Aug 102010
 
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It is important to keep fixed costs low at the beginning of your venture! It is hard to over-emphasize the importance of this one.  Almost without fail, you will have surprises in your venture, particularly during the early stages.  It typically takes twice as long to achieve half the results you were expecting.  With this in mind, it’s not hard to understand why it is important to keep your fixed costs low initially.  Fixed costs – the ones you have to pay regardless of how many sales you generate, can sink you quickly if you don’t have an unending supply of outside cash, which is hardly ever the case.  You will need to take on some fixed costs, without a doubt, but don’t take on any more than you have to in the early stage of your venture, otherwise, you may not be able to weather the challenges that are sure to arise.

Later in the venture, having more fixed costs (or “operating leverage”) may not be a bad thing; in fact, it can increase your profitability dramatically when times are good.  But as the saying goes, “a rising tide buoys all boats” – it’s only when the tide goes out that you figure out what lurks below the surface.  Don’t kid yourself into thinking you are invincible, based on your performance when times are good – prepare to weather the inevitable storms that will come your way — always keep your fixed costs at a reasonable and manageable level.

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