Cost Optimization Playbook for Startups in Transition

When businesses are asked to do more with less, cost optimization, a foundational responsibility for sourcing and procurement leaders in the supply chain, becomes much more essential. Now is the time to think beyond price concessions to broader change management that reduces costs while adding value to the business.

While expense should still be a priority, recent events have brought cost optimization into clearer focus.

Many businesses are implementing cost optimization measures to sustain financial flexibility and finance potential investments in digital transformation and customer experience.

This playbook outlines some cost optimization levers and actions that can help the company think more strategically about its approach.

There are many factors driving cost optimization:

  • Strategic objectives
  • Financial weakness
  • Operational weakness
  • Market dynamics

Effective cost optimization can ensure business survival and fund future growth

Effective cost optimization should combine expertise from across an organization, including the finance, supply chain, IT, HR, operations, and customer functions, to deliver integrated solutions rather than siloed views.

Whether an organization is looking to ensure stability or outperform its competitors will require the right mix of intelligent cost-reduction, investment in essential assets, and development of new business opportunities.

The term “startup” might make you think of investors and billion-dollar tech companies, but that is not what most startups look like.

The simplest definition of a startup is ‘an organization in the process of testing a business model.’ The Startup Playbook Community is a private community that brings together all the entrepreneurs, investors, and other members of the startup community to share, network, and learn from each other.

1. When the business is growing toward financial viability

The word “grow” is essential in this context. There’s nothing wrong with starting a blog, making content for the ones who want to read it, and accepting contributions from anyone who wants to contribute. We’d call it a hobby, not a startup operation unless you’re actively trying to expand your reach and revenue.

As for “financial viability,” that could mean earning enough revenue to pay yourself, or it might mean sustaining an entire team.

The size of your business doesn’t matter. What matters is that you have a good plan in place for monetizing your work and making enough money to support your journalistic ambitions. 

2. Your business is new and agile enough to pivot

The longer a company exists, the more entrenched its habits and routines become, and the more difficult it becomes to depart from the “way things have always been done.”

Understanding Common Business Startup Costs 

· The Business Plan

The development of a business plan—a detailed map of the new business—is critical to any startup company’s effort. A business plan helps to align goals to various startup costs. Underestimating costs lead to a false rise in projected net profit, which is unfortunate news for any small business owner.

· Research Expenses

Before starting a business, it is necessary to perform extensive research into the industry and customer makeup. Some company leaders hire market research firms to assist them with their assessment. If a company decides to go this path, the expense of recruiting these experts must be factored into the business plan.

· Borrowing Costs

A capital infusion is often needed to initiate a business. There are two methods to obtain capital for a business: debt financing and equity. Equity financing involves the issuance of stock, but most small businesses, which are sole proprietorships, are exempted from this requirement.

Debt, typically in the form of a small business loan, is the most likely funding source for small business owners. Banks, savings institutions, and the US Small Business Administration are all good places to look for loans for small businesses (SBA). Company loans, like every other loan, are accompanied by interest payments. Since the default cost is so high, these payments must be planned for when starting a business. 

· Insurance, License, and Permit Fees

Many businesses provide health inspections and authorizations to obtain certain business licenses and permits. Some companies might require essential permits, while others need industry-specific permits. Carrying insurance to protect your assets from potential liabilities will help protect your employees, clients, business assets, and yourself. 

· Technological Expenses

A website, information systems, and software, such as accounting and payroll software, are all examples of technological expenses. Some small and mid-size business owners choose to outsource these types of tasks to other businesses to save costs on payroll and benefits. 

· Equipment and Supplies

Each business requires some basic supplies and equipment. Before adding equipment costs to the list of startup expenses, you must decide whether to lease or buy.

Your finances will strongly influence this decision. If you have sufficient funds to purchase equipment, unavoidable expenses can make leasing, with the offer to select later, a viable option. However, regardless of the cash situation, a lease may not always be the best choice, depending on the lease’s type of equipment and terms.

· Advertising and Promotion

To obtain a specific business license, several businesses are required to apply to health inspections and authorizations. Some companies may need necessary permits, whereas others require industry-specific permits.

Carrying insurance to protect your assets from potential liabilities will help protect your employees, customers, corporate support, and yourself as well.

· Employee Expenses

A website, information systems, and software, such as accounting and payroll software, are all examples of technological expenses. Some small business owners prefer to outsource these tasks to other companies to save money on payroll and benefits.

· Additional Startup Cost Considerations

Can you set aside any money for any unexpected or overlooked expenses? The majority of businesses struggle because they do not have enough cash to deal with unforeseen issues that arise during the business period.

Remember, the cost of establishing a sole proprietorship varies from that of developing a partnership or corporation. The legal cost of preparing a partnership agreement and state registration fees is some of the additional expenses a partnership incurs.

Fees for articles of incorporation filing, bylaws, and terms of original stock certificates are some other costs that can apply more to a corporation.

It can be invigorating to start a new business. Getting caught up in the excitement and overlooking the details, on the other hand, can lead to failure. Above all, pay attention and consult with those who have been down this road before. You might never know where you’ll find business advice that will help your company succeed. 

Connect with the team at Bython Media to learn more about how to optimize costs for small to mid-market companies, not only operationally but also through marketing and lead generation.

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2022-05-20T20:58:15-05:00
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