How to keep costs down when looking to raise investment

By Rafael S. Lajeunesse, above, CEO, ReachX

For businesses wanting to seek funding, there are an abundance of challenges. It’s essential to find the right balance between growth and cost optimisation. Keeping expenses in check not only demonstrates financial responsibility but also positions your company as an attractive prospect for potential investors. It is especially relevant as we have been experiencing several macro shocks that have made fundraising more challenging. In this article, we’ll explore some smart strategies to cut expenses and increase your chances of securing the right investment for your business.

Operational Costs

Streamline Your Overhead Costs – Start by conducting a thorough evaluation of your company’s overhead costs. Identify areas where expenses can be reduced, and collaborate closely with your operations manager or team responsible for external suppliers and vendors. Negotiating better prices with existing suppliers or exploring cost-effective alternatives can significantly impact your bottom line.

Embrace Tech Solutions – Leveraging technology is crucial in today’s business landscape. Look for ways to improve efficiency and reduce manual labour costs through tech tools and automation. Cloud-based tools, project management software, and communication platforms can streamline operational processes and enhance customer engagement, all while saving your company money.

Reallocate Resources Strategically – Understand the function of each business area and prioritise where your resources should be allocated, this may mean working closely with your COO or team that oversees the company operations.  Consider reallocating funds from non-essential functions to critical areas that directly impact the company’s financial viability,  for example, switching to cloud-based tools in admin or customer service roles. Reducing some of these non-priority development costs to maintain a budget for sales oriented projects could enhance your company’s positioning.

Foster a Cost-Conscious Culture – Encourage a cost-conscious mindset among your employees by promoting cost-saving ideas and recognising innovative cost-cutting measures. When your entire team is invested in reducing expenses, it can lead to significant improvements in the company’s financial health.

Outsource Non-Core Business Functions – To reduce fixed costs and increase flexibility, consider outsourcing non-core functions to external experts. Services like IT support and marketing can often be managed more cost-effectively through third-party providers, allowing your team to focus on core business activities.

Explore Shared Spaces and Collaborations – Look into shared office spaces or co-working arrangements to cut down on rental costs. With more employees embracing remote work, overhead expenses can be further reduced. Additionally, seek out partnerships with complementary businesses to share resources and split expenses related to marketing, events, or equipment.

Continuously Review and Adjust – Implementing these cost-cutting measures will make your company more appealing to investors and free up resources for finding the right investment fit. You will need to regularly review the effectiveness of these strategies and make adjustments as needed to ensure you are meeting your cost-reduction goals, and make changes where needed.

It’s important to note, while cutting company expenditures may feel like a step backwards, there are many successful companies that have had to undergo the same exercise to get the funding they need.

One of these is Tesla, the electric vehicle manufacturer. Tesla has faced periods of financial challenges throughout its history. During these times of financial downturn, the company has sought to reduce costs by adjusting its manufacturing processes and workforce to improve efficiency and conserve cash.

Pitch Decks and Forecasts

Streamline documentation 

Once you’ve made the necessary changes to reduce the company’s operational costs, you’ll need to prepare your documentation for potential investors. Be savvy and use existing templates instead of starting from scratch. There are lots of free to use professionally designed templates for pitch decks and financial projections available online. You can always customise the template to suit your business adding the relevant company branding.

Seek Mentorship or Guidance – If we lack knowledge in an area, we should always ask an expert! Creating a pitch deck and putting together financial projects for your business may be areas you lack experience in. If so, reach out to experienced entrepreneurs, mentors, or advisors who can provide valuable feedback and guidance. They may be willing to offer their expertise at a reduced or no cost to support your business’s growth.

Focus on the Essentials – Remember to keep your pitch deck concise and focus on the most critical aspects of your business and investment proposal, what problems are you trying to solve? How will the investment convert to growth?. Keep it simple, and avoid unnecessary details or complex financial models that could add unnecessary cost and complexity.

Test and Iterate – Such an important step to take before you finalise your pitch deck and financial projections.  Gather feedback from trusted sources or potential investors. This iterative approach can help refine the documents effectively without incurring additional expenses and provide you with invaluable insight to really fine-tune what you are presenting.

Risk of down round – In an environment that is more challenging, the risk of a down round is what most  companies are trying to avoid. Some companies by managing expenses below accelerate the path to profitability and

Cutting your business expenses  is more than just preparation for investment; it’s the key to operational efficiency and lasting success. Adopt savvy practices to attract investors and thrive in a competitive market by delving deep into each business area, noting where savings can be made, and services and processes reallocated or outsourced.

Remember, as you continuously review and adjust your strategies, you’ll discover a finely tuned business model that appeals to investors and ensures lasting success.

Rafael is CEO of ReachX. Prior to ReachX, Rafael worked with JPMorgan in London where he was a Portfolio Manager. He was also a consultant with McKinsey in New York.