What Are the Main Startup Costs and How to Reduce Them
So one day you wake up and realize you have an idea for a startup. Or slowly in the back of your head something keeps brewing for months until you come to a product that you would like to build. It’s all great, but between the idea and a company or a product there is a long way to go. Before even you can get started, you are going to face a number of challenges.
How Much Money Your Startup Needs
The main challenge for an aspiring entrepreneur is money. According to Quick Books, most startups get off the ground with less than $10,000. However, a lot of the costs depend on the geographic region and the market niche. Tech startups usually require more cash.
Even if you manage to launch your startup and build a Minimum Viable Product with your own money, at one point you’ll need funding from outside sources. Even if you get financing, you still need to watch all your costs because you’ll be held accountable.
Once you launch your startup, everything will require money. Hiring a team, conducting analysis, getting legal advice, accounting, and so on. We have divided all costs a startup is likely to face into three groups:
Here’s what goes into each group and what you should expect to pay for.
Even before you can start working on implementing your idea, you need to set up a company. You also need to open an account. You might also have to check with a tax consultant and an accountant. All of this needs money. Given that you don’t have anything to show for your work, you will have to pay for it out of your own pocket.
For example, you want to open your startup in Silicon Valley, in San Francisco. Under the California laws, you will have to pay $85 to the secretary of state to form a limited liability company (LLC). You will also have to pay $20 for filing a statement of information. After that, you’ll need a small business license, which is between $50 and $100 and licenses specific for your business. Within three and a half months from forming your LLC, you’ll have to pay $800 for the annual LLC fee.
As your business grows, you’ll have to spend more money on patents and copyrights, and other stuff.
You have to spend money to make money, the saying goes. In order to generate sales, you’ll need to spend on marketing. And that includes everything from designing your logo, to setting up your website, to launching an ad campaign. If you have a physical product, then your marketing costs will also include those associated with delivering the product to the customer or the point of sale.
When it comes to the logo, the website, branding, etc., a lot of the costs depend on complexity and your requirements. You have the opportunity to save some money if you hire a freelancer to develop your website instead of a big agency. However, there is a chance that you might end up with something different from what you’ve had in mind.
Or you can compromise and consider a small and still-growing company like Ideaction. Because our development team is based in Eastern Europe, we can provide website and app development services for a fraction of the cost compared to the US.
Administrative costs include a wide range of expenses that include licenses, permits, parking space, utilities, and office rent. If you have an accountant or a HR manager on your team, their salary will also count as administrative costs for your startup. Pretty much anything that is not directly related to your business can be classified in this category.
When it comes to administrative costs, you must remember that the devil is in the details. Rent and utilities will eat up a big chunk of your startup’s cash. However, you will also spend money on office equipment like desks, chairs, filing cabinets, computers. Moreover, you’ll have to buy supplies, like paperclips, staples, paper, coffee and so on. It’s always a good idea to make a list of all the little things your startup needs and keep track of those expenses.
Find Cost-Saving Alternatives
If money is an issue, you need to find some alternatives to save some cash, at least until you can get some results. You can join a startup incubator, which will provide you with resources and even work space. However, they will take some of your equity in return.
You can also invest in technology that will save money over the long run. There are lots of software solutions that facilitate a company’s operations and can even replace some in-house employees.
Another option to save costs for a young startup is outsourcing. If you don’t need a full-time accountant, outsource it to a company that will provide you one whenever you need. If you need software development you have plenty of options for outsourcing and save a lot of cash in the process. For example, we provide a wide range of software development services starting from $3,000 per month, which can be up to 2.5 times cheaper than hiring a full-time in-house developer.