Starting up a Startup - Financial Crisis

The economy, the bailout, small business, big business, no loans, financing troubles, newspapers going out of business, millions of jobs lost so far and more to come. One can’t help but think we are in for some much darker times before we see the light, but does it really have to go that way? Maybe a little it does, but does it have to be as bad as everyone says it’s going to be?

Being in the position of starting a business involving more people than myself I have been thinking about what I would be doing in this position. What if RoyalAnts was looking at cutting expenses? Where would we start where would we look to shave some of the financial fat? What does this have to do with Starting up a Startup?

Sit down, make yourself at home and I’ll tell you.

When building and growing your business keep the lessons of this recession in mind. Be lean, be flexible, be prepared. Instead of splurging your profits save some for a rainy day, or a dip. It will happen and you’ll need to be ready.

When growing always keep the mindset of “Do we need this?” Don’t get something just because it would be nice, wait until you have money in the bank, but always keep your spending in moderation. Listen to your customers and be prepared to change with their desires. The best product you can deliver is the one they want.

Lets say this is what you have been doing, but the economy has taken one heck of a drop (like now) and your rainy day cash is running out, what next? How do you find ways to cut costs? Here’s a couple I thought of while day dreaming about steering this ship through the sea of recession. My technique was to examine the small stuff and work up and here’s what I have:

If you aren’t already using recycled paper and office goods do it. Most the time a ream of recycled paper is $5-$20 less, and it’s helping the environment.
Print on both sides of the paper.
Buy an ink efficient printer, this will pay for itself rather quickly and start saving you some money.
Don’t print unless you absolutely need to, cut all frivolous printing.
Cut all office supplies, except printer paper and ink maybe, and have the employees bring their own.*

Turn the lights off when not in use / install motion sensors.
Have employees turn off monitors and power down computers when leaving.
Talk to employees and find a lower / higher, but still tolerable, office temperature that doesn’t impede work.
Install energy efficient lights and fix any areas that might be causing energy loss like drafty windows and doors.
Disallow the use of mini fridges, fans, heaters, anything that drains more power than is necessary.
Institute 4-10’s to reduce office use and utility charges.

Cut any of the little office perks like free coffee,
Reduce or remove the office party budget.
Reduce some of the CEO’s and upper managements compensation and put it towards the company.

These might make a tense situation unbearable by making the work environment worse. This could cause employees to hate their work environment and lower their productivity and morale so I would suggest that you talk to the employees, discuss what’s happening and why you’re looking to cut costs. Explaining and asking for their help in finding little ways to reduce your operating costs will help a ton. It will keep the employees in the loop and informed while getting them to help reduce wasted money. Most employees will willingly give up some of the little office niceties to keep their jobs, just keep the communication open and involve them in any decision that effects their office environment.

Reduce Pay. Everyone drop $2k in yearly income (including management) or we have to fire 10 of you.
Reduce the benefits, raise the co-pay of insurance.
Move hourly employees to salary.
Remove any special projects or non business essential activities and products.

Send as many employees to work at home as possible.
Make employees buy their own computers for working from home.*
Relocate to a smaller, less extravagant office space.
If you own the building rent out unused (or now vacant from work-from-home employees) space to other companies. This could make you a profit or at
least break even on building expenses.
Cut benefits
Lay off employees.
Cut marketing and advertising budget.

What’s the key here? When dropping things like pay or benefits make it across the board. If you’re CXO’s, management, and supervisory staff aren’t taking the same hit as your other employees you can expect more than resentment and hurt feelings. Not making the company a level field in a time of crisis is a sure way to kill your productivity and morale. There is no better time to rally the troops and show them that you’re all in it together than during a crisis.

To me one of the biggest wastes of space and expense are the large corporate buildings. Many jobs could be done from home and reduce the travel costs for the employee and the operating costs for the company and this is where I would start. It has the largest financial impact with the lowest employee impact.

The last things that should be looked at are the reduction in benefits and laying off people who help your company survive. If these people are really that expendable why did you hire them in the first place?

The very last thing is your marketing and advertising budget. A sure way to kill your company is to not let anyone know you exist. Instead re-direct some of that budget to other avenues like online marketing and social media for your company. I happen to know a few good resources to help you with that one.

Could the low end solutions have saved any of the companies from folding? No, but if they were looking at ways to stay trim and lean to save money from the get go these little steps might have helped them in the long run. Most of the low end things would eeded to be looked at a long time ago, or used when the company was in just a little trouble. Look at how to make your business more efficient and run on less operating costs without tremendous impacting your employees and you’ll have a happy and efficient workforce. The more you communicate with them, the more they will be willing to work with you.

So what do you think? Where would you start cutting costs? We have a survey linked here to voice your opinion, and as always we have the comments section open for whatever you have to say.

Thank you for reading,
Josh “Shua” Peters

*These expenses can be a tax write off for your employee, but talk to a CPA in your area first.

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Tags: business, entrepreneur, finance, startup

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