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"B" is for Budget

February 11, 2010

Budgeting for your business is very much like managing a household budget. You set limits on your spending based on various factors, like how much is in your savings account or how much you can afford to spend based on your monthly income. The same is true for your startup.

lincoln-pennies When I was working with my editor at Alpha Books, Paul, we worked through guidelines that would frame the content and approach of The Complete Idiot’s Guide to Low-Cost Startups. From the moment we began discussing the concept of low-cost, Paul insisted that we keep our startup budgets to $1,000. I remember my first reaction was – how on earth was I going to come up with enough startup ideas to fill a book if all someone could spend upfront was $1,000 or less. But the more I thought about different ideas, the more creative I became with a small budget. Keeping costs low brings the American dream of starting a small business to reality for many more people than say coming up with the typical $100,000+ it takes to buy most franchises.

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Today’s quote, which we all have heard since childhood, takes on a new meaning when you consider that your basic business formula is

Revenue – Expenses = Earnings

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The appeal of keeping the startup costs to $1,000 is obvious; the risks associated with failure become much more tangible-you can get your thoughts around it, picture it, and deal with it. What if you bought a new 45 inch HD Television and it stopped working right after the warranty ran out? (This never happens, now does it?)

If you have a job that requires you to manage a budget, your spending limits are established for you. You may have some leeway to determine how to spend your budget, but your hands are mostly tied when it comes to how much you spend. This all changes when you go out on your own. Now you are the investor and the boss in charge of monitoring expenses.

Quote for Today:

A penny saved is a penny earned. ~ Benjamin Franklin

Here is a list of the 5 best tips to keeping your startup costs as low as possible:

1) Use stuff you already own

2) If you absolutely have to buy something, like a piece of equipment, shop for used items. There are plenty of fire sales going on right now with bankruptcy filings at an all time high

3) Write it down before you spend your first dollar– if a budget isn’t in writing it doesn’t exist

4) Make yourself accountable – compare what you are planning to spend to actual prices BEFORE you commit to buy it

5) If you HAVE to acquire some piece of technology, whether hardware or software, DON’T go chasing the latest thing on the market. We all know that:

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New + Improved = For Sale at Top Dollar

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I’m not advising you to purchase used computer equipment. Just don’t use starting your own business as the excuse for buying the latest version of whatever. I actually have many stories I could tell you about new entrepreneurs who did buy some cool new, expensive device with their seed money. But here’s a short one that makes the point.

Several years ago I was working on a business plan with a long-time client and his new partner. They had a great idea for a new software concept that would serve a particular industry. During the weeks we were working on the plan, each partner put in several thousand dollars to launch their idea. At the very next meeting the new partner brought his newly purchased IBM tablet laptop, which he had considered essential to getting the software project off the ground. Cost? Around $4,000. Essential to a successful project?

How long would you guess this partnership lasted? What tips can you share that kept your startup costs to a minimum before you started your business?

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One Comment leave one →
  1. Stefanie Lewis permalink
    February 12, 2010 1:20 am

    By offering a personal service, startup costs may be only the cost of advertising. A neighbor of mine is moving from a house to an apartment building. She is planning to advertise her services to run errands, cook meals for elderly residents, do laundry in the building’s laundry room, etc. Her” advertising” will consist of flyers posted in communal areas of the building. She plans to start when she gets settled in and meets the residents

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