For startups and small businesses, saving money is always crucial—and in 2022, that’s more true than ever. With rising inflation, continuing supply chain issues and increasing labor shortages, it’s important to ensure that your expenses stay manageable.
Here is a look at some of the most vital tips for your startup or small business to efficiently navigate business expenses.
Saving Money Is Crucial
Unless someone’s given you an endless supply of cash, you’ll need to figure out how to spend less while making more. It’s tempting to put everything you have into your small business, but it’s best to stay cautious about investing everything.
You may have heard that most small businesses fail early. Luckily, this is not true. According to the US Small Business Administration, nearly 80 percent of startups lasted for over a year. However, you should stay alert to ensure you’re keeping track of your finances. After five years, the number of surviving small businesses decreased to around 50 percent. That statistic dwindles to about one-third after 10 years.
There are four common causes of startup failure. There can be other influences, but the most frequently occurring problems are:
- Marketing problems: Not knowing how essential it is to keep accessing target audiences, find ways to expand your reach and increase conversions.
- Poor management: Struggling to hire out when you need assistance in running your business.
- No business planning: Beginning without an outline of market analysis, budgeting or employee necessities.
- Financial issues: Experiencing money problems, including incorrect revenue management, lack of market interest or non-feasible pricing.
These can all relate to the necessity of proper money tracking. Setting aside funds to conquer these problems early can help keep your small business thriving as it continues to grow.
How Startups and Small Businesses Can Navigate Their Expenses
You’ll always need to spend some money on your business. However, there are ways to ensure you stay on top of your cash flow and save a bit, too. Here are a few tips to get you started.
Figure Out Necessary Spending
You’ll need to pay for quite a few things when starting a business. Some will be one-time costs—such as permit fees, upgrades to your store and branding design etc. However, rent, insurance, taxes and payroll will stay with you as long as you’re in operation. From there, you can start to organize your payments by what you truly need to spend in a month versus where you can cut expenses.
You know you’ll need to pay for advertising and chip away at your loans each month. Do you really need to keep spending $200 on paper? Is there a cheaper software your company could use? This is how you begin to make your cash flow more efficient.
Create a Budget
Budgeting is one of the most significant things an entrepreneur can do. You can see how much you’re making by tracking how much money you’re spending. Always ensure you have enough to cover your essential expenses. You’ll need to pay for stock, products and paychecks. Focus on tracking your cash flow early to set yourself up for success.
Digital banking can make budgeting much more straightforward. You can access everything online, so it’s a stress-free way to:
- Schedule bill payments
- Use automatic transfers to pay expenses
- Create alerts for extra or fraudulent spending
- Utilize direct deposit functions
Using online tools to manage your budget can help de-stress the process. Additionally, you’re keeping everything in one place where you can conveniently access and change it as your business develops.
Be Aware of Applicable Tax Deductions
The Internal Revenue Service allows startups to reduce how much they pay in taxes depending on expenses. Forming and establishing your small business comes with costs. The IRS allows deductions on these expenses if they are less than $50,000. It caps these reductions at $55,000—so find ways to keep your spending low when starting out.
You may be able to deduct spending as a capital loss if you make sincere efforts to launch your business but it doesn’t work out. However, anything you spend researching the market will not return to you. The IRS considers those expenses personal ones.
Be sure to talk to a tax professional before making any claims, as they know how to keep everything legal. They might find more avenues for deductions than you knew about and inform you of the state and federal documentation you require.
Give Yourself Wiggle Room
Your expenses will likely fluctuate. You’ll have a little more money to spend once you’ve paid off your loans and license fees. However, you may find yourself paying extra for things you didn’t think about. Maybe a customer was upset by something they saw as low quality or your initial sales were a bit less than you anticipated.
Give yourself a cushion to fall back on when analyzing your expenses. Ensuring you have enough funding to stay open will help you save for any potential mishaps. It’s good to plan for anywhere from six months to a year. Anticipating additional spending will help manage your money as your costs and profits change.
Benefit Your Business Through Proper Financial Planning
Startups and small businesses are exciting opportunities for innovators and entrepreneurs. You can help your venture succeed when you increase profits by narrowing down expenses and anticipating extra spending. Use these tips to give your startup the boost it needs to thrive.