Starting A Home Based Business
Part Two
Maintaining Good Records
As the owner or manager of a small business, you invest tremendous time and energy to ensure your company's success. You want the greatest possible return on your investment, and good financial records can help.
What Went Wrong?
While it's true that success often breeds success, it's equally true that success often breeds failure -- particularly for small business. That's because as a business begins to grow rapidly, the owners often work frantically to simply meet demand, minimizing the time they devote to keeping good records.If escaping paperwork was one of your reasons for starting a business, it is critical that you hire someone to perform the necessary task of keeping your financial records. Although you must pay for these services, bear in mind that solid financial advice frequently can increase your profits, more than covering the professional fees.
Good records will help you answer important questions about your company's financial health. What's really happening in my business? Why is cash flow always a problem? How much is really profit? If you're not exactly sure, then it's time to return to the basics -- the basics of good record keeping.
Why?
Simply put, a small business that fails to keep complete and accurate financial records places its long-term success and survival in grave doubt.Complete and accurate financial record keeping is crucial to your business success.
Here's why:
Good records provide the financial data that help you operate more efficiently, thus increasing your profitability. Accurate and complete records enable you, or your accountant, to identify all your business assets, liabilities, income and expenses.
That information, when compared to appropriate industry averages, helps you pinpoint both the strong and weak phases of your business operations. Good records are essential for the preparation of current financial statements, such as the income statement (profit and loss) and cash flow projection. These statements, in turn, are critical for maintaining good relations with your banker. They also present a complete picture of your total business operation, which will benefit you as well. Good records are critical at tax time.
Poor records could cause you to underpay or overpay your taxes. In addition, good records are essential during an Internal Revenue Service audit, if you hope to answer questions accurately and to the satisfaction of the IRS.
What Exactly Will the Records Tell You?
The following checklist highlights the type of information your financial records should provide to assure your success:
How much income are you generating now, and how much income can you expect to generate in the future?
How much cash is tied up in accounts receivable (and thus not available to you) and for how long?
How much do you owe for merchandise? Rent? Equipment?
What are your expenses, including payroll, payroll taxes, merchandise and benefit plans for yourself and employees (such as health insurance, retirement, etc.)?
How much cash do you have on hand?
How much cash is tied up in inventory?
What is your actual working capital budget?
How frequently do you turnover your inventory?
Which of your product lines, departments or services are making a profit, which are breaking even, and which are financial drains?
What is your gross profit?
What is your net profit?
How does all of the financial data listed above compare with last year - - or last quarter?
How do they compare with the projections in your business plan.
How does all the financial data compare with those of your competitors?
With those of the industry?
While your review of this checklist may have uncovered some glaring deficiencies, it's never too late to correct problems related to poor record keeping. It may take a bit of time and effort to analyze the company checkbook, take inventory, review bank statements and, in general, catch up on your paperwork. It is essential, however, that you make the effort to determine the precise financial condition of your business. It is as critical as maintaining good customer relations.
Quote
"Talent does what it can; genius does what it must." - Edward George Bulwer-Lytton (1803-1873)
3/19/2007
Starting A Home Based Business
How to Start a Home-Based Business
Part One:
Up until recently, going to work meant traveling from home to a plant or office. Today many people do some or all of their work at home. A private market-research firm estimates that as many as 13 million people squeeze extra hours into their work week by taking work home from their full-time jobs, while some 9 million people work exclusively at home. Many people find that working at home is an ideal arrangement and decide to formally set up businesses there.
The SBA estimates that more than 3 million of these home-based businesses are now operating throughout the country.Everyday, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs -- home-based business people. And with recent technological advances and a rising demand for "service-oriented" businesses, the opportunities seem to be endless.
Is a Home-Based Business for You?
Before you dive headfirst into a home-based business, it's essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss; an honest assessment of your own personality; an understanding of what's involved; and a lot of hard work. You have to be willing to plan ahead, then make improvements and adjustments along the road. While there are no "best" or "right" reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:
Are you a self-starter?
Can you stick to business if you're working at home? Do you have the necessary self-discipline to maintain schedules? Can you deal with the isolation of working from home? Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment; if at all possible, you should set up a separate office in your home.
You must consider if:
Your home has the space for a business and You can successfully run the business from your home.
Legal Requirements
A home-based business is subject to many of the same laws and regulations affecting other businesses -- and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.Zoning: Be aware of your city's zoning regulations. If your business operates in violation of them, you could be fined or closed down. Restrictions on certain goods: Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, explosives, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink or clothing.
Registration and accounting requirements:
You many need a:
work certificate or a license from the state (your business's name also may need to be registered with the state), sales tax number, separate business telephone and separate business bank account. If your business has employees, you are responsible for:
withholding income and social security taxes, and complying with minimum wage and employee health and safety laws.
Finding Your Niche
Choosing a home business is like choosing a spouse or partner -- your decision must be approached with a great deal of care. You need to learn as much about the market for any product or service as you can. Before you invest your time, effort and money, take a few moments to answer the following questions. Answers to these questions will help you separate sound ideas from those with a high potential for failure. Can you identify and describe the business you plan on establishing? What will be your product or service? Is there a demand for your product or service? What advantages do you have over your competitors? Do you have the talent and expertise needed to compete successfully?
Developing A Business Plan
If you've researched your market, thought over the pros and cons of a home-based business, and decided to go ahead, it's time to put together a business plan.Developing a business plan forces you to take an objective and critical look at your business idea. Even more, the finished product is a tool that will help move your business toward success.
A business plan should be neat, written clearly, and should include several things. The cover page should list the business name, address, mailing address, telephone number and the names of the owner(s). Identify your primary goals and objectives.
Next, give an accurate and concise description of the business:
What is the principal activity? Be specific. Give product or service descriptions. How will the business be started? Why will it succeed? Promote your idea. Use your market research. What skills and experience do you bring to the business? Marketing is the core of your business. Carefully think about the following questions, then include your marketing strategy in the business plan:
Can you market your business from home? Who and what is you market? What pricing/sales terms are you planning? How will you be competitive?
The Financial Plan
Money fuels all businesses. With a little planning, you'll find that you can avoid most financial difficulties. When drawing up a financial plan, don't worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.Start-up costs: To estimate your start-up costs, include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses. Business experts say you should not expect a profit for the first eight to 10 months, so be sure to give yourself enough cushion.
Quote
"If you can count your money, you don't have a billion dollars." - J. Paul Getty (1892-1976)
Part One:
Up until recently, going to work meant traveling from home to a plant or office. Today many people do some or all of their work at home. A private market-research firm estimates that as many as 13 million people squeeze extra hours into their work week by taking work home from their full-time jobs, while some 9 million people work exclusively at home. Many people find that working at home is an ideal arrangement and decide to formally set up businesses there.
The SBA estimates that more than 3 million of these home-based businesses are now operating throughout the country.Everyday, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements and attics are being transformed into the corporate headquarters of the newest entrepreneurs -- home-based business people. And with recent technological advances and a rising demand for "service-oriented" businesses, the opportunities seem to be endless.
Is a Home-Based Business for You?
Before you dive headfirst into a home-based business, it's essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss; an honest assessment of your own personality; an understanding of what's involved; and a lot of hard work. You have to be willing to plan ahead, then make improvements and adjustments along the road. While there are no "best" or "right" reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:
Are you a self-starter?
Can you stick to business if you're working at home? Do you have the necessary self-discipline to maintain schedules? Can you deal with the isolation of working from home? Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment; if at all possible, you should set up a separate office in your home.
You must consider if:
Your home has the space for a business and You can successfully run the business from your home.
Legal Requirements
A home-based business is subject to many of the same laws and regulations affecting other businesses -- and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.Zoning: Be aware of your city's zoning regulations. If your business operates in violation of them, you could be fined or closed down. Restrictions on certain goods: Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, explosives, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink or clothing.
Registration and accounting requirements:
You many need a:
work certificate or a license from the state (your business's name also may need to be registered with the state), sales tax number, separate business telephone and separate business bank account. If your business has employees, you are responsible for:
withholding income and social security taxes, and complying with minimum wage and employee health and safety laws.
Finding Your Niche
Choosing a home business is like choosing a spouse or partner -- your decision must be approached with a great deal of care. You need to learn as much about the market for any product or service as you can. Before you invest your time, effort and money, take a few moments to answer the following questions. Answers to these questions will help you separate sound ideas from those with a high potential for failure. Can you identify and describe the business you plan on establishing? What will be your product or service? Is there a demand for your product or service? What advantages do you have over your competitors? Do you have the talent and expertise needed to compete successfully?
Developing A Business Plan
If you've researched your market, thought over the pros and cons of a home-based business, and decided to go ahead, it's time to put together a business plan.Developing a business plan forces you to take an objective and critical look at your business idea. Even more, the finished product is a tool that will help move your business toward success.
A business plan should be neat, written clearly, and should include several things. The cover page should list the business name, address, mailing address, telephone number and the names of the owner(s). Identify your primary goals and objectives.
Next, give an accurate and concise description of the business:
What is the principal activity? Be specific. Give product or service descriptions. How will the business be started? Why will it succeed? Promote your idea. Use your market research. What skills and experience do you bring to the business? Marketing is the core of your business. Carefully think about the following questions, then include your marketing strategy in the business plan:
Can you market your business from home? Who and what is you market? What pricing/sales terms are you planning? How will you be competitive?
The Financial Plan
Money fuels all businesses. With a little planning, you'll find that you can avoid most financial difficulties. When drawing up a financial plan, don't worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.Start-up costs: To estimate your start-up costs, include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses. Business experts say you should not expect a profit for the first eight to 10 months, so be sure to give yourself enough cushion.
Quote
"If you can count your money, you don't have a billion dollars." - J. Paul Getty (1892-1976)
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