Reining in New Biz Startup Costs

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By Joyce M. Rosenberg, AP Business Writer

NEW YORK (AP) — Starting a business can be expensive, as people find when they become entrepreneurs after losing their jobs. But many of these brand-new company owners have also found ways to keep those costs down.

The biggest money saver is working out of your home. Asking friends and family to refer good but low-cost help, from accountants to graphic artists to lawyers, is another way.

Keeping startup costs down is essential when a business is young and money isn't yet flowing in. But always watching your expenses and being sure they don't get out of hand is a good way to help any company weather the downturns.

"We didn't have a choice" but to keep costs low, said Michael Volpatt, co-owner of the public relations firm Larkin/Volpatt Communications. "What I've learned in the last 10 years is that financial stability is about sustainability." And that, Volpatt said, means making sure a

business isn't ever undermined by costs.

Here's a look at ways that new entrepreneurs can keep their startup costs down:

WORK AT HOME, OR IN A FRIEND'S SPACE

Since many people who have lost their jobs tend to be at home, that's where they start their businesses. They can't beat the low overhead.

When Volpatt and Kate Larkin started the public relations firm Larkin/Volpatt Communications 10 years ago, they both worked out of their homes. Volpatt is based in Sonoma, Calif., while Larkin is in New York.

"It made sense financially," Volpatt said.

Working at home requires some adjustments. A new entrepreneur needs to have space for an office. If there are children and pets around, it's easy to be distracted. Some people find it isolating to be home much of the time.

There can be a financial plus in working out of your home besides keeping costs down. The federal tax code allows people with home-based businesses to deduct some of their expenses such as rent or mortgage interest, utilities and repairs.

But you may have to spend more on insurance. If a fire damaged your business equipment, or a business associate was injured at your home, your homeowners policy might not cover it.

Another option, if you don't want to or can't work out of your home, is to find very affordable space. Do you have family or friends who are willing to rent to you? Jill Donenfeld, CEO of The Dish's Dish, a personal chef service with offices in New York and Malibu, Calif., started out four years ago in space behind a friend's Greenwich Village hardware store. Donenfeld, who had $4,000 to start her company, paid $100 a month for the space.

WHOSE TIME IS MORE VALUABLE?

Many entrepreneurs struggle in the beginning with whether to get some help for tasks they're not familiar with, or save money and learn to do the work themselves. The answer may come down to deciding if your time is better spent on the basics of your business. Getting customers and then fulfilling their orders or projects.

The answer for some is to work on the business during the daytime, and then spend evenings learning how to use record-keeping software. Others outsource, but they can still find ways to keep their costs down. One option is to hire accounting students to do the work. Or people you know might be able to refer you to someone willing and able to work for less.

Donenfeld's advice: "Look at all your friends and figure out what resources you have."

One big caveat: If you need legal or accounting advice, be sure that the professional you're referred to is someone who has worked with small business owners and understands their issues. If you're in an industry that might require specialized knowledge, such as intellectual property law, make sure you're working with someone with experience in that area.

USE INDEPENDENT CONTRACTORS

Volpatt and Donenfeld have people who work for them, but they're independent contractors, not employees. With independent contractors, a small business doesn't have to pay for benefits and employment taxes.

Volpatt said he and Larkin "have built a network of freelancers that continues to work with us today," including one who works a full week and who has been with the company eight years. He and Larkin decided early on they didn't want the costs of employees.

Owners who are considering using independent contractors need to be aware that they have to comply with laws that define who is an employee and who is an independent contractor. The laws have to do with the amount of control an owner can exert over a worker, such as hours and place of work.

The IRS has information about the differences between employees and independent contractors on its Web site.

LET TECH DO YOUR WORK

The number of business services available over the Internet that help companies keep costs down keeps growing. Online shipping and mailing services are especially helpful for companies doing bulk mailings. You can comparison shop online when you're buying any kind of equipment. And there are plenty of online ways to save money on marketing. Besides creating your own website, putting a page on Facebook for your business or getting a Twitter account will help you market your company.

If you're not sure how technology can save you money, start talking to other business owners and get tips from them. You might also talk to a counselor from SCORE, which offers free advice to small businesses. You can talk to a counselor in person, on the phone or communicate with one online. The organization's website is www.score.org.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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