While it might be tempting to simply hang up shingle and start a home business with a hope and a prayer, it is far better to have a business plan and a budget. It can be a bit challenging and tricky, however, to design a functional and realistic budget for a home-business start-up. Here are five tips to make budgeting a breeze:
First, consider purchasing basic business or financial software. Of course there are those who still keep their finances in ledger books, but it is easier and more efficient to utilize a good, solid computer software program to help set-up working budgets. Look for a software program that is flexible enough to meet the needs of a growing business, but one that can be tailored to fit your specific home business. It should be able to handle accounts payable (out-going bills) and receivable (incoming revenue.)
Secondly, it is important to take the time to do some market research and income projection before you get started. This will help to determine what sort of revenue can reasonably be expected for the first months/years of business. Understanding competitors and trends that could influence revenue will help to accurately anticipate how much money you can expect to make.
Additionally, be sure to budget for cash flow. Business newbies tend to think in terms of overall expenses and overall revenue instead of breaking the income and expense plan down to anticipate cash flow. Design a budget that anticipates regular and ongoing expenses, and maps out a plan for generating the income in a timely way to account for those expenses.
Be sure to anticipate a profit. It is also common for home business owners to think small and to think ONLY in terms of meeting expenses. A good, guiding budget should anticipate growth and support a plan for making a profit. While it is important to have a “break-even” budget plan that helps you to keep from losing money, it is equally important to have a growth plan. Even if you intend to put whatever profit you make in the early stages of the business back into the business, use the budgeting process to map out a plan for profit.
In addition to regular expenses such as utilities and supplies, be sure to include payroll and other taxes, licensing fees, and other expenses that are specific to your line of business. Home business owners often assume that they can get by without paying some of these since they do not consider themselves “official.” In they eyes of the government, however, a business is a business. While there may be some tax breaks and special considerations for home-based businesses, it is important to consult a tax professional, legal advisor, and/or financial professional to make sure that the budget includes taxes, licenses and other necessary fees.
Budgeting for a home-based business does not have to be rocket science, but is should include an attention to detail that helps map out a plan for business success.