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There are several ways to make any business idea a low cost start up business. Many people will think only certain classes of businesses can be low cost, but cost-cutting measures can always be applied to maximize profits by limiting expense. Try these techniques to keep costs low in the first several years of operation for your new business, and then begin transitioning to add more expenses.
1 - Work From Home
Working from home does more than just save you the cost of renting a new office space. Did you know you can deduct a portion of your rent or mortgage payment from your yearly taxes if you have a home office? You can deduct a percentage equal to the percentage of square footage of your home used for business purposes. So, if you operate in a 500 square foot room of your 2,000 square foot home, you can deduct 25% of your housing cost. In fact, you can even deduct from your renters or home owners insurance in an equal amount.
2 - Hire Contractors, Not Employees
The moment you hire even a single employee, your expenses will go up. First, you will have to obtain workers compensation insurance. This is an expense that is most costly for the first employee you hire. You will also be required to pay employment taxes in your state. This can add up very quickly, even for a low paid employee. Your employee may also ask for health insurance and other benefits, which are most costly for the first employee you add. Instead, consider working with independent contractors. With the modern convenience of the Internet, a contractor is available for nearly every need you have. You can even contract with an administrative assistant from a remote location. This will give you the assistance you need while only adding the cost of a salary, not insurance, benefits and taxes.
3 - Limit Liability
Exposing yourself to liability will require insurance, and it can also lead to a lawsuit if you are not careful. Avoid taking on excess liability by deflecting any advice, services or goods that would require unique licensing or insurance. For example, if you own a yoga studio, require that each of the instructors operating in your studio carry their own liability insurance. This way your policy for liability on your property will only be limited to injuries that happen outside of class.
4 - Deduct Capital Expenses
In your first year of operation, you can deduct all expenses used to start your business, even though they are technically capital costs. This means you can deduct: business trips, office supplies, research trips, lunches, car costs and all expenses that were incurred in the process of determining whether to start your business. This last category is the most inclusive. If you hired an assistant to help research for a grant or your business plan, deduct the expense. If you purchased ink to print your loan application, deduct it. You will likely find you owe little to no taxes at all in your first year of operation.
