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Great thread guys a lot of relevant information.
Just thought I put my commercial accounting hat and add some value to the post. Bert already mentioned about sunk costs – developing a website is a sunk cost because you can’t use the money spent on that for your future decision making – It is a strategic decision you take to go in that path. But, mind you it may become an asset if things work out.
There are 3 things you need to be aware of in your decision making. There are Variable costs, Fixed costs and Overheads (again fixed and variable). Firstly, the fixed costs are the ones you need to keep to the minimum when you are starting up. High fixed costs means steep break even point. Fixed costs are the ones that doesn’t change with the volume of your sales. For example Web hosting costs, Rent, telephone bills, internet, warehousing costs etc anything that you pay on monthly of yearly irrespective of the sales. Meaning you need to pay for these irrespective if you make a sale or not. Secondly, make sure your variable costs are reasonable. Variable costs are the costs that vary with volume of sales. For example – Cost of goods, paypal transaction costs, postage and delivery, packaging costs etc. These costs you don’t incur if there are no sales. Advertising, promotional expenses, selling expenses etc come under partly fixed and partly variable it depends on how the transaction is structured. Thirdly, you need to make sure you have enough gross profit percentage to cover all the fixed costs and leave you a profit in the business.
Most of the costs you spend starting up a business would be sunk costs including setting up a website, setting up a office or home office, registering a business, setting up a company, the costs pay to accountant and lawyer to set up a company etc. Because if you decide not to go ahead with the business then you can’t recover these costs. If you are concerned about money then try to minimize these initial costs.
So, to conclude minimize your initial outlay, minimize your fixed costs, start with reasonable variable costs (with minimum terms) with good gross profit margin.