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For first-time founders, getting creative with your budget can seem daunting. Especially as you look to level up through fundraising, it’s important not to overlook government assistance and other cost-cutting opportunities that can help bolster your bank account along the way. 

Here are our top tips to help you save as you scale:

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1. Keep business and personal expenses separate

While the borders between personal and business expenses may blur at the startup stage, it’s important to keep those boundaries well defined. Your company should stand independent of your personal finances, even if you used your hard-earned money to fund it. 

Some things to consider as you assess your business expenses:

Tax Deductions: A key reason for keeping personal and business expenses separate is the ability to leverage tax deductions. For example, a business can write off certain expenses and get tax breaks. If you don’t separate personal and business expenses and still try to write business expenses off, you could run into serious trouble with the IRS and even incur an audit. (For more on tax deductions, see #7 on this list.) 

Business Credit: If your personal and business expenses are merged, you’ll likely have trouble establishing separate business credit. Depending on your credit history, blurring this line can hurt your chances of taking out low-interest business loans or affect your personal credit score if your business takes a dive. 

Accounting: While it may seem that accounting for a startup is simple now, your books will get more complicated as your company grows. As you take on more clients, products, and employees, accounting tasks will become more complex and time-consuming. Many companies will opt to outsource their accounting to a third party. To do this effectively, personal and business expenses have to be separated.

2. Create a robust budget

Creating (and sticking to) a budget may seem intimidating, but any successful business owner will tell you that budgeting practices have the power to make or break your company. 

Having a budget allows you to:

  • Identify leftover or misused funds that you can reinvest elsewhere. 
  • Predict slower revenue months, keeping you out of unexpected debt. 
  • Understand and properly track your road to profitability. 

Creating a budget gives you a powerful insight into your company. It can help you make educated decisions about business processes and better plan for what comes next.

3. Understand your financial metrics

Unless you are an accountant, it can be difficult to fully understand which financial metrics will give the best insight into your business. This is powerful data that will inform how you track and analyze your budget. 

You can start by identifying the following metrics:

  • Gross and net profit margins
  • Working capital
  • Accounts
  • Operating cash flow
  • Debt-to-equity ratio

The earlier you start tracking these metrics, the more understanding you’ll gain of money-saving opportunities. If you’re not confident in your financial prowess, you could consider getting a professional consultation to help you dive deeper. 

4. Have an emergency fund

While you are building a budget, you should include a contingency plan for unexpected expenses. You can channel any surplus income into an emergency fund instead of using it for immediate payments.  

Some ways to save money with an emergency fund:

  • Avoid late fees: If you can’t pay bills or make loan payments due to slow revenue, your contingency fund can help you avoid late fees while maintaining a good reputation and credit score.
  • Grab opportunities: If your company relies on inconsistent or seasonal income, you may not be in the best position to seize business opportunities as they arise. With an emergency fund, you’ll have a reliable backup plan to help you pivot as needed. 

Don’t feel that you need to store all of your surplus cash in an emergency fund. Start small and set achievable goals. As you grow, you can always reassess your contributions to this fund and put more aside when it makes sense to do so.

5. Ask vendors for discounts

Startups use an astounding number of vendors for their day-to-day operations. From analytics and hosting to payment processing and project management, you can get buried under a sea of vendors before you ever make a sale. 

One of the simplest ways to cut vendor costs is to simply ask for a discount. From huge providers like AWS to tiny local hostings, some vendors are surprisingly open to negotiation. They may be authorized to provide discounts in exchange for gaining loyal clients and partners. 

However, to negotiate a favorable deal, you may have to get creative and do substantial research. For smaller companies, it can be difficult to find enough leverage or devote enough time to successfully negotiate a discount on their own. Many startups choose to partner with MainStreet Procurement for this exact reason. By gaining access to the collective bargaining power of our startup community, our customers save an average of ~20% on their annual contract spend.

6. Outsource tasks that prohibit growth

If you have to spread yourself or your team thin to maintain basic operations, you are likely missing business opportunities and hindering your growth. And you’re not alone. The average startup owner spends 40% of their time on tasks that distract from income and growth.

To course-correct this, identify the tasks your team should be handling day-to-day versus the tasks that distract from their core functions. The latter may require outsourcing. Outsourcing tasks like accounting, finance, human resources, and even IT, is fairly common. For many small businesses, this is an integral part of their operational success; in fact, 70% of companies outsource their tasks in an effort to cut costs and free up employee time.

One function that’s becoming increasingly popular to outsource is contract negotiation and expense management. With services like MainStreet Procurement, companies can hand off their upcoming contract renewals to savings specialists, preserving thousands of dollars and countless hours of back-and-forth communication with popular vendors.

7. Look for tax breaks and incentives

Only a small percentage of startups take full advantage of the tax breaks available to them. There are significant opportunities to get money back from the government if you know where to look. Many business owners neglect or deliberately avoid these options for fear that they are too complex to use. Done right, these tax breaks can do wonders to extend your runway. 

Consider tax deductions on everyday expenses, like storage rentals, donations, shipping costs, home office expenses, and even insurance. There are tons of deductions available exclusively for small businesses. 

Another great incentive to consider is tax credits. For example, you can take advantage of federal and state research & development credits, bringing in up to $250,000 for work you’re already doing. These credits are designed to incentivize small businesses and startups that create new – or improve existing – products and processes. These credits apply to businesses in a myriad of industries and can be used even if you’re not profitable yet. To learn more about qualifying for tax credits through MainStreet’s tax credit program, click here

8. Consider using contractors

While building a strong team is important, supporting an in-house team is also expensive. From recruitment and hiring to onboarding and benefits, employee costs can really pile up.

A simple way to cut costs is to hire contractors. Independent contractors or outside firms help reduce your HR-related expenses, freeing up money for your emergency fund and other business opportunities. When using contractors, it’s important to understand the tax implications and to make sure you are truly getting the most out of this partnership.

9. Operate remotely

If you find that bringing everyone into the office five days a week isn’t actually necessary to get the job done, don’t. Instead, consider forgoing office space and operating your business remotely. In the past few years, the COVID-19 pandemic necessitated remote work for many industries. Even as the world opens back up, many companies have opted to stay remote or adopt a hybrid model for practical purposes. Remote work reduces costs and is highly favorable among many employees.  

As long as you have the proper infrastructure to support it, remote operations may be the best option for your business. If being fully remote doesn’t fit within your business model, don’t sweat it. Even if you need physical storage or meeting space, it’s still possible to minimize overhead by exploring partially remote operation opportunities.

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The moral of the story: do your research and build a savings plan that optimizes your spend and allows you to save as your business grows. At MainStreet, we know that your time is valuable. Let us do the heavy lifting and contribute to your savings plan by finding you thousands of dollars back on the things you already spend on.

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