The Advantage of
Low Cost Business Ideas
Why do we recommend low cost business ideas for most people who are looking to build a successful home based business? When you start a home business low start up costs bring a number of advantages.
LESS NEED FOR START UP FUNDING
Money for starting a business is not easy to come by after the credit crunch. If you have savings then of course you can invest without taking a loan. However, if your start up costs are higher than the money you have available, you will have to obtain a grant, find an investor or borrow to make up the shortfall.
In our interview with experienced bank manager Rob Warlow, he says, "My advice would be to do whatever you can to avoid bank debt when you are starting up." If you do need to borrow, he suggests going first to family or friends.
Ideally it's better to look at low cost start up businesses where you do not need a loan - even if you look at this as a short term measure. If you can start making some money and build your savings, you will be in a better position to expand into a higher cost business if that is what you really want to do.
POSITIVE CASH FLOW
It's not only about looking for low cost start up businesses. It's important to keep costs down month by month. The lower overheads possible with homebased business give big cash flow advantage compared to traditional small businesses.
Even if the figures are low, positive cash flow is an excellent aim for most small businesses. Let's say that you start a part time home business and in the first few months you make a $50 cash surplus. In other words, your actual cash received is $50 higher than your cash expenditure. That's extra money you can save or spend as you choose. On the other hand if your expenditure is $50 more than your cash received each month, there's a danger of your finances going into reverse.
Once you have established a way of making an extra $50 a month, you can gradually expand to make $100, $200, $500 and so on - gradually strengthening your financial position. Many business experts have written about the importance of positive cash flow. For example, this is one of Robert Kiyosaki's key teachings in his various books such as Rich Dad Poor Dad and Cash Flow Quadrant.
THE LEARNING CURVE
Another advantage of low cost business ideas is that you have time to make experiments and find out the most effective ways to find customers and carry out your day to day business activities. Naturally you should have carried out research before you started to assess whether there is a gap in the market - a profitable niche - for your small business idea.
However, you will be under much more pressure to succeed quickly if you have invested heavily in your new business - for example by taking a bank loan to buy a high cost franchise. Of course the extra pressure might be just what some people need to motivate themselves to put in 100% effort to succeed. But this is certainly a high risk option. And with higher risk comes more pressure.
Finally, you may encounter some pressure from others who don't like the idea of low cost business ideas. Shouldn't a good small business idea be expensive? Wouldn't it look better to rent an expensive office? Only you can make that decision. However, remember that most small businesses fail. Low cost start up businesses should help reduce your risk of losing money - while at the same time providing a chance to build a successful home based business.
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