Working from home requires the same planning as a road trip. Just as you wouldn't embark on a journey without a map, you wouldn't start a business without financial charting. Here are some planning tips to help guide you.
1. State Your Business
Plotting your way to financial success starts with setting financial goals. Write down your specific business idea and goals for the next six months. For example, "I'll groom dogs, and within six months have 10 regular customers per week, charging $35 per session." Your mission statement will point you in the right direction and clearly define your product and financial expectations.
2. Figure Your Costs
Make a list of your initial and ongoing expenses, i.e., business license, permits, phone line, fax machine, toner cartridges, letterhead, promotional expenses, stamps, dog shampoo, etc. Begin with the Start Up To-Do List from the Small Business Administration (SBA).
3. Look Around
Scope out the competition. Check out their products, services, and costs. What can you offer that the competition doesn't? Remember to make your product something that customers actually want and will pay for.
4. Manage Your Cash Flow
The problem with self-employment is that one month you're Donald Trump, and the next you're … well … Donald Trump. Maintain enough cash to keep yourself going when things are slow. You need cash coming in to pay the bills and yourself, as well as to market your product. If all your money is in receivables, you're broke. A good rule of thumb is to maintain six months' cash reserves.
5. Save for Tough Times
Danita Jones, a Mary Kay beauty consultant, points out that if you don't put aside money in the good months, you'll face a financial drought in the bad months. 10 Ways to Survive the Roller Coaster Income of Self-Employment provides ideas for steering your way to a solid cash flow.
6. Keep Good Records
Record keeping is one of the most important financial aspects of your home business. Nancy Harrell, certified public accountant and work-at-home mom, suggests these steps for new home-business owners:
- Start a separate bank account for business expenses and profits.
- Keep your home office strictly for home office use.
- Take a basic business accounting class.
- Organize your records for home office deductions in clearly labeled files, i.e., utilities, taxes, mortgage, supplies, inventory, etc.
- Shelter your profits in a SEP, Keogh or SIMPLE IRA.
7. Learn About Paying Taxes
When you work for someone else, you pay half of the Social Security and Medicare taxes, and your employer pays the other half. When you're self-employed, you pay for all these obligations through self-employment (SE) taxes, which are remitted quarterly through the mail via a check and 1040ES form. Partially deductible, SE tax is accounted for at the end of the tax year via an IRS Self-Employment Tax form Schedule SE attached to your 1040. Any good tax preparation software or service can generate this schedule for you. Good record keeping makes this job much easier. The IRS Small Business Center provides comprehensive training in the IRS Online Classroom.
Don't forget state and local taxes, if applicable. Check your state's online website for specific information, or call the local state treasurer's office