How to Keep Your Freelance or Agency Startup Costs Low
One of the secrets to profitability is to keep your business startup costs low. After all, your actual income is what you keep after expenses.
This applies whether you operate as a solo freelancer, a virtual agency, or a bigger creative agency with employees, contractors, etc.
The Best Ways to Reduce Your Startup Costs, and Monthly Expenses
It’s important to keep your startup costs low, but it’s equally vital to minimize your monthly operating expenses.
How you set up your company and its systems will have an impact on your overall profitability month after month.
Let’s look at where you can cut costs the most and where it pays to invest.
The Biggest Savings—Work From Home, Don’t Pay for an Office and Related Expenses
The acceptance of working from home is one of the few silver linings we got from the pandemic.
For a business startup, working remotely can bring substantial savings.
Not having a commercial office eliminates rent, utilities, internet service, commuting costs (transit, car, parking), buying furniture, cleaners, insurance, etc.
However, this assumes that you, your contractors, freelancers, and perhaps employees can work from their own homes. Ideally, everyone will have enough space for a separate office to work from home comfortably.
For both of my creative agencies, we maintained an office. I can tell you from experience, the costs of running the offices were substantial. Rent increased every year. And guess how many $1,000 chairs we bought? A lot!
Working From Home? Reduce Business Startup Costs by Writing Off Your Home Office
Depending on where you live and your tax laws, you may be able to write off the cost of your home office against your income.
In Canada, if you have a home office, you can claim it against your expenses based on the size of your office. For example, when I worked as a freelance copywriter from home, my office was 15% of the total square footage of the house. I could write off 15% of my mortgage interest, property taxes, and utilities against my income.
Check the tax laws in your jurisdiction. This same should hold for anyone you’re working with, either as a contractor or employee.
Can’t Work From Home Because the Apartment is Too Small?
What if you and your partner live in a tiny apartment with no room or privacy for an office?
You might be better off moving to a bigger home, knowing you can write off part of it, rather than staying in your current apartment and paying for office space.
Do the math to see whether that works for you.
If that’s not possible, can you work out of a coffee shop? With a decent pair of headphones, you can cancel out the noise around you, and coffee is nearby. Get there early for the best spot. You can write off the headphones as a business expense.
If you don’t like working in coffee shops, how about the local library? They generally have good workstations, decent free WiFi, and they’re quiet.
Many towns now have shared working spaces. While they seem cool, they’re not cheap. At a minimum, you’ll be paying about $500 a month for shared space and $1,000 a month or more for a bit more privacy. I would choose this as a last resort if none of the other options work.
Your goal is to have as close to zero fixed monthly expenses as possible.
How About Saving with a Small Office for the Core Group?
If you’re thinking of a larger company, say more than three people, you might still be able to keep your office rental costs low. Rent a small space for the core group and have everyone else work from home.
Get a big table so people can come in for meetings or work with you for a while. You want as much flexibility as possible to lower your costs.
Another option is to look for meeting rooms that you can rent by the hour or day. Everyone can work from home, and you schedule regular meetings to catch up, compare notes, and have lunch together.
Lastly, don’t think that you need an office because clients will want to come there. They don’t. Clients rarely, if ever, wish to meet anywhere other than their own office. These days, it’s likely Zoom or on the phone.
If they’re going to take a break from their office, a nearby coffee shop is usually perfect. Buy them coffee and a muffin. For a big meeting, take them out to a nice lunch.
Need a Bigger Permanent Office Space? Reduce Startup Costs by Shopping for Savings
If you do decide you want/need office space, take your time to shop. Sometimes you can sublet space that’s already furnished and comes with WiFi.
When we had our first office, we designed it for expansion, so we had workstations to sublet. We did that for about a year. Good for those subletting from us, good for us.
Depending on your location, look for parts of town that aren’t trendy or too popular. Sometimes you can find low-cost space above retail stores. Whatever you decide, try not to burden yourself with significant overhead expenses when you’re starting.
Carefully Track and Write-Off Any Other Expenses
Keep receipts for anything you buy or use for your business to write off against your taxes. For hardware such as computers, you’ll have to follow a depreciation schedule over a defined period of time. Your accountant will help you with this.
So, make sure you get receipts for your online software, internet service, and phone service. If you’re in communications, you could easily claim cable TV, subscriptions to media (newspapers, magazines, websites), and books. It all counts as research.
Also, remember to claim any courses and costs of attending any business-related events.
Let’s talk coffee for a minute. If you have an office of coffee drinkers, the cost of an espresso machine and the coffee for it counts as a tax-deductible expense. Also, Friday afternoon beers? You guessed it, it’s a tax-deductible expense. (Note: I’m not a lawyer or accountant, so do your own research on qualifying expenses.)
Use the Technology You Already Have—Computers, Phones, Etc.
I’ve seen people get very excited when they’ve finally decided to start their company. Time for a new beginning, right? Get the latest phone, a new computer, a new scanner, a new and better camera, some lights, and so on.
Get a shiny new car, put it on a company lease.
Hang on a minute. Really? Are these needs or wants? Did you budget and save for this, or is it all going on your credit card, and you’ll be paying outrageous interest for years?
When you’re starting a new company, it’s tempting to buy all new equipment on credit. Try not to do this. You’re starting with debt you have to pay month after month before you pay yourself.
Instead, try the minimalist approach. Work with what you have. Or if you need a specific piece of equipment for the job, see whether you can rent it. Bury the cost of the rental in your estimate for the client.
Use Free or Low-Cost SaaS Software—An Easy Way to Reduce Startup Costs
This hardly needs to be said since it’s so common, but you can save a lot if you can use online software such as Google Docs.
Even though some software such as Adobe Creative Cloud (Photoshop, Illustrator, etc.) aren’t cheap, the fact that you can pay by the month and updates are included makes them a winner for startups.
Try to evaluate which software you’ll actually use before signing up. I’ve seen organizations sign up for platforms such as Slack, Trello, or Asana and then not use them. Do an evaluation and then commit to whatever you’ve decided. If it’s not right for you, stop the service. Be careful not to “forget to cancel” something you no longer use.
Pay Your Invoices Early for Discounts
If you’re using outside suppliers, say a recording studio, you might find their invoices offer, “Net 30 Days, 2% Discount 10 Days”.
In other words, to encourage you to pay within 10 days, you can take 2% off the bill. Do it.
Depending on how many outside suppliers you use and whether they offer this discount, it adds up.
Even if they don’t offer this discount, do your best to pay your invoices early. Why?
There may come a time you want them to save your butt, to put in extra effort on your job. They’ll remember who pays early.
Where Should You Invest?
Yes, you want to keep your costs down, but don’t fool yourself into false savings. There will still be expenses as you start up.
At the top of the list should be an ergonomic chair and desk, if you don’t already have one. You sit for hours, and having the right chair/desk combination will make a big difference. Be sure to set them up properly to avoid problems with your neck and shoulders, lower back, and wrists.
Invest in Tech Only When Necessary
Although you don’t want to spend money on tech if you don’t have to, fast computers make all the difference if you’re editing film or processing many images.
It also makes work more fun. There’s nothing more boring or frustrating than waiting on a slow computer to render film footage.
Evaluate your tech, decide whether you can upgrade it or whether you need something faster/better.
In one of my agencies, we bought a super-fast computer loaded with RAM for anyone to use to edit film, do animation, or process a lot of images.
Invest in a Cloud Back-Up Service for Files
In addition to local backup on a file server, you always want an off-site backup for your files. What if someone steals your laptop? Or there’s a fire or any other disaster?
Subscribe to a service and make sure it automatically backs up important files from all computers.
Like insurance, it’s a service you hope you’ll never need.
Find a Bookkeeper and Accountant Who Understand Startups
There are many “easy-to-use” bookkeeping programs out there. There are also programs to do your own taxes.
I wouldn’t advise either of them. When you’re starting, you’re already wearing a dozen hats. Leave the bookkeeping and accounting to the pros.
For a bookkeeper, you could work with someone who does your books and gives you reports every two weeks to start. You can always change that as you grow.
In our case, we started at once every two weeks, then every week, then finally hired someone full-time. We grew into it.
I would look for an accountant who will also act as a financial advisor to you in addition to doing your taxes. When you’re starting a company, you’ll have financial questions, and you’ll want expert answers.
Interview accountants and find one with clients like you who will meet with you or help you via phone or email as needed.
Get Your Book Here
There are many more savings tips in my book, How to Start a Successful Creative Agency. It’s the essential business guide for graphic designers, copywriters, filmmakers, photographers, and programmers.
With over 300 pages and 23 chapters, it’s available at Amazon (Paper & Kindle), Kobo (ebook), Apple Books (ebook), and Gumroad (PDF).
Fantastic and informative, a must for anyone starting a creative agency! 5 stars
“This book is a fantastic asset for anyone looking to start their own creative agency. The information provided would help anyone get ahead in starting their own business, not just a creative agency. I would highly recommend this book!”
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