Funding Woes, Be Gone: 10 Ways to Minimize Your Startup Costs

How to minimize your startup costs

Numerous companies have made it big with minimal startup costs. For example, Spanx founder Sara Blakely began her shapewear business in the 1990s with just $5,000 in savings, and Nike co-founder Phil Knight famously paid just $35 to the graphic designer who designed the company’s iconic swoosh logo. 

It’s possible to keep costs low and stay frugal as you launch your new company. Consider the following strategies to ensure your startup’s financial health as you grow your business.

1. Give equity instead of a salary.

The easiest way to save money is to do everything yourself, which is why entrepreneurs often wear many hats. However, juggling all aspects of running a business becomes less feasible as your company grows. Sometimes, you simply don’t have all the creative and business skills necessary to get your startup off the ground. Even a brilliant marketer like Steve Jobs needed Steve Wozniak’s technical skills to bring his ideas to life. 

But what if you don’t have the resources to pay someone a salary or consulting fee? In that case, you may consider granting equity to your business partners and early employees. Granting equity is a common tactic among startups without the cash to pay for salaries — remember, though, that this practice dilutes your personal stake.

2. Use social media to market your startup. 

Social media marketing is an inexpensive, highly effective marketing avenue ideal for new businesses seeking to lower their startup costs. For example:

• Free Facebook marketing strategies like creating a Facebook Business profile can help you reach your target market.
• Using Instagram for your business can help boost online awareness of your new brand. 
• Making a YouTube channel is a free way to attract and engage your audience. 
• Establishing a TikTok presence can help you connect with younger consumers. 

Social media marketing can help you reach new customers more efficiently than you could with traditional forms of advertising, often for free or at a fraction of the cost. Although you can’t control whether a social post will go viral, you can create valuable content for your audience that helps establish your brand. Whether it’s an informative how-to video showing off your business’s services or a funny skit that incorporates your product, consumers often respond better to tactics that don’t feel like blatant advertising. 

3. Choose a legal structure that minimizes your tax obligations. 

It’s essential to consider how your business’s legal structure will affect your tax obligations. For example, forming an LLC will protect your personal assets in the event of a lawsuit against your business and may also bring tax advantages. LLCs and S corporations are pass-through entities, meaning your business’s income is treated as personal income for tax purposes. For states with high corporate tax rates, selecting one of these legal structures can avoid the double taxation issue. This occurs when a business’s income is subject to taxation at both the corporate and individual levels. 

On the other hand, C corps are first taxed at the corporate level, and any salaries paid out become taxed at the individual level. This might be an advantage in states such as Wyoming, Nevada, Texas and South Dakota, with zero corporate tax rates. C corps also allow businesses to deduct certain expenses. Research your local tax laws and regulations thoroughly before choosing a legal structure for your venture.

4. Utilize cash-back credit cards.

In the early days of Airbnb, co-founders Brian Chesky and Joe Gebbia maxed out numerous personal credit cards to raise money. Although we don’t recommend going that route, credit cards can save you money when used wisely. 

Many cards offer sizable sign-up bonuses — usually in the form of points or a statement credit — if you spend a specific amount of money within the first few months. New businesses often spend money on products, office supplies and software licenses, so you probably won’t have any problem meeting the minimum spending to earn the bonus. 

Some business credit cards offer cash back. Others accumulate miles or points that are redeemable toward airfare, hotels and other travel expenses. Many airlines and hotel chains have their own co-branded credit cards, often with perks like free checked bags. Consider what rewards will benefit your company the most, and seek out reputable credit card offers — but be sure to use business credit cards wisely to enjoy their benefits without overspending.

5. Implement low-cost business software solutions. 

Your startup will require business software solutions, but they don’t have to break the bank. Consider the following: 

• Accounting and invoicing software: The best accounting software options are generally affordable. For example, our Xero review details this platform’s affordable pricing, which starts at $15 per month. There are also free accounting software options, including Wave. 
• Credit card processing: If your new business will accept credit cards and digital payments, you’ll need a credit card processor. While many of the best credit card processors have reasonable fees and pricing structures, choose the most cost-effective solution for your sales volume and business needs. Consider any potential payment processor’s credit card processing fees before committing — some charge based on volume, while others charge flat rates. 
• Web services: For startups that require a website, obtaining a domain name and hosting services doesn’t have to be expensive. Choose a web hosting company that provides a free domain name to save some money. Quality hosting providers also frequently run promotions for new customers that can make the first year of running a website relatively inexpensive. And if your ideal domain name is taken, consider adding a location or second noun (e.g., SmithPizzaNYC.com in lieu of the already-taken SmithPizza.com) rather than trying to buy your ideal domain name. One real-life example is Tesla, which used teslamotors.com until the company ultimately purchased the tesla.com domain in 2016.

6. Hire family members for your startup.

Startups often need help but have limited funds for salaries. Before hiring employees, seek help from family members. Some may be willing to help out for free temporarily, while others may only ask for a small amount. You likely won’t have to offer employee benefits packages to family members temporarily pitching in. 

If your startup is a family business, your children may have the added incentive to learn the business and become part of your legacy. And involving your family may even have additional benefits: Research on family businesses shows that they’re often more successful than comparable businesses that aren’t family-owned.

7. Work from home to save money for your startup.

Many startups don’t need to rent office space, so entrepreneurs can save money by working from home. Even when you start staffing your business, consider allowing remote work with occasional in-person meetings at a coworking space or another location. Don’t worry about productivity; employees can often be happier and more productive when they work from home. 

Numerous software tools enable workplace collaboration among remote teams. Additionally, employee monitoring and project management solutions can help ensure everyone is on the same page and accountable for completing their assigned work.

8. Create strategic partnerships to support your startup.

Creating strategic partnerships with complementary companies is an often-overlooked way to minimize startup costs. For example, let’s say you sell sunglasses and have only a small marketing budget. You can create a comarketing arrangement with a store that sells bathing suits. It will promote your products to its customers via email and social media, and you’ll do the same. 

Startups can also sometimes get a huge boost by partnering with a large corporation, particularly if the startup owns innovative technology protected by patents and intellectual property protections, such as copyrights. For example, Aurora Innovation Inc. developed groundbreaking strides in self-driving cars. In 2021, it teamed with Toyota to create the first self-driving taxi. Later, Toyota bought some of Aurora’s technology to use in its vehicles. Toyota lent its resources and, in return, saved money by not having to recreate the technology with its engineers.

9. Outsource some of your startup’s functions.

To save on startup costs, consider outsourcing your HR functions instead of hiring an in-house HR person or team. Outsourcing customer service is another cost-saving option. Outsourcing can help you save money on salaries, benefits and payroll taxes. 

10. Choose a startup business with low costs.

Some businesses cost more to set up and run than others. For example, you can start a business with no money or minimal funds if you’re launching a consultancy or becoming a virtual assistant. In contrast, starting a restaurant can cost anywhere from $95,000 to $2 million. If you have a general idea of the business you want to start, find a way to start small. For example, if you really want to start an eatery but can’t afford to invest in restaurant startup costs, consider opening a food truck.

If you want to become an entrepreneur but haven’t settled on a specific business idea, consider researching ventures with minimal startup costs. Plenty of cheap business ideas exist. For example, you can start a tutoring business with less than $100 and build business momentum, eventually hiring independent contractors as tutors and paying them a percentage of the customer’s hourly fee. Another example is creating a business as a manufacturer’s representative, where you sell another company’s products and get paid a commission on each sale.

More money-saving business tips

Your startup’s initial funding and ongoing money management can significantly impact its future success. Consider the following money-saving tips to improve cash flow and increase your chances of building a successful business.

• Find an angel investor. Finding an angel investor can take the financial strain off your shoulders as you launch your business. An angel investor is an equity partner, similar to a venture capitalist, willing to invest their money in a startup. Typically, this type of investor does not require repayment until the company generates revenue or gets sold. This money isn’t a loan, so no interest accrues.
• Take out a business loan. While using credit cards to finance your business is easy and fast, it also can be expensive and risky. If you have good credit, you should be able to get approved for a small business loan with a reasonable interest rate. The best business loans for startups will have reasonable acceptance criteria, an easy application process and flexible terms.
• Launch a crowdfunding campaign. If you can’t get an angel investor and are keen to start a business without a loan, consider crowdsourcing. Numerous crowdfunding platforms can help invite people to invest money in exchange for goods or equity. You must market your business idea effectively to garner the visibility you need to raise money, but crowdfunded money typically doesn’t need to be repaid.
• Negotiate with your suppliers. According to research from Shopify, the biggest startup expense involves the product itself, accounting for nearly a third of total startup costs. If you buy numerous items from a particular supplier, try to negotiate volume discounts. If the supplier is also a relatively new company or is trying to get a foothold in your market, offer to promote it to other potential customers in exchange for a discount on the goods you buy from them.
• Improve your cash flow. A steady, positive cash flow will help you avoid funding shortfalls with expensive debt. Consider improving your cash flow by streamlining your accounts receivable process and staying on top of the money customers owe you. Other tips include requesting upfront deposits from customers, sending invoices immediately, offering a cash discount for on-time payments and charging interest on late payments. On the accounts payable side, ease cash flow worries by negotiating with vendors to pay net 30 or net 60.
• Minimize inventory expenses. Carefully monitoring your inventory can help your startup save money. If you have excess inventory on hand, you must bear the cost of storing it. If you don’t have enough inventory available, you’ll lose sales. Be acutely aware of your current inventory situation and know which products must be replenished. Monitor items that aren’t selling and shouldn’t be reordered. The best POS systems include inventory management functionality that helps you carefully monitor and understand your inventory and streamline your buying and storage needs.

Mike Berner contributed to this article.