If you’ve spent time researching the costs of running a small business, you’ve probably realised that the reality might not match your expectations. The truth is that small businesses spend more than twice as much during the first year of operations as they do any other year in operation. If you anticipated spending less, you’ll need to figure out where your forecasts went wrong. Did you plan to overspend in some areas? What could you do to reduce your costs?

If you evaluate your financial plan, you’ll be sure to identify some missteps you could avoid in the beginning. For example, while you should try not to take out a business loan if possible, you might be left with no other choice, as long as you are sure your company can grow enough with extra funds to repay them further down the line.

To help you avoid making financial mistakes, we’ve put together a few recommendations to help you save money during your first year in business.

Create a financial plan

The simplest way to achieve your business’ financial goals is to write them down. For seasoned entrepreneurs, this might seem an obvious first step, while first-time business owners may not see the point. Simply put, creating a financial plan for your business forces you to identify your goals and the strategies that could lead you there. It also lets you make better business decisions and see the big picture when daily activities bog you down. 

Financial planning allows you to figure out how much your business needs to survive during the first year, in any situation. What do you hope your sales are going to be? Do you have a backup plan if those sales don’t meet expectations? What about if demand exceeds supply? Whatever the potential outcome, knowing what course of action you would take to stay afloat financially is critical. 

Use accounting software

Accounting software saves time and money because it enables you to manage your business’s finances easily, wherever you are. You can install accounting software on all internet-connected devices to track business mileage, create invoices, keep track of receipts, and control your corporate cash flow. 

The secret to running a profitable business is to get paid on time, so you should always track invoices to ensure your clients don’t forget to pay for the products and services you offer. Accounting software allows you to create and send invoices, preventing delays. Staying on top of your spending is also an essential way to ensure that no expense has been overlooked. Simply upload your receipts into your accounting software and sort them according to their urgency. 

Use payroll software

Another online tool you can use to manage business finances and payroll is payroll software. This kind of program allows you to pay yourself and your employees fast and straightforwardly. The average financial tool includes payroll management features that enable you to see how your company performs and pays your employees correctly, and if you opt for automated payroll software, you can make required adjustments easily. However, if you’re looking to make pension submissions or use it to handle your taxes, it’s essential to use only HMRC-recognised payroll software.

Use free apps and tools

As a small business owner, you probably wish you had more resources at your disposal. Sadly, you probably can’t afford to purchase all the tools and apps you’d want. But, don’t despair – there’s still plenty of free software and tools out there that can help you manage your business better. Whether putting your faith in open source or signing up for a few free trials of industry standard programs, you should always try before you buy, and avoid paying for tools and apps until you know exactly how they can help you. 

Invest in product research

You might think your product is unique, and everyone will want to purchase it – why else would you have started a business? But remember that people have different preferences and needs, and not everyone may find it useful. So, if you have a product idea in mind, don’t leap directly to production because it can turn into a huge financial drain if the audience isn’t ready for it. 

Market research is crucial at this stage, because it tells you what improvements your product needs and whether there is a public willing to purchase it. If you want to manufacture a product, you should first put money into research and development. Then, once you have a prototype you’re happy with, validate it with people who’d like to buy it. Product validation ensures that you’re delivering a product the public will pay for, so you don’t invest time, money, and effort on something you won’t be able to sell. 

You can use several methods to validate your product ideas:

– Use online surveys to get feedback from the target audience

– Talk about your products with friends and family

– Ask for feedback on forums like Reddit

– Launch a “coming soon” page on your website to attract interest the public’s interest

Don’t spend too much on marketing

Start-up marketing is complicated because you have limited resources and expertise. And even if you have some funds to spare, you don’t want to pump money into a method that doesn’t guarantee sales. The general rule of thumb is to spend from 5% to 8% of your total budget on marketing in the first year. 

Here are some things you can do before spending money on marketing:

–         Pick the right social media platforms for your brand. After creating profiles on these channels, make sure you post consistently and constantly to keep your audience engaged. 

–         Optimise your website for sales. Your visitors will only need a couple of seconds to form an impression of your website. Aspects like site speed and homepage navigation impact their experience, so make sure they’re functional, and created with user experience in mind.

–         Collaborate with micro-influencers in your niche. Are there influencers who’d be interested in working with your brand? Offer them free products and services in exchange for mentioning your brand on their platforms.-         Reward loyalty. It’s more profitable to retain your loyal clients than putting time and money into attracting new customers. So why not reward that loyalty by creating a VIP program for loyal customers, through which you can offer them special prices and discounts.