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Startup costs, where is all my money going?

Recently it seems startups have been encountering problems securing funding. Today, we’re going to have a look at what companies actually end up spending their money on: their startup costs. Hopefully this will give any budding entrepreneurs an idea of what to expect and help startups identify wasted money.

When you have little cash you need to know where to put it to make sure you get bang for your buck. While startup costs can largely vary depending on what kind of business you are, we’ve done a little bit of snooping around and found out what generally makes startups reach into their back pocket.

Rent

While you can work from home when in the early stages, sooner or later growth and common sense will dictate you need an office for your business.

Doing It Right – Look for the right office that suits you and your company’s needs. You’re going to want something that makes you feel comfortable working in and promotes innovation. There’s nothing wrong the bare minimum: desks, internet connection, small kitchen and bathrooms. The soft drinks and beers in the fridge sound great, wouldn’t it be awesome if you had a pool table right in the middle of the office, but realistically, when cash flow runs dry, try justifying the premium you were paying for that “sweet” office space. Of course if you get this all free as part of an incubator or accelerator program, don’t turn it down!

You, Your Team and Associated Costs

Whilst you may live for your business you still need to live, you will need to pay yourself some sort of wage. The second part of this is the costs of a team of employees for your business. Then, again depending on your business, there will be associated costs to this i.e. desktop computers, some additional hardware. most of this tends to be a once-off payment though.

Doing It Right – Keep in mind that after all, you are a startup, being broke is part of the gig; accept it and move on. Pay yourself what you need to get by weekly, no more. When hiring, consider interns. They’re eager, learn quickly, and cheap. Plus, they’re only going to become more valuable as they move through their degree. Lastly with some of the associated costs just make sure you need it and it’s worthwhile, e.g. are desktops needed? Interns can bring their own laptops to work, they’ll have had one from college.

Support Staff

Startups inevitably find themselves investing in staff out of the direct function of the company. Company growth may lead to a call for PR, Marketing, and possibly if you’re startup isn’t a ‘tech’ business, some IT staff too.

Doing It Right – The simple question here is “How on earth are you going to afford these employees on your budget?” The answer is even simpler: -on a project basis. Two options: hire the professional for the two weeks to run the PR campaign, or as we do, get an intern to research and build the campaign then hiring the professional to on the work and advice.

Legal Fees

No matter where we looked this was an aspect of all startups. So you are going to have to occasionally hire a solicitor or, maybe a barrister (although you must have done something seriously wrong here). The trick is getting what you need.

Doing It Right – Right now just question every part of your legal costs. A nice tip is have two solicitors, a cheap one for the regular stuff and an expensive one for the important things (we’re making the assumption that you’re getting value for money here, don’t actually just hire a solicitor because they’re more expensive than the last guy).

Accounting Fees

It’s another one you can’t avoid, unfortunately accounting costs will be a significantly large percentage of your overall budget. This is one of the main reasons Bullet was founded. We thought that this service should be much simpler and cost a lot less.

Doing It Right – It’s the same case here as legal fees, why pay for more than you need? I’m not saying you don’t need accounts or tax returns done, but why pay so much? At Bullet we take out the hassle of doing your tax returns, payroll, etc. and still save you money. But by all means go out and pay for an accountant, do all the work yourself and drop another few thousand into the expenses, after all it is your money.

Miscellaneous Costs

Sadly we can’t tell you all of your costs, partly because there will be variances depending on your size and industry. Tech and software companies, don’t worry about servers and hosting, it should be cheap and affordable. If it’s growing rapidly that’s in all likelihood, due to a growing consumer base and then chances are it’s paying for itself. You may have some unexpected expenses i.e. business cards or an occasional meeting but don’t sweat the small stuff!

Doing It Right – One thing you don’t need is the “swag”. Being honest I find it hard to understand how large corporate companies justify all these job perks, and there is the argument of being an attractive business to work for, but surely that should be based on what the business does? I may be wrong, but you definitely can’t afford/justify it. One or two posters and maybe some t-shirts for pitches or startup events are nice but realistically you don’t need anything else. We know you want it, but wait. Good things come to those who wait.

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