Being financially responsible is essential not only for home-based business success, but also for creating the financial cushion needed to transition from employee to full-time entrepreneur. Understanding your current financial situation is required and shouldn't take more than an hour if you follow the basic steps outlined below.
Financial stability must be addressed so that you can keep your feet firmly planted. Knowing where you stand financially will allow you to make informed, practical decisions. To increase your chances of success in a home-based business, include a financial advisor and accountant on your success team.
It does not have to be unpleasant or messy, but it must be completed. You may be well on your way to establishing a full-time home-based business or simply considering it, but having a clear understanding of your current and future financial commitments will play a MAJOR role in your strategic plan for business success.
Home-based business owners rarely wake up one day and declare, "Yep. I'm quitting my job and launching a home-based business today." There is usually a period of contemplation, exploration, decision-making, creation of a plan, and then beginning to execute steps within the plan to achieve the final goal.
It can take several months to several years for an employee to be able to leave her job and start a new life as a full-time entrepreneur.
Being financially responsible is essential not only for home-based business success, but also for creating the financial cushion needed to transition from employee to full-time entrepreneur.
Understanding your current financial situation is required and shouldn't take more than an hour if you follow the five basic steps outlined below.
1. Determine how much money you have in bank accounts, investments, registered retirement savings plans, GICs, real estate, and so on. If you were to leave your job today, would you be entitled to any type of compensation (for example, sick plan credit, pension plan contributions, unused holidays, anniversary pay, etc.)?
2. Determine your monthly earnings from employment, child support payments, rental properties, dividends, your existing home-based business, and so on.
3. Keep track of your monthly household expenses. Here are some examples to get you started:
- mortgage or rent
- property tax/house insurance and mortgage insurance
- utilities (heating, cooling, and hydro)
- telephone, cable, satellite, and Internet
- yard upkeep/snow removal
- groceries and household items
- the cost of vehicle fuel, insurance, and maintenance
- health-related
- Children's services
- personal hygiene (hair, nails, clothing)
- entertainment (movies, sports, books, and plays)
- club memberships, publications, and so on.
4. List your monthly business expenses, such as:
- Internet - phone (dual business line) - autoresponder - shopping cart - long distance
- Bank charges
- office supplies - equipment
- web hosting - marketing - advertising - part-time assistance - coaching services
- Shipping/postage, and so on.
5. List any outstanding liabilities, such as:
- credit card balances - personal loans - lines of credit - and so on.
When you calculate your annual earnings and revenue after deducting your personal and business expenses. How much money do you have left at the end of the year? Can you set aside some of this to build your financial cushion?
If your current business revenue is insufficient to cover your business and personal expenses, and you were to quit work today, how long would you be able to survive on your other revenue sources, savings, and assets, taking your monthly expenses into account?
Have you considered all possible unexpected expenses in the next year or two?
Is your vehicle on its last two cylinders?
Is your furnace nearing the end of its useful life?
Is your vacuum cleaner growling at you?
Is your partner's job secure, or do you anticipate turbulent times ahead?
This exercise is not meant to frighten or discourage anyone. Financial stability must be addressed so that you can keep your feet firmly planted and your plans realistic as you build your home-based business.
Understanding where you are and what may lie ahead will assist you in making sound financial decisions as you plan for the future.
After completing these five steps, you may discover that your dream of leaving your job will take a year longer than expected, or that you will need to bring in a partner or investor, or learn to leverage your time, money, and effort more efficiently to accelerate progress.
Perhaps seeking professional advice on debt reduction and financial management is in order?
Whatever results you achieve, don't let them break your spirit. Knowing where you stand financially will allow you to make informed, practical decisions to create your ideal future.
To increase your chances of success in a home-based business, include a financial advisor and an accountant on your success team.
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