overheads so why no keep this to zero and then every single penny she earned was pure profit?
£120 a year is not a huge amount of money but every expenditure adds to your commitment, your threshold of what you need to earn before you start to make money.
Six years on and I still use the same invoicing software that I used back then. In fact I have seven accounts with them for my various businesses. Only two accounts have reached the 1,000 ledger entries (I only monitor income, I don’t track expenditure this way) so I’m now only paying for two accounts which totals around £100 a year. If Julie had the same number of businesses but used her invoicing software, she would be paying £840 a year just on invoicing software. That’s a lot of work that she would need to do just to break even!
Of course the time will come when Julie cannot afford to waste her time chasing customers for payments and a paid for system, which sends automatic reminders, accepts online payments and generally makes life easier will be worth while but until then, it makes no sense to add to her overheads.
Not all changes to reduce your overheads have to be massive. Some can be quite small but with a small change here, a little reduction there, things can add up to significant sums.
I take the overhead issue seriously and continually look to reduce these wherever I can. A big part of what I do is registering and managing domain names for my customers. After finding a great company to register my domains with a few years ago - good prices, excellent customer support - their prices have gradually crept up to £10.54 a year to renew a .co.uk domain. This is a lot of money considering I manage around 1,000 domains so I started shopping around. Price was important but that wasn’t my deciding factor, I wanted to make sure I was moving over to a company that had excellent customer support - the last thing I wanted to do if their was a problem is wait hours for support all the while a customer is moaning at me.
I found a new company and I’ve gradually been moving over my domains to them over the last few months. Their cost per renewal? £4.83. That’s a saving per domain of £5.74 or around £5,740 a year once I move all 1,000 domains over.
An on-going concern
As well as constantly trying to reduce my overheads, I am extremely cautious when adding to them. I’ve expounded the virtues of the help desk system that I used many times in my blog. it’s a life saver and is the main management tool for my business. Despite how much I rely on it, I was hesitant to upgrade to the next version as it was an increase of around £100 a year.
I needed to upgrade because I had reached my limit on the number of businesses which could be managed on the existing plan. By upgrading, I would be able to add more businesses and manage my new ones through the same software as everything else.
The upgrade price isn’t huge - £100 a year - but I’m so careful about adding to my overheads, I hesitated over upgrading for weeks. Eventually I went ahead but my hesitation made me realise that the cost was unavoidable and absolutely necessary for my business.
After years of using the same hosting provider, I was able to negotiate a new, cheaper contract with a new company. Not only was I able to save money, I also benefitted from an improved service.
Back in the summer of 2018, I finally cracked. After months of deteriorating service, I wrote to my hosting provider and outlined my concerns.
I had been using them for years, even before I started my business and had gradually upgraded my service until I was spending thousands of pounds a year with them for dedicated servers and support. Unfortunately during my time with them, they had been acquired by a larger player in the hosting industry and the parent company had started squeezing them, trying to maximise profit, by reducing support staff, merging systems and generally not giving the same care and attention which made me choose them in the first place.
I sent an e-mail asking what had changed because I had noticed a reduction in the quality and speed of support. It wasn't a threatening e-mail (I'm going to leave if you don't give me what I want!) - it was with genuine interest and concern that I had written to them. Their changes, whatever they were, were starting to impact my customers so something needed to change. After being with them for so long, I hoped for an honest response and a promise that things would improve.
I did receive a reply very quickly stating that they were sorry, things would improve and for my loyalty, I would receive an on-going 20% discount.
My response was mixed. I was pleased that a major part of my outgoings had instantly been reduced - just my sending an e-mail - however I still had concerns that the support was not going to improve and this was my main issue. I was happy to keep paying the same rate as long as I received the level of support that I had in the past.
I started shopping around for a new company in case things didn't go the way I wanted them to. I found someone who was willing to offer me more in terms of server capacity (meaning I could host more customers), at a lower cost than my newly discounted contract and with far superior support. This meant that I could make more profit (I now had a bigger server) from a cheaper contract.
The fact that my original provider's performance dropped gave me the motivation to shop around and try to find a cheaper service elsewhere however I should have considered doing this a long time ago and perhaps saved myself a small fortune by reducing my overheads much sooner.