How to Save Money for a New Business

If you really want to help and you believe in this person's ability to repay a loan, become the lender yourself. Mackenzie Marco/Unsplash

How much does it cost to start your own business? Well, that depends. However, according to the Small Business Administration, most micro-businesses cost approximately $3,000 to launch, while most home-based franchises cost between $2,000 and $5,000. Yeah—I’d say that’s really conservative.

In the scheme of things, that’s not an awful lot of money. But, considering that 56 percent of Americans have less than $5,000 in savings, and a third have no savings at all, coming up with that amount can be problematic. While you could take a loan or max out your credit cards, you could save money for a business to avoid high-interest debt. Again, $2,000 to $5,000 isn’t really all that much.

At the same time, when money is tight, that is a lot of money to come up with. So, here are 11 ways that you can realistically save money for a new business.

1. How Much Should You Save?

There isn’t one right answer here. For some, you might be fortunate enough to get your business started for under $500. Others might need $10,000. Regardless of the exact figure, the SBA states that you can calculate your startup costs by identifying expenses like;

Office space Equipment and supplies Communications Utilities Licenses and permits Insurance Lawyer and accountant Inventory Employee salaries Advertising and marketing Market research Printed marketing materials Making a website

“Once you have your list of expenses, you can estimate how much they’ll actually cost,” notes the SBA. “This process will be different for each expense you have.”

“Some expenses will have well-defined costs—permits and licenses tend to have clear, published costs,” they add. “You might have to estimate other costs that are less certain, like employee salaries.” To find out how much similar companies spend on expenses, look online and speak with mentors, vendors, and service providers.

After you’ve identified what the business expenses will be, you can organize them into one-time expenses and recurring expenses. You can determine how much capital you’ll need based on one-time costs and regular costs. You can then break down the saving process into smaller, more manageable steps to make the process easier.

2. You Need a Budget

Having a budget is an important component of every successful business, so now is the time to prepare one if you haven’t done so yet. Several tools can help you do this, with methods ranging from old-fashioned pen and paper to more modern options like budgeting apps. These apps let you manage your household expenses, as well as business finances, in one convenient location. As such, you can keep track of all your different income streams with ease.

It’s also possible to combine these methods or use another method that works best for you. The point is that you not only need a budget, but most also stick to it in order to reach your savings goal. Keep in mind that budgets can change over time. So, a good budget should be flexible and adjusted accordingly.

You should record your daily expenses as you create a personal budget. Whenever possible, cut unnecessary expenses. As an example, you might grab a coffee on your way to work in the morning. However, you will save serious money after several workweeks if you bring your own coffee in a travel mug instead of buying a latte every day—you can still occasionally treat yourself, after all, life is short.

The idea here is to make sure you aren’t spending money you don’t have to. In addition to your daily latte, you could cancel that gym membership you never use. It might not be much. But, every dollar helps.

3. Scale the Get Out of the Debt Pyramid

“Scaling the getting out of the debt pyramid can be near impossible,” is my best advice on debt (John Rampton, Founder and CEO of Due). “Being free of debt has to be one of the best feelings because you don’t have payments hanging over your head.”

You’re no longer looking at your paycheck as merely a source of income. “Instead, you can think about saving up or buying something. “Your outlook about work even changes because you may even try something new, knowing your paycheck isn’t reserved for the debt that weighs heavy.”

“While it all sounds good, the real challenge is figuring out how to scale the getting out of the debt pyramid and reach that pinnacle of freedom.” In spite of the fact that you may feel like you have Mount Everest of debt, adhering to a certain fiscal regimen will help you overcome that obstacle.

Here’s How You Scale The Get Out Of Debt Pyramid

Commit to getting out of debt. If you’re serious about this, then you need to go all in. “That means not using any more credit cards or other debt vehicles. This commitment also involves going without some things you might have been used to, such as eating out or buying those new shoes. You have to be fiscally disciplined and leave your consumption lifestyle behind at all costs.” Prioritize the debt. You need to decide what to pay off one by one, as it is likely that you have more than one creditor eating into your budget each month. First, tackle the smaller debts so you can get them out of the way much faster. Once you get these paid off, you will have more money to take care of the larger debts. Create a realistic budget. Again, a budget ensures that you aren’t spending more than you’re bringing in. It can also help you identify unnecessary spending. The money you save can be thrown towards your debt. Go on the offensive. “Rather than be defensive about your debt, climbing the getting out of debt pyramid means going on the offensive by taking action,” the article continues. Suggestions include negotiating with creditors, picking up a second job, or consolidating your debt. Think differently about spending. “While you are climbing out of the debt pyramid, it’s also the time to change how you think about spending money.” As an example, when shopping at the grocery store, only have cash on you instead of a credit card so you must stay within your budget.

4. Master the Art of Negotiation

When consumers buy something, only half bargain over the price. The Consumer Reports National Research Center found that 89 percent of those who did got a deal at least once in the past year.

While many online retailers will offer you great prices, there are others who may be willing to negotiate with you. If shopping in person, try tactics like;

Check if a cash discount is offered. A loose button on a jacket, for instance, is a flaw in the item. So, it wouldn’t hurt to ask if a discount cloud be applied When buying in bulk, inquire about a discount. What’s more, don’t hesitate in negotiating with your credit card and utility companies. You may be able to secure a more favorable interest or monthly bill.

5. Build an Emergency Fund

Building up your cash savings is crucial before you can start developing startup funds for your business.

If you plan on quitting your day job and starting a startup, you should have enough money saved for at least six months of living expenses. The reason? It’ll take awhile before you start earning a salary – at least six months or in many cases 12 to 18 months.

A plan with some other type of security will have to be in place if you can’t build up a substantial emergency fund. As an example, if you’re married, could one of you ask for overtime or a raise. Or, could you work during your downtime until you have enough money saved to live on?

6. Don’t Quit Your Day Job

You won’t likely be earning a salary when you’re starting a business. If possible, maintain your current position so that you have enough income to pay your expenses until you’re earning a profit. If this is too much of a time commitment, ask if you could work part-time.

7. Find Hidden Cash

When you’re really committed to starting your own business, you won’t mind selling some of your most prized possessions. Hopefully, it won’t have to come down to that. After all, you can pretty much rent out anything from a spare bedroom, car, parking space, bandwidth, or unused household items. In turn, this generates a passive income that you can put towards your business without working OT or a second job.

Also, you actually might have left some money on the table as well. These include;

Unclaimed funds, such as apartment deposits or forgotten savings bonds. Missing stimulus checks. Old pension plans. It might seem too good to be true. But, in some cases, you might be able to get free money from the government—at least to some extent.

8. Trade and Barter

Trading without money is known as bartering. This method lets your business make the most of excess production capacity, increase sales, save cash and move inventory.

Create a list of what you can offer and then someone with whom you are willing to barter. If you choose to exchange products or services, you should ensure that the value of those exchanged is equal.

A company in transition or in growth can use bartering to acquire needed services when it has limited money for growth. Don’t pay cash every time. Instead, find deals that allow bartering and exchange goods and/or services as an alternative to cash.

9. Make Sacrifices

Perhaps you could convince Mom and Dad to let you live at home to save money if you’re not married (or even if you are). In the case that’s not possible, ask a friend or sibling to let you stay with them. Another option would be to rent out a room in your home and use that money to get your business rolling.

Some other suggestions include;

For lunch, bring leftovers from home to work. Instead of going out with friends, invite them over for dinner. Get a little uncomfortable like cutting back the AC or heat. Hold off on buying a new vehicle. Go without a subscription, like Netflix, HBO Max, Hulu, or Disney + for a year or two.

10. Automate Savings

“The classic way to save money – tried and tested since the time of great-grandparents – is to secretly hide away little amounts of cash whenever you can,” Bryan Kelser writes in a previous Due article. “While some people still practice this method, it seems to be losing its relevance in the digital world. Millennials (and every generation that came later) rarely ever participate in cash transactions.”

“With the money world going digital, it makes sense for savings to do the same, too.”

“Automatic savings apps can cure your forgetful habits of stashing money away for the tough days by automatically doing that as you are spending,” Kelser adds.

Payments are sometimes made rounded-off to the nearest whole number so the “change” you would get if the transaction were made in cash is saved. This application is just one method of automating savings. “Many other methods exist that help you save money automatically with every expenditure incurred.

Some automatic savings apps worth exploring include Digit, Acorns, Empower Finance, and Chime.

11. Scale Back

It might be your dream to open your own retail clothing store or restaurant. But, realistically, starting these businesses requires a lot of capital. Scaling back or focusing on one line of products or food truck may be a better choice for your idea. Once you grow your profits and customers, you can grow your business into what you want.

Other recommendations would be;

Virtualize your business. If your business allows it, technology allows you to work from anywhere. Connect to employees, target audiences, and customers via technology from the comfort of your home.

Buy used. If you need equipment, check out the used market. It is possible to take advantage of small businesses’ misfortunes when they close. Small businesses can also obtain used products from government auction sites such as GSA Auctions.

Outsource. Locally, you may not be able to find the talent you need for your business. Outsourcing can be used in this case. You can outsource a project to another company or individual rather than hiring full-time employees.

Find discounts. If you buy in bulk, you’ll usually save money. Ask your suppliers for discounts if you order in large quantities. Customers and suppliers tend to negotiate terms and work together. Perhaps you can find a supplier who offers discounts if yours is unwilling to negotiate.

Use free, open-source software for your accounting and bookkeeping needs.

Work with suppliers. Obtain quotes from multiple suppliers. Analyze the products and pricing to determine if they meet your needs and if they are within your budget. Identify suppliers with whom you can establish a partnership, and then see if they’re willing to work out deals with you. If you deal with them for a period of time, they may be willing to even grant you a credit line.

Final Words of Advice

To grow your business, set small goals that will gradually increase over time.

You may find when your business is established and running smoothly that you can spend a little more to upgrade your equipment or hire new employees. Consider adding new products or expanding your business as well.

With incremental increases, you’re able to determine whether each step of the change is effective before investing more capital in the next step. Additionally, smaller steps will lower losses if a change does not turn out the way you had hope.

By John Rampton