After being bitten by the entrepreneurial bug and deciding that you’d like to turn your home into the birthplace of the next big thing, you craft the perfect plan for your home-based business. Everything’s going well and you got everything in order. Until you start working on finances.
One of the biggest challenges for home-based business owners is managing their new financial lifestyle. Most home-based businesses fail due to the lack of proper financial habits. It can be as simple as not recording every financial move of your businesses. Poor accounting means business owners do not know what’s going on. Other times, businesses fail due to the absence of financial cushion. This means that the enterprise does not have anything to hold on to when it is on the bad side of the economic cycle.
Even the best and brightest entrepreneurs get trapped in these financial potholes. Fortunately, there are ways to fix this problem to save your business.
Here are five financial lies home-based business owners should stop telling themselves.
Something will turn up.
Yes, it pays to be optimistic. But if you left your job to build your home-based business and focus on it full-time, make sure you have enough savings to pay for your survival and for your business.
There is a difference between being naive and being wise. When starting your home-based business, you have to make sure that you have enough money to cushion through uncertainties. No successful business made it overnight though it may sound like that when we watch movies. Before you get there, you have to make sure your business survives even when nothing turns up.
I’ll save more money by cutting more costs.
One of the biggest perks in building home-based businesses is not having to spend a lot of expensive office-based expenses. When given the opportunity to save money on unnecessary costs, try to re-allocate it to things that will help your company produce better results. Instead of cutting even more costs, focus on your product and service’s quality. You now have the extra cash to do it, so invest in creating value, rather than compromising it.
It’s okay, it’s just a small expense.
Since home-based business owners work in the comfort of their own homes, it is so easy to be lenient with expenses because it’s so hard to delineate your personal finances with your business finances.
Avoid underestimating little expenses. When building a budget plan for your home-based business, you may enjoy slashing off equipment already found in your house. Now that you have cut off costs place them in the little expenses that will eventually kill you if you don’t prepare – insurance, postage, deliveries, internet service, and so much more.
Let’s max it out, I have a good credit score anyway.
Congratulations on your good credit score! Because of it, you’ll be able to secure a high-limit credit card. You’ll use it for your business? Bad idea.
Since you work at home, your credit card would be a convenient way to pay for expenses, especially those acquired online. However, using your good credit score to deliberately get a high-limit credit card at reasonable interest will ruin your good credit record. Ventures are perfect on paper because inevitable drawbacks cannot be predicted. Unavoidable expenses will max out your card, leaving a bad stain to your good credit records.
It’s my home. We can save money by basically using everything here.
Home-based businesses with disorganized working spaces will financially suffer due to slower progress and wasted time. Home-based businesses tend to cut costs by using the same equipment in their house – the same internet line or the same bathroom. By cutting costs this way, business owners are minimizing the potential for the company to grow at a faster pace because of the lack of distractions and because they don’t have to share everything with more people.
Another financial problem linked to this would be mixing personal, home, and business finances. This basically spells disaster in keeping track of how much the business is actually making. The same thing happens in paying for equipment shared in the house with business money. The company may be paying for internet subscription your employees but your kids are hogging all the bandwidth for downloads.
In any business – whether home-based or office-based – managing finances is definitely one of the most challenging things entrepreneurs must handle. However, being on top of your finances is crucial and must be mastered by home-based business owners who want their ideas to successfully take off. By mastering their finances, home-based business owners can positively build the next big thing in their garage, extra room, or basement.
