Working Capital Management Strategy for Startups

Working Capital Management

A majority of startups lack short of a significant amount of funds in their infancy period. Hence, they must practice the proven working capital management strategy for startups.

The availability of funds plays a catalyst role in the escalation of the startup. At the same time, it is imperative to manage the available funds efficiently.

The majority of startups started with personal funds and borrowed from a close circle of family and friends.  The amount of funds in their pool is limited.

In such conditions, it becomes mandatory to make a useful utilization of funds.

Impact on Startup Growth and Sustainability

The majority of startups that fail in the initial years of business commencement are due to lack of funds. Having sufficient working capital resources provides the flexibility of escalating business operations.

Startups working on new-age business models need time for a profit-driving stage of maturity. An on-time availability of funds can surely act as a decisive factor in their success.

The most influential element is still the skills of management to utilize the funds most effectively. 

Here, reducing the expenses without compromising on the quality of business operations can be beneficial for the organization.

Some ground-breaking methods can be taken into practice working capital management guidelines for startups.

By following the given methods, you will be able to reduce business costs, increases profitability, and ensure sustainability for the startup.

Narrow Down Office Space

The most innovative way to reduce startup expenses is to use a co-working space. This method applies to people with a team of up to 30 members.

The use of co-working space gains significant prominence in the last decade in the startup community.

A co-working space is a place where many startups use common premises and resources on a sharing basis. Such a facility saves operating costs for startups.

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This facility acts as a boon for single founders and startups with relatively small teams.

For startups with their private premises, a smart way of operating is to share your office space with another startup.

At the same time, take space on rent in someone else’s premises is also an alternative to renting a co-working space.

Use Online Marketing

Still relying on dated print media marketing? Well, this is one sure-shot way to increase your operating expenses.

Cutting down on customary marketing expenses and harnessing the power of the internet is a route to reduced working capital expenses for startups.

Online marketing tools like Google Ad Words, Facebook Ads are much cheaper and effective than their traditional counterparts.

Using paid social media advertisement is cheaper than the billboard ads.

Additionally, there is also an option for unpaid advertisement channels on the internet. This includes running a blog to interest your potential customers.

If a person is ready to invest time and effort, this can provide long term and sustainable benefits to the startup.

Also, Read: Top 10 Marketing Ideas for Small Businesses.

Hire Expert Financial Consultants

Capital Management

The first secret to sufficient working capital management is to take services from expert financial consultants. The majority of problems that occur in managing business finance are a result of not taking specialist financial advice.

Taking help from financial experts will help to understand the nature of expenses and classify their utility. It is significant to segregate unproductive expenses from the productive ones.

This analysis of expenses can be provided in the best possible manner by knowledgeable financial consultants.

Outsource Supplementary Services

Outsourcing services can be an excellent option for startups to reduce working expenses. Outsourcing work is in practice globally for a long time.

The benefit of outsourcing is that it can help the startup to focus on core business operations and leave auxiliary work to outsourcing partners.

At the same time, hiring and maintenance of the physical workforce can incur substantial costs.

Entities can take services from freelancers and contractual labour for non-core business activities. The prominent services that are being outsourced are legal and other compliances services.

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Startups can save costs by not hiring in-house lawyers and accountants. Moreover, they get to choose from the best pool of resources to receive services.

Review Expenses in Budget

Poor planning is the proven method for business failure, tried and tested on many startups.

“Failing to plan is planning to fail.”

Every startup should inspect their budget for unnecessary expenses that can be avoided. Cutting down on unnecessary and preventable costs can save a lot of money for these budding business entities.

Having a working capital management plan is a necessity for the success of the startup.

Few tips for working capital budgeting are as follows;

  • Do not buy in bulk in advance; but when it is necessary to buy.
  • In today’s ready to ship retail market, bulk buying may not be a necessity for startups. Buy limited inventory – Buying massive inventory comes with the liability of storage requirements and maintenance of inventory. This can add up to increase working capital expenses.
  • Avoid unnecessary expenses like magazine subscriptions that nobody reads.
  • Do not let loans and advances.

Use Refurbished Furniture

A new and shining business organization needs not to complement its spirits with new and shining furniture. Gently used refurbished furniture can also render the same comfort and luxury for Startups.

Think about it; purchasing furniture for the office is among the chief costs of establishment for the majority of businesses. It is a high cost for the establishment of any new office.

Intelligently choosing a set of used furniture can reduce the cost of establishments on a large scale.

The most buy refurbished furniture’s are as follows;

  • Printers and copiers
  • Refurbished Smartphone and monitors
  • Chairs, cushions, and desks
  • Storage equipment
  • Glassware and cutlery

Startups can procure this furniture from re-selling websites on the internet. Even high branded manufactures provide used furniture at a discounted price.

Use Automation

The world is moving towards new technology with every passing day. These new technologies are serving to make our lives better and productive.

Similarly, business processes are utilizing technological development to become more productive. Startups that are able to identify these areas of up-gradation are ahead of their counterparts.

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Automation of business processes helps to reduce operating expenses for startups. Startups can save money by getting rid of unproductive, time consuming, and resources consuming business processes.

Also, Read: The Best Digital Marketing Strategies and Tactics in 2019.

Hire Interns

Hiring a full-time employee is a significant expense for a budding startup. Hence, several employees mean the more financial load on the entity.

But, not hiring employees sounds excessively different from the normal course of business growth.

The most feasible way to tackle the situation is to hire Interns. Interns are people who work in an organization for a short period of work experience.

They are paid in the form of a stipend. The amount paid to interns is comparatively less to full-time employees.

Students or fresh graduates represent a majority in internship programs. However, the entry is not restricted to this class of people.

People work as interns to learn and have work experience. Hiring interns give a chance for startups to provide training for their desired employability skills to the intern.

Startups can get a high quality of work at a lesser cost from interns.

Pool Resources

Another constructive method for cutting down on expenses for startups is to pool resources with similar entities.

Buying resources in bulk quantity can be helpful to gain maximum discounts from the seller. However, buying a bulk order from their funds for availing discounts can be a wrong move for startups.

Pooling money from similar entities can help to solve this problem. Startups can save a large amount of money in the form of discounts.

There are multiple ways to pool resources such as forming a cooperative society, opting for MSME registration, NSIC registration, etc.

Opting for MSME registration is one of the distinct ways to save expenses. The government provides subsidies in trademark registration, patent registration, etc. At the same time, they provide opportunities for promotions in National and International trade shows.

Avoid Debt

Capital Management

Another sound advice for any startup to grow is to avoid preventable debts. Avoiding such obligations can ensure that expenses are made within the prescribed budget.

Debt-ridden startups are often found to be in the practice of making unnecessary expenses. These expenses can increase the working capital expenses for the startup.

Debt should be raised and utilized after consultancy from financial advisors. This can ensure that the money raised via the debt fund is utilized appropriately.

Startups that run according to Business Plans as prepared by financial experts can track their expenses quickly and reduce them significantly.

Avoiding debts and unnecessary expenses can ensure a stable financial record and credit rating for the enterprise.

Wrapping Up

The advised methods for working capital management are beneficial for every startup. Cutting on unnecessary expenses can allow utilizing those funds for business development activities.

Startups need to manage their expenses to maintain a positive cash flow ration. Having a positive cash flow ratio is very important for startup growth and valuation.

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