Practical advice for auditing your payroll and vendor costs to run a nimble and healthy company.
While black swan events are rare, unforeseen challenges can arise for your company at any time requiring you to re-evaluate your costs (particularly vendor costs and payroll costs).
Managing your startup effectively and smartly means that you need to be proactive and reactive – question every assumption for your business while preparing to adapt as needed. From our experience helping other startups and running startups, we have some practical advice to help you audit and assess your business. This advice won’t cut the costs that you need or impede your growth but will ensure your company is lean, flexible, and ready for any environment.
Evaluate Every Vendor
Start by reviewing a detailed breakdown of your monthly spending for each vendor. The level of detail should include even the smallest vendors that you auto-pay. You’ll likely find that your vendor list is much more extensive than you thought and add up to more than you predicted.
Evaluate Vendor Costs
Now it’s time to evaluate your vendor costs: your spending on every vendor. Rank each vendor on how critical its role is in running your business and consider what happens if you do not use that vendor. Make sure you know the alternative options for every vendor and how they stack up in terms of ability to deliver against requirements, the potential for consolidating other services, pricing, and switching costs. Eliminate vendors that aren’t essential to supporting your business or where services can be more cost-effectively consolidated.
Evaluate Vendor Cost Structure and Contract Terms
Once you’ve re-evaluated and streamlined your vendors, the pricing structure and contract terms for vendors should be reconsidered. Prioritize focusing on your most significant vendors initially. Again think through what the essential level of support or services is from each vendor. Are you paying for more than your company needs right now? Is there flexibility in the cost structure? Negotiate contract terms to reduce your cost structure and maximize flexibility. In essence, you want to be able to flex up and down on services and support each month, reflecting your business needs.
Evaluate Your Payroll
Just as you evaluate your vendor costs and expenses, you also need to periodically review your payroll expenses in depth. Review your organization’s fully-loaded payroll costs – salaries, benefits, payroll taxes, etc. Make sure to include the projected cost of all of your open positions as well.
Consider every role in your organization. What are the responsibilities and objectives for each position? What are the implications of that role is no longer filled? Think about each position as a series of projects. For every project, ask yourself how critical it is and who can do it best. Should it be executed through a full-time role, a contractor or freelancer role, or a vendor? Could the responsibilities or projects be supported by on-demand contractors and vendors to provide what we need in the near term? The goal of this exercise is to determine where your full-time resources are most critical (prioritize their allocation) and where on-demand resources can provide the flexibility you need for your startup to be healthy and thrive.
Stay Nimble
By regularly reviewing your resources and payroll and vendor cost structure you can keep your business lean and nimble. Tapping into the liquid workforce to provide on-demand services and support will help you quickly scale up and down as you build your startup. Thoughtful, proactive analysis of your structure will provide both cost savings and greater flexibility that will help you grow your business and withstand the unforeseen.
Note, we are not providing legal, tax, or payroll advice. Please consult your legal, tax, and payroll professionals. These are simply to serve as guidelines based on our own experiences.
