3 Key Ways for Startups to Reduce Early Capital Investment

To invest or not to invest. It is all too tempting to let in a bit of financial air to fan the flames of your nascent business. By opening the valve and letting cash flow out you can often feel a little more secure about the quality of your operations and the strength of the momentum carrying it along within the currents of the market.

capital expenditure
photo credit: Philippe Put via photopin cc

You’re spending on foundations for your business; staff, IT resources, tangible goods, vehicles, office space, utilities. Fixed assets, in other words. This can only bolster and reinforce the structure that underpins your business, right?

Well, no actually. Premature scaling and unnecessary capital expenditure too early in a startup’s development are two of the main reasons for which startups sink before they can swim.

But the temptation is always there. So what can startup managers and entrepreneurs do to manage this risk and reduce outgoing expenditure so they can re-direct resources towards really honing that product or service idea?

Lease Don’t Acquire

Firstly you may want to re-consider of what it is absolutely essential for your business to be the outright proprietor. For example, it may well be possible for you to manage your outgoings more rigorously if you manage the larger outlays in the form of leases instead of acquisitions.

There are three basic forms of lease which will be of interest to startups and young businesses.

These are hire/lease purchases, finance leases and contract hires.

Hire purchases are something we are all familiar with in regard to car purchases or home entertainment equipment on the high street. However, this payment structure is often also available to businesses in the way of assets like IT which startups and SMBs can lease purchase as bundles and so always be able to update to the latest developments. At the end of the defined period the purchase is completed and the goods transferred to their new owner.

A finance purchase differs only in that at the end of the defined payment period, ownership remains with the financing company. Should you wish to enter into a second agreement at the end of the agreed period, this can be achieved for a nominal fee.

When contract hiring, your business will often find it less expensive than finance leasing because there is always a residual value attached the item or goods in question applicable at the end of the contractual hire period (which is then deducted from the overall value of the goods to be paid by the hirer).

Cloud Compute

The advent of the Cloud to the technology and data landscapes has helped take the weight of the shoulders of many an SMB and startup. The ability to work remotely and flexibly has helped managers to save on business rents and office space. Providers have set up remotely based maintenance and security systems for teams who are spatially or temporally separated from one another.

This allows businesses to work concurrently over separate market territories, optimise working productivity, as well as reduce basic overheads like electricity and software license fees. By using data storage facilities in the Cloud, you businesses can take advantage of automated tiering processes and reduce stress on your own networks and server.

Following on from the leasing suggestions, it is also often possible to have scalable payment options or even PAYG with Cloud services which helps smoothen out the balance sheet while

allowing startups to test and trial the right bundle of options.

Only Procure Goods Which are Future Proof

With the urge to spend on resources which will help galvanise your business comes the urge to spend on the most contemporary of contemporary items. You often find Apple brand addicts to be particular exponents of this flaw in purchasing behaviour. Or those with cash to burn.

If you are going to take the plunge and not rely on truncated payment agreements (like those mentioned above) for goods or services, then a good idea is to draw up a failsafe checklist which you then apply to any purchase you make.

Very high up on this checklist if not at the very top should be a means to ensure that the technology or product is either updateable or future proof. As a startup you need to have long term benefits in mind as your business shape-changes as it finds its footing in the market. By making sure any purchase you make is benchmarked on this criterion, you ensure a healthier and more sensibly progressive approach to the foundations of your business as you continue to lay them.