Keeping Home Business Start Up Costs Under Control

The unemployment rate is at 7.4%…Bankruptcies are at an all-time high…The number of homes in foreclosure reached nearly 128,000 last month.

With depressing statistics like these the idea of starting a business can seem impossible. But for those entrepreneurs that are willing to go against the grain I’ve got some news that can make the impossible, possible. Business experts now agree that the absolute best time to start a new business is now!

Yep, when times get tough more people look for alternatives to what they always buy. If you can fill a need in the marketplace then your business is sure to work!

Of course the risk of failure for new businesses is still there. The success of a new business really depends on how wisely you use your start-up funds. New businesses have a lot of initial costs; everything requires your hard earned cash. Successful business owners figure out where their cash is best spent and where it’s not. Below are four things I would not overspend on when I’m trying to get a new business up and running.

Equipment

In the beginning you need everything. Laptop…business cards…software…printer…supplies…fax machine…furniture…the list of things you’ll need is never ending. If you’re not careful your whole start up budget can go right out the window buying up everything you’ll need to run a successful business.

Established business owners know these are not the things that will make them money. The trick is to severely limit the amount of equipment you buy. Write up a list of the items you have to have. If your list is longer than ten items you’re not being cut throat enough. The other pieces of equipment you need you can buy down the line when you’ve got more cash coming in the door. For now we’re working on bare bones.

Also look at what equipment you can lease instead of purchase. Leasing allows you to pay a little bit every month, rather than the whole cost up front, an important feature when your cash is limited. The added benefit of this approach is the flexibility it provides you to change models as your business grows. Rent a laptop for a year, then when the year is up you can get the latest, greatest model on the market.

Inventory

This will seem counter-intuitive, but don’t buy any inventory until you’ve made your first sale. Producing physical copies of your products will likely cost you thousands of dollars, that’s a lot of cash to give up in the beginning. Instead sell the idea first, then once you know you’ve found people who want what you are selling you can plunk down some cash to get to get the inventory you need.

Sure you may lose a few bucks on the first sales scrambling to get the products made quickly, but you’ll have saved yourself a bunch of money if for some reason your product didn’t sell well. Doing it this way allows you the flexibility to make adjustments to your product, offer or price point if necessary without having to throw away a bunch of inventory you’ve already paid for.

Office Space

Where you work often determines how well you work, but you can probably rough it for a bit in the beginning while still getting things done. Of course the most cost effective way to build a business is to run it from your home at the start. Using a spare room with a door you can shut is ideal. Just don’t go overboard getting your new office set up. You don’t need a brand new $600 desk to get your work done. Nor do you need a fancy chair. Browse garage sales and consignment shops for second hand furniture.

If working from home isn’t an option for you consider a start-up incubator. An incubator is a great option for new entrepreneurs as these spaces usually provide access to useful business equipment like a copier, fax machine, telephone line, scanner, etc. The bonus is that you get to interact with other start-up entrepreneurs who you can lean on for support and advice.

Support Services

There is no way you are going to know how to do everything when you start a business. Rarely is a great marketer good at the accounting side of his business too. Many entrepreneurs struggle with the decision to get some help for tasks they’re not familiar with or to save money and learn to do the work themselves.

In the very beginning stages its best to do as much as you can yourself-at least until you make your first couple of sales. You can work on the business by day and spend evenings figuring out how to use accounting or design software.

Another great way to keep costs down is to leverage your friends and family. Take a look at all your friends and family and figure out who can help you with what. Do you have a family member that is a lawyer? Ask if they’ll cut you some slack in the first few months for any work they do for you. If there is a task you need help with but don’t know anyone with the matching skill, ask your friends and family for a reference. They just might know someone who is willing to cut you a deal.

Marketing Costs

Ideally this is the area where you want to spend most of your initial budget for because it will bring cash back into your business. Marketing a new product or service can quickly eat up your entire budget so you’ve got to be smart. Don’t place an ad on every website you’ve ever heard of hoping to make tons of sales. That won’t work.

Instead, try testing small and start with a very specific niche. Niches are like segments. You want to try to appeal to just one segment of your entire market at first.

This may seem counter-intuitive to you, but in fact it’s not. It’s actually the best way to grow and sustain a business. Advertising to just a select group of your entire market allows you to place very targeted ads that are generally low in cost and offer high return rates.

Once you’ve got money coming in from that niche, expand your marketing materials appeal to another segment of your overall audience base. Work your way up until you have included everyone that is in the market for what you have to offer.

Don’t let the numbers coming out of Washington dissuade you from living your dream. Recessionary periods are a great time to start a business! In fact businesses that wait to launch until the economy recovers are behind the eight ball in terms of taking advantage of the inevitable economic upturn. Give your business the head start it needs by keeping your initial costs low. That way more of the dollars you make can go into your pocket!

Good luck!

Mark Patricks


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