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Startup Costs: Budgeting for SMB

Starting an online business in e-commerce takes as little as a little space in your home for a digital camera setup and an e-Bay account. In fact, since so many small online businesses are starting out on e-Bay, many vendors are finding out that they have to compete with e-Bay prices.

The following list includes many items that you may not need if you're starting from home. It's intended as a set of guidelines that you can use to do research on your actual needs. Check with a tax accountant in advance to find out which items are considered start-up costs and which are operating expenses, for tax purposes. A good tax specialist will help you determine depreciation costs and the best time to claim them.

Here are a few basics that most businesses include in their start-up budget, whether they're online or not: office space: You probably don't have the capital to buy your own building. If you decide to lease, don't forget to budget for the damage deposit. Then again, you can always work out of your garage.

furniture and office equipment: You'll certainly need a computer. You should also price printers, a fax machine and a copier to complete your office equipment. Depending on your needs, you may also want to purchase a scanner.

utilities: Be aware that you will need electricity, telephones and internet access to get your business off to a running start. Many utilities require an up-front deposit to start.

insurance: Besides insurance on your assets, you might ask about health plans for your employees.

legal costs, licenses and permits

accounting costs

software: Having the proper software for office management, accounting and inventory control will ensure that your employees can effectively do their work

employee salaries, payroll taxes, benefits, and workmen's compensation insurance

office cleaning

delivery services and/or transportation.

In addition to this list, an e-commerce business should include budget lines for:

• web hosting (setup fees are startup costs)
• domain name registration (yearly or multi-year payments, although month-to-month is also available)
• web site design
• site maintenance or an in-house webmaster
• e-mail service
• network security
• a merchant bank account setup and/or a payment gateway
• a shopping cart system
• search engine optimization (SEO)
• marketing and market research, including an advertising budget, costs of e-mail lists, search engine placement by keyword and promotions
• web analytics
• installations costs such as shopping cart setup
• inventory
• hardware backup/redundancy
• travel to trade shows, conferences or professional meetings
• subscriptions for trade periodicals.

Cost Cutters: A Guide to Reducing Startup Costs
Almost all startup and operating expenses can be reduced if you take the time to do your homework. In particular, obtaining multiple services from a single vendor saves you a great deal of money, whether it's insurance or web hosting. Here are some money-saving tips:

• Check with your web hosting service to see what they offer for their monthly membership or subscription fee. Many offer web site templates, free domain name renewals, shopping carts and a fixed number of e-mail accounts.
• You can package and ship your own inventory, but you should price the major express shipment companies, as well as the U.S. Post Office (they also pick up parcels at your door). You can save money by presorting and barcoding your parcels. Better yet, arrange for drop shipping from the suppliers you trust most.
• Check for used office furniture at auctions and online (try Craigslist.com).
• If you have to lease an entire building or floor, arrange to sublease some offices to generate income.
• Lock up your office supplies and make them last longer.
• Minimize the use of cell phones and pagers by employees who rarely leave the office.
• Shop for office supplies in discount warehouse stores. Avoid buying paper towels and paper clips at office supply stores when you can.
• Minimize travel by meeting online and using teleconferencing.
• Turn off lights in the evening and air conditioning on weekends (unless you have your servers in your building).
• When putting together your initial inventory, get several bids. Do this also when pricing product packaging supplies.
• Negotiate a discount for small businesses on your banking fees.
• Consider part-time help for accounting, payroll and other services. You can also start out with a four-day work week to keep costs down.
• Use your office software. You may not need inventory control software until you've built your business up a bit, so a simple spreadsheet may be adequate.
• Team up with other small businesses to share the cost of training, office space rental, bulk purchases and licenses.
• Barter some of your services. You may be able to exchange goods or services for the online services you need.
• Locate suppliers in your area. You can reduce shipping costs by picking up some supplies yourself.
• Prepare to buy at trade shows. Some of the best discounts are available from your suppliers' promotions.

Set some priorities and budget generously for the items you need most. While you don't have to be a skinflint to be successful, you do have to start early keeping your eye on the bottom line.

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