Nearly 60% of startup founders say operating costs are their top spending priority in the first quarter

Nearly 60% of startup founders say operating costs are their top spending priority in the first quarter

Published: 11-11-2020 14:03:00 | By: Pie Kamau | hits: 953 | Tags:

While the long-term economic effect of the COVID-19 pandemic is still unknown, the remote work period has forced startups to adjust their spending priorities, according to a new survey from Clutch, a B2B ratings and reviews platform.

Starting a business during a pandemic may sound risky, but over 3.2 million applications for employer identification numbers have been received in 2020, compared to 2.7 million this time in 2019. New business ventures need to identify and plan for expenses in order to source funding.

More than half of founders (59%) spent the most on operating costs during their first quarter of operation. These costs ensure the startup is a legally viable business. Operating costs cover anything related to compensation, sales, and other items including business registration costs, utilities, taxes, and more. While some of these are one-time costs, others are recurring expenses.

Inventory Expenses are the Second Most Important Business Expense

More than half (55%) of startup founders prioritize inventory expenses. These expenses include anything related to the product a company sells, from raw materials to the finished product. The COVID-19 pandemic presents unique challenges for businesses when it comes to sourcing physical products. This supply chain disruption has directly affected both shipping costs and delivery times.

Many airlines cut back to barebone services, while UPS, FedEx, and DHL reported a number of suspended routes. The US Postal Service also reported significant delays in getting letters and packages to certain destinations due to foreign postal service suspensions. When setting spending priorities, businesses should keep these potential delays in mind.

Marketing & Office Expenses are Less Emphasized in the First Quarter

Despite the importance of gaining buzz around a new company, just 33% of startup founders prioritize marketing spending during the first three months. Luckily, startups have access to a variety of free or inexpensive marketing avenues. Founders can take advantage of social media and free design tools to minimize these costs while still expanding their brand awareness.

The era of remote work has also reduced the need for office spaces. Only 25% of founders surveyed spent the most on office space within the first three months. Given the economic uncertainty at hand, startups should categorize and prioritize their expenses, putting operating and inventory costs ahead of secondary expenses such as marketing or office space costs.

Clutch's survey included 501 startup founders.