As any entrepreneur knows, the struggle is real, but for all the headaches that come with starting a startup, you're actually in a great place compared to more established businesses in one regard: You don't have any regrets (yet). By and large, the biggest money suck is usually overhead, but in an increasingly digital world, is that even a requirement anymore? Do you need a brick and mortar in order to succeed?
Obvious, in some cases (such as if you're opening a salon) you certainly need a physical place beyond your apartment to do business. However, for many businesses, they simply get an office because that seems like the right thing to do. Maybe it makes you feel more established, like the business if more real or that people will take you seriously. Never sign on for more financial obligations or debt than necessary.
What's up with high overhead?
New York remains one of the biggest places to start a business while San Francisco is giving Silicon Valley a run for its money for techie startups. What these two metros have in common is very expensive real estate, often to the tune that many startups can't afford. Particularly for techie startups, there's absolutely no need at this point to add in expensive commercial space to your bottom line. You might be throwing money away.
Consider all the pros to telecommuting and virtual offices: Many studies show that telecommuters are happier, it allows you to hire the best workers from around the world without the geography barrier, and you as the owner can also benefit from working anywhere at any time. With the technology of today making virtual work a breeze, it's kind of silly not to take advantage of it.
On the other hand...
There are some businesses that require a physical space, and others that (after you do your research) you find are simply more viable in bigger cities. For example, if you plan to open a Paleo bakery that offers yoga lessons in the next room, that's probably going to be better received in a metro rather than rural Kentucky. Plus, there are also naysayers who have some good research and points showing that certain workers actually do better in more traditional brick and mortar settings.
Only you can choose whether to embrace the digital office or go a little more old school, but make sure to make those decisions based on research and not what you "think" you should be doing. It should be built into your business plan so that you can give potential investors concrete reasons why you're doing what you're doing. Otherwise, you're just winging it and that's never a good business strategy.
The bottom line
Be realistic when it comes to costs, both of overhead and any technology you'd need to purchase to make virtual office work achievable. This includes taxes, upkeep, insurance, maintenance, utility bills and everything else. You should have a clear financial projection before making a commitment, allowing it to serve as part of your business budget.