4 Tips for Starting a Business on a Budget

Don't let a small budget deter you from your dream of business ownership. With some financial savvy, you can start your business for less than you think.
May 06, 2013

Do you dream of starting your own business, but don't think you have enough cash to get started? Think again. You don't need VC money or a wealthy family member to launch a successful company—resourcefulness and financial savvy can take your business far.

That's what startup coach, business consultant and author Gail Margolies Reid believes. In The Complete Idiot’s Guide To Low Cost Startups, Reid highlights the many ways new business owners can streamline costs and prepare for the long term.

“I wrote this book primarily for people who dream of starting a business, but are bootstrapped for cash and don’t have a lot of resources,” Reid says. Whether you want to start an Internet company or launch a consulting firm right out of your home, drafting a budget plan will greatly benefit your company in the early stages. Here are four tips on how to stretch your small budget and launch your new business:

1. Work out of your house. One of the biggest expenses for new business owners is leasing space, and you can save a lot of money upfront by not having to invest in that long-term overhead cost. For businesses that depend mostly on the Web, it's much easier to work out of your home—you can conduct your business online and have virtual meetings to collaborate or check in with other employees or customers.

“It’s a practical, down-to-earth approach to starting a business for someone who does not have much money to invest in a startup,” Reid says. “You can gain a lot of ground and reach your break-even point much more quickly if you are not burdened with the high startup costs and responsibilities of leasing commercial space.”

Even if your business isn’t an Internet startup, you can still work out of your home, but consider having a separate entrance for your office to keep your home life separate from your work life. A separate space will also appear more professional when you have clients visiting.

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2. Operate as a sole proprietorship. Reid advises starting off as a sole proprietorship, which is free to form and is the only no-cost operating structure you can use to launch a company. A sole proprietorship is owned by an individual who is responsible for its debts, but isn’t a legal entity separate from that individual. (This means that you can’t put “Inc.” after the name of the company, because this defines it as a corporation.)

However, you should consider incorporating your business when it grows big enough to be a separate entity. If debt is eventually accrued, you are protected from this debt since the corporation is now considered a separate person under the law. A corporation will also have certain tax benefits and is able to eventually become a public company. That said, unlike a sole proprietorship, it's expensive to set up and requires periodic filings with the state.

3. Use your own equipment. You may already own the products you need to start a new business, and when you convert them from personal to business assets, they also become tax deductible.

“This applies to your cell phone, computer and anything else that you use regularly to conduct your new business,” Reid says. Not sure if this applies to you? "It's a good idea to read up on tax deductions for small businesses or to follow up with a professional,” she adds.

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4. Purchase products through a wholesaler. When purchasing products, find vendors that are open to helping new businesses get started and that don't mind drafting a budget plan with you. To find vendors, visit trade shows or go directly to a wholesaler or distributor for your needs. 

But do your research before you jump in: “Request the names and phone numbers of the sales rep's other recent customers and call them before you make your purchase. It's not just your capital you want to protect: You want to lay the foundation for rapid success,” Reid says.

Read more articles on managing small business finances.

Photos: iStockphoto