Cutting Startup Costs

When big initial costs make it hard to start your business, look further into the figuresthey may not be as scary as they seem

As a startup wedding and event photographer, I made a list of all everything I need to purchase for my business, and it literally scared me. Between investing in equipment, software, Web site design, and advertising, my projected income is much less than my necessary expenses for this company. Photography has been my life's passion, and I really want to succeed. Is there any advice you can offer me? —M.M., Chicago

Fear often stems from lack of understanding. Delving into the financial details of your venture should clear up your confusion and give you confidence to proceed—or perhaps persuade you that your business model is flawed and needs to be overhauled or scrapped.

You'll need to consider both your startup expenditures and your operating costs, since the latter will help determine how quickly you can pay back the former. There are many ways to save on startup costs, such as outsourcing some services, bartering for equipment, hiring interns, and forming strategic alliances with other small firms. "New entrepreneurs are often overwhelmed with the long list of to-dos and purchases they think they have to make," says Lucinda Cross, president of Ultimate VA-Support, an outsourcing firm in Westchester, N.Y. "Some of those things you could get much less expensively than you think."

Room for Error

You may not even need to purchase all those items you mentioned. "Can you rent and use what you need when you need it?" asks Edward D. Hess, professor at the Darden School of Business in Charlottesville, Va., and the author of So! You Want To Start A Business. "Can you share? Can you bootstrap?"

Then pencil in your expected monthly operating costs. Determine how many photography gigs you'll need to do each month to cover your operating costs and eventually turn a profit (which you can use to pay back any money you borrowed to get going). Keep in mind that you'll probably need several months of advertising, networking, and word-of-mouth referrals before you're routinely winning assignments. That's why you want to make sure you've got enough in personal savings or contributions from third parties (such as family or friends) to survive 12 to 18 months before you can count on steady business, says Taylor Smith, managing partner of The Spirus Group, a New York consulting firm that works with startups. "There is always uncertainty in how long it will take to grow the business and how much it will cost, so you should make sure to give yourself room for error," he says.

As you're preparing your calculations, you may determine that you'll need only a handful of sales each month to cover expenses, which should be reassuring. On the other hand, if it turns out that you'd have to photograph dozens of events each month before your business becomes profitable and you start to make a dent in your startup costs, you'll know that your business model is fundamentally flawed or that—at the very least—you must change your pricing strategy, says Smith.

Finally, consider starting the business on the side while keeping your current job. That might mean you'll be postponing profitability, but it's often the prudent course for first-time entrepreneurs. "In today's deep recession, you need to find a way to test your business idea without taking a lot of risk," Hess says. "Be cautious, do your homework, and do not bet the ranch in this economic climate."

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