How to run your startup on a budget
5 min read
10 October 2013
Entrepreneur and columnist Sam Barnett shares his advice for keeping your business's budget on track.
Very few entrepreneurs launch a business with millions to burn in the bank. Most start small and try to keep overheads low and cash levels high. Here are my tried-and-tested methods for growing your start-up with next to no capital.
Collect money ruthlessly
At Struq, we have always been rigorous about collecting money from our customers. When you are growing a company, you must keep bad debt to an absolute minimum. We’ve found some pretty innovative ways to do this over the years. My favourite was when I roped my grandmother into chasing invoices. It’s incredible how hard it is for an FD to turn down a sweet old lady! And no, she’s not for hire…
Don’t buy anything
Some people believe that to look like a professional company, you need a posh address and lots of expensive furniture. What a waste of money. We’ve been in business five years and I’ve paid for about six office chairs (out of 100). If you look around at our office, most of the furniture was free: the couches, two fridges, meeting tables… As a start-up entrepreneur, you have to learn to hustle for free stuff.
Check out which companies are going out of business and drop by the old office to see what they leave behind. Or just keep your eyes open when you’re walking around – people leave office furniture out on the street to get picked up by removal men.
In the early days of your business, you don’t want to be splurging £250 on a nice desk. I found a couple of doors in a skip and screwed them together for my first desk. And get your friends who work in big corporates to give you pads and pens. Be creative.
Create cash buffers
If possible, try and devise a business model that involves earning your cash up front. When you are starting a business, cash is king and anyway you can think of to increase your cash runway will serve you well down the line. A subscription-based company is ideal. Marketplace businesses also work in this way; the consumer buys a product and pays you, then you order it from the third party, negotiate extended payment terms and make your margin. This gives you a real cash buffer.
Focus on hiring people who will make you money
Hire sales people first, not developers; once you have sold a product or service, you can afford to build it. And make sure you hire the right people at the right time. In the early stages, don’t look for people that your business will need in three to four years’ time, think of who you will need in six months. You want scrappy people who can wear many hats, not a Google veteran on a £150k salary that won’t be able to help the business till you’ve reached a certain size.
People who have failed before and understand what it’s like to work in a young business make good hires in the early days. People who have got too comfortable working in a big corporate do not. Your greatest outgoing as a business will probably be salaries, so don’t waste that money.
Set tight budgets
I earned £7,000 in my first year at Struq. My disposable income was £140 a month, and I had to travel in from Kent on that. Every 10p counts when you are bootstrapping a start-up. You don’t buy coffee for people unless you absolutely have to. You keep your personal outgoings to a minimum; I used to buy the discounted food at the supermarket at the end of the day.
And I lived like that for a long time. In my second year, I only took home £9,000, and £16,000 the year after. The old adage is true: watch the pennies and the pounds take care of themselves. Many people don’t have the discipline to do this but, as an entrepreneur, you must. That is how you successfully bootstrap a business.
Sam Barnett is CEO and founder of ad personalisation firm Struq.