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CHAPTER 8 MASTERING YOUR MONEY

2) Keep Your Costs Variable
Another way to lower your risks and keep startup costs small
is to minimize your fixed costs and incur variable costs instead.

Fixed costs are expenses that you must incur monthly regardless
of how much sales you make. A big portion of these ‘overheads’
includes staff salaries and rental. If you start a business with
high overheads, you will need lots of startup capital (cash)
to pay these monthly bills until your sales start coming in.

On the other hand, variable costs are only incurred when
a sale is made. In other words, you only have to worry about
paying these expenses when money comes in from a
sale. This way, you need a lot less startup cash to finance
your business.

For example, when I first started Event Gurus with two partners,
we did not use lots of capital to purchase the sound equipment
and disco lights required to run the events. It would have cost
us $20,000-$30,000 to get started. Instead, we would rent
these equipment for $1,000-$1,500 whenever we ran an
event. Instead of putting full-time staff on our payroll, we used
freelance technicians, DJs and Emcees and paid them only
when we had money coming in from an event.

When I first started Adam Khoo Learning Technologies Group,
my partners and I did not buy or rent our own training centre
to run my seminars. It would have cost $100,000-$200,000
in renovation and rental expenses for the first 6 months. With
only $8,000 in capital, we had to work smart. We ran
our seminars in hotels and clubs where yes, we paid a
hefty $1,000-$2,000 each time but only when we had a
seminar running.

234 SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES