Home Business

Myths of Work From Home Self Employement Summary

In this article, you took a moment to calculate the benefits and costs of leaving your current job and becoming your own employer. By objectively calculating the cost of regular employment, you have a list of realistic, actual costs you are currently incurring. By comparing these against the costs you will now need to assume as you start your home business, you will gain a realistic sense of the financial
advantages and disadvantages when you compare the two situations.

As you learned in this article, however, assessing the risks is a bit more difficult. How much did risk impact your employment? It’s tough to calculate that, particularly if you were “almost” laid off or “nearly” part of a merger. Likewise, business risks aren’t always easy to pin down. Putting a price tag on months and months of worry over what “almost” happened can be tough to do as well. The better suited you are to self-employment, the less risk such an undertaking represents.

Be sure to check out our other 3 posts to reference what we are talking about the myths of home business self employment.

Myths of Work From Home Self Employement Summary

Home Based Business Job Information

Work From Home Business Risks

Be back soon with more great information on the home business industry!

Considering the Risks

The most threatening risk of self-employment is simply put. If you don’t work, you won’t have any money. You could go bankrupt. You could go homeless and hungry. The feedback that leads to these consequences is equally, brutally abrupt. The phone will go silent. The mailbox will be empty. There will be no performance reviews, no “warnings,” no closed-door meetings offering a second chance. And the risk is very real. Approximately 500,000 small businesses (10% of all businesses in operation) closed in 2003. A roughly similar number started the same year.

Of the business closures, a little more than 35,000 went bankrupt – meaning that they couldn’t pay their bills. (For additional information on these statistics, visit the Office of Advocacy website of the Small Business Administration, app1.sba.gov/faqs/faqIndexAll.cfm?areaid=24.) Perhaps 10% of all businesses doesn’t seem like a high percentage to you. But when you consider the hard work, money, and risk assumed by someone starting a business, you quickly realize it is a high stakes gamble. If another 10% of all businesses fail the following year, too, and the year after that, and the year after that (as the historical data cited previously suggests), perhaps very few small businesses succeed
for very long.

But it’s the gaps in information that speak the loudest. We don’t know who fails, really – which industries, or which small businesses. Nor do we know why. Even the methodology is open to question. Search for “small business failures” on the Internet, and you are more likely to find arguments about why some statistics are misleading than you are to find the statistics the debates are actually referring to. So it is pretty much up to you to figure out if the risk is worth it – with at least some indication of a pretty high chance of failure.

Assessing the Costs

In addition to the possibility of failure, however, you are also taking on considerable cost. In essence, you are gambling that you can make enough money in your home business to provide you with adequate income and cover the additional costs you’ll assume.

Here are just some of the many expenses you’ll take on when you become self-employed:

• All of your Social Security contributions – 15.3% of everything you make over $400. Right off the top, you’ll pay $3,060 for earning a modest $20,000.
• Estimates of your income tax payments – with penalties and interest if you under pay.
• All of your retirement contributions, medical and dental insurance, disability insurance, life insurance, and child care. Kiss your “matching funds” goodbye. Remember your employer’s cafeteria plan? Well, the cafeteria is closed now.
• Vacation pay, holiday pay, sick pay, bereavement leave. Call it whatever you want (hey, you’re the boss now), but no one is going to pay you for these days. This is now coming out of your earnings.

This isn’t even a complete list – just the start of a long list of risks and responsibilities you are now going to fully accept. You’ll also be responsible, for example, for purchasing and maintaining all of your equipment and supplies, providing utilities, paying for your business postage, and doing without the services of the mailroom, tech support group, and cleaning staff.

Take a moment to compile your own list of the complete costs and benefits you’ll be assuming when you start your own business. Then, compare it to the costs and benefits of regular employment that you assessed in the preceding section. By comparing the two assessments, you’ll have a better feel for the demands and rewards of the road ahead.

Job Hopper, Loyal Employee, or Savvy Business Owner?

Many people need to change jobs at least once every two to three years. If they do not, their salary usually stagnates, while the salaries of their job-hopping peers increase substantially. Often, the job market values job hoppers and penalizes loyal employees. Too many people have found themselves, after 10 years or more with one employer, cast adrift. Whether the reason was downsizing, office politics, or something else, it makes little difference. Job hunting then becomes extremely difficult, as a long-term employee frequently appears to be “branded” with his former employer’s name, as if he were company property.

If the former long-term employee is more than 35 years old, prospects are generally even worse, thanks to society’s ingrained ageism.Yet, if that same person launches his or her own business, what was once viewed as “baggage” is now considered wisdom and experience.

Calculating the Costs and Risks of Work At Home Business Self-Employment

Before you give notice, however, it is important to realize that you are taking on a whole new set of risks when you launch your own business. And along with those risks comes a set of costs your employer currently subsidizes or pays outright. Anyone who is considering starting a home business has to stop and weigh these costs and risks in order to understand the challenges he or she is facing.

This risk and cost assessment shouldn’t discourage you from striking out on your own; but it should prepare you for the road ahead. View this information as part of your decision-making tool kit as you consider leaving your current employment and starting your own business.

Exposing Myths of Self-Employment

Think you know the truth about selfemployment? Think again. Your day job might
be a much riskier proposition. But don’t view owning your home business through rose-colored glasses, either they’ll be shattered by stark reality.

Risk is part of starting a home business or any type of self-employment. Depending on your current job, you might be risking more at a seemingly steady, seemingly stable, nine-to-five job.

In this Work From Home Business Article, we’ll look at the risks and costs associated with regular employment and compare those with the risks you will assume as someone starting and running
a home business as your sole source of income. You will calculate the cost of your current employment
and use this information when you formulate your business plan and budget.

In fact, while reading this article, it is important to remember that we take only this one article to discuss the risks and costs of your probable current situation (regular employment). The rest of the book deals with the risks and costs of running your own business and whether such a business is right for you.

Calculating the Costs and Risks of a Nine-to-Five Job

Think a home business means taking on a lot of risk? Chances are, if you are currently employed in the United States, you are taking on more risk than you realize. As an employee, you expect to give up your ability to call all the shots and control your work flow and schedule in exchange for security. Most of us like to believe that if we do good work, we will always have a job. For most Americans who are not selfemployed, the control that they give up to attain that security is substantial. Here are some basic realities of being an employee:

• You are told when to come in to the office and when to leave.
• You are told what to do and (in many cases) when to do it.
• You are told who to work with whether you consider them to be qualified to do the job or not.
• You will be held responsible for the job you do, even if you are asked to perform a task that provides no real benefit to the company (and even if you must work with people you would not hire).
• You might frequently be asked to do all of this in a time frame that allows you little or no personal life – with no additional compensation.
• You will be told if you can take time off, when you can take the time, and how long you can be away. If you disagree with any of those decisions – well, too bad. Your choices are to accept the decision or to leave. With so much control being sacrificed, we should be the most secure workers in the world.

But ask yourself these home business questions:

• How many times have you rewritten your resume? How many times have you switched jobs?
• How many times have you or your co-workers been laid off – and not known you were “getting the ax” until you were shown the door?
• How many times have you been told you would not be laid off, and then been assigned the workloads of those who just left?
• How many hours have you worked without additional compensation, only to be told you cannot take time off, either?

Earn as much as you possibly can. are paid as little as possible.

Over the past few days I have talked about how a home business start up is supposed to take place and how the preparation is needed.

Home Business Summary

At this point, your office is set up, your phone log is waiting to be filled, and you have probably
given notice. Now is the time, if you have any doubts or questions, to go back and reread any
section in the website, to rerun your budget figures, or to revisit an issue about which you solved yet
are still feeling uncertain.

If you are ready to go, you are probably wondering what you are going to do now. After all, you
have no clients – just a sparkling business plan and a new home office. Be sure that you set the alarm clock for your regular waking time. Even if the phone never rings tomorrow, you will need to put in a full day at your home office.

You can find the previous posts below!

How Long Should I Keep These Records?

The length of time for which you must maintain your business records varies by type:

• Client contact information. As long as a client is active, all contact information should be readily available. Records for clients who are not active, but with whom you are on good terms, should be kept, too – these contacts are excellent sources for mailings, and provide additional value should you choose to sell your business down the road.

Working files should be kept for at least several years – long enough to be sure that the service or product provided has been paid for and its value not called in to question. What are working files? They are the notes, drafts, papers, and other items you accumulate as you work on a project. They are not the finished project itself, but the preliminary drafts, discussions, and note that lead to the final version.

If there are legal, ethical, or other considerations in your profession, you might need to keep your working files longer. (For instance, attorneys, accountants, and insurance agents might be required, either by laws or the ethical canons of their profession, to maintain records for a set period of time. If you are in these businesses, you should know these regulations quite well.) Personal preference comes in to play, too. I know some writers who still have working notes from stories published 20 years ago – and I know other writers who toss all papers as soon as a story is published and they are paid.

Keeping working files for at least three to five years, however, is not a bad idea and will help your work at home business.

• Financial records should be kept as long as you own your business. Because it is relatively easy to maintain a lot of records on your computer, you can keep the basic information there while archiving physical paper files to a storage facility after several years. If the electronic files get too cumbersome, move them off your computer and onto a CD-ROM or DVD. It seems odd to keep years and years of financial records handy, but as you run your business, you might want to have these files readily accessible. Even if you move the records to some type of electronic storage each year, keep the records handy. The information stored in them is valuable to you, as you watch for year-to-year trends, and compare each year with prior years.

Setting Up Your Home Based Business Office Space

You have your record-keeping functions in order; now you’re ready to set up your office space. But before you connect all that shiny, new equipment from the last article, make sure that these items are in order:

• Is your electrical system up to the task? Are the outlets where they need to be? Are the phone jacks near the actual phone base? Is the wiring “iffy”? Then have it inspected and upgraded before proceeding.

• Is your office space dry and free from water leaks? Leaks can damage costly equipment, so address the problem right now.

• Give your home office that extra coat of paint if needed. Buy a new rug, hang your favorite painting, and make it comfortable. You will be spending a lot of time here. Make it comfortable!

• Your home office might have been the family junk room before you took it over – end that pattern! Furniture, wall hangings, or knickknacks that just don’t fit in other parts of the home are not allowed in your office.

Get your physical home business office as ready as you possibly can. You will want to start operating out of this office right now (if you haven’t been already).

Tracking Invoices and Work From Home Income

For most service-based work, you will need to send an invoice to your clients. You should number your invoices in sequential order, although what number you start with is up to you. Record each invoice number, as well as the date, description, marketing code, and amount of money invoiced. The description should briefly state who the invoice was sent to and what project or work it covers. (More detailed information will be on the invoice itself, as well as in email communications and contracts with the work from home client.)

You can use your invoice-tracking document to help track the source for each project you invoice. That way, you know what marketing methods have been the most successful in your business. Adding a “marketing code” to your invoice tracking document is one way to record this information. Because it is your business, you will develop your own codes. Some suggestions are as follows:

P for postcard mailings
G for groups you belong to
W for former co-workers or those from your former company
R for referrals from current or former clients
M for magazine ads

You might also want to make these codes more specific; for example, “P” for referrals from your PTA contacts, “1QP” for the first quarter postcard mailing, and so on. As I said, the system is really up to you. The goal is to keep track of what kinds of advertising and publicity work best for you so that after your first year, you can clearly see exactly where to put your marketing dollars and why.

If you sell products, you probably won’t send an invoice for each book, basket, or piece of jewelry sold. However, you should set up a separate sales record spreadsheet that keeps track of these amounts, as well as any sales tax you collect.

Must Have Hard Copy Work At Home Business Records

Electronic documents are easy to store and take up much less space. But as of this writing, there are still some things that should be kept on paper. Technically, you can scan every scrap of paper you might keep and store it electronically. However, you might prefer, instead, to keep the paper version for awhile, and only go the scanning route if you are certain the document is likely to be kept for archival purposes only.

Also, some legal documents can come into a gray area. If you signed a contract with a client, keep the paper copy. It’s much easier to prove the contract was actually signed. Here is a list of the paper records commonly maintained by most businesses:

1. Client contracts. These are the contracts you and your clients sign when you agree to perform services. If the agreements are email/letter exchanges only, be sure to print those out and keep them in the same place as your other contracts. Get any verbal agreements confirmed in writing, even if it is only an email or letter reiterating your conversation.

2. Working papers of current and past projects. These are the notes, research, drafts, and other items from each project. If you have a database of your work, these files should have the inventory number of the appropriate work.

3. All business-related receipts (even if only part of the expense is home business related). Credit card slips should be saved, even though you will also have a monthly statement. Expenses in which only part of it is a business expense (for example, your electric bill) should also be saved.

4. Informational files. These are files about groups you belong to, issues affecting your service or subject matter, and copies of all marketing materials.

5. Copies of tax returns, beginning with the year you start your business. (You should probably keep your returns from prior years, too, although for nonbusiness reasons. Check with your accountant or with the IRS website, www.irs.gov.) The same goes for state and local taxes.

6. Previous versions of your business plan. As your home business plan changes and grows, you will want to keep past copies. Print your business plan and file a hard copy once every six months, or just before and after making broad changes to it.

Setting Up Home Business Expense and Income Records

If you’ll be taking on all the tasks associated with owning and running a home business, you will need to keep systems as streamlined as possible. A little bit of effort now in organizing your expense and income records will save you days and days of frustration later. In addition to saving you tons of extra work and frustration at tax time, keeping your income and expenses relatively up-to-date will give you an always-current picture of how much money you have brought in and how much money is going out.

Before you begin, review the budgeting so that you are familiar with the type of home business expenses you will need to track. The easiest way to set up income and expenses is to base the categories within your records on those in Schedule C of your federal tax return. To obtain the most current Schedule C, go to irs.gov and download the most recent form. Print it, and read through the directions.

Recording Home Based Business Expenses

The percentage of home expenses will depend on how much of your home you actually use as your home office. Let’s say that you have a 1,000 square foot home, and of that, 250 square feet is used as your home office. Therefore, you use 25% of your home for a home office. That means 25% of your utilities and rent/mortgage will be deductible as a business expense.

If you plan to sell your home shortly, discuss the home expense deduction with your accountant or tax preparer. When the home is sold, you might have to repay some of this amount. At the end of the categories, you should have two numbers off to the side. One is labeled “Total Expenses,” and it will add up all the expense columns – simply create a formula that adds up all the expense column totals, not including the working number columns for entertainment and household home business expenses. This supplies you with the total amount you have spent to date this year. The other number is labeled, “Net Income This Year.” This is the result of taking the total of all “Income” columns and subtracting the “Total Expenses” number.

This number is the amount you have actually earned after deducting business expenses. Much of this spreadsheet is tax related; however, don’t forget to also keep track of other, tax-related information, including home mortgage interest, charitable deductions, and IRA contributions.

Watch tomorrow as we show you how to track your home based business invoices and record your work at home income.

Setting Up Business, Calendaring, and Contact Management Records

First, you’ll want to keep an electronic copy of your business plan. Remember, as your business grows and changes, you will be updating this regularly. Review this weekly at first, as your business starts, then monthly. After the first one to two months, reviewing your business plan every three to six months is a good idea.

You’ll also want to maintain an electronic calendar. There are many excellent calendaring programs, and they are usually combined with a contact database. (Lotus makes Lotus Organizer, which might come with your IBM PC. ACT! is also a popular calendar/contact management software.) The calendar has several purposes. Primarily, double booking people is a big no-no (but you already knew that).

Equally important, however, is that your calendar will help you budget your time. If you see that you already have several “To-Do’s” on a given day, you should not schedule a lengthy meeting. Get in the habit of putting anything that needs to be done on your calendar. Don’t forget to block out time for personal commitments, such as special family outings, doctor’s appointments, and school functions.

You should also build and maintain a contact database, holding your clients’ names, addresses, phone numbers, email addresses, and so on. Contact databases have several purposes as well. Primarily, the most important phone numbers and addresses are right where you need them – at your fingertips.

Second, you will be able to send out mass mailings directed toward a particular group – that is, rospects who never became clients; clients from this year who should receive a holiday gift; clients who also gave referrals; all contacts who are attorneys (for a mailing aimed directly at attorneys); and so on. Programs with preset fields include ACT! and Entourage. For more freedom and flexibility, try database programs, such as FileMaker Pro or Access.

You can incorporate a phone log in to your contact manager, or, if you prefer, create a spreadsheet.
Your phone log should be updated every time you pick up the phone to make or receive a call, as well as every time you receive a voicemail message.

Note that you will record the date and time of each call, its length in minutes, who you spoke to, the company, the phone number, and the message or (if you actually spoke to a live person) what you talked about. (You might not want to repeat all these details if your contact manager is up-to-date, but be sure that the person’s name and company name is covered regardless.) The numbers next to “minutes” and “hours” are the actual amount of time spent on the phone, to date. Gathering this information will help you gauge how much phone time is required for various projects.

The column heading “VMS” is a place for you to indicate the nature of the phone exchange – was the call incoming or outgoing? Were you talking to someone or leaving a message on her voicemail? This log serves several purposes. Primarily, you will have an automatic memory aid as to when you spoke to someone, what you promised or said, and what you have discussed with whom. Should you be involved in any dispute, this log will also help you document facts related to that dispute.

You also should have an electronic inventory of all of your writing, designs, marketing plans, ideas, or any other creative property. If copyright issues are involved, this work database will also serve as the information source regarding what you have licensed to whom and when. This database will vary, based on the kind of work you do.

Work At Home need list

- Computer with spreadsheet and/or database programs installed (or spreadsheet paper and notebook, if working manually)
- Calendar
- Contact manager or rolodex (however you will keep track of customers)

Important Electronic Records

In most instances, your contact management records, calendar, and business expense and income records will be maintained electronically – usually on your computer. These records are the heart and soul of your business. Years from the time each entry is first recorded, they will continue to provide important information to you about how to make basic business decisions, where and how to grow, and what markets to target. Five years from now, you might see a pattern that shows February is a slow month – always.

That is good to know because you can make plans to accommodate that trend. You might notice which clients have provided a lot of steady income, which have been one-hit wonders, and which have been sporadic yet highly profitable. You might also notice that, in five years, your revenue (income before expenses) has tripled. That’s a great way of telling others how well your business is doing.

In fact, these records provide important information to third parties as well. If you should ever choose to sell your business, these vital records document the value of your venture. Should you ever be audited, the IRS could seek financial records from you – and go back as far as you have owned your business, if they feel it is justified.

On a more positive note, should you decide to seek a loan, it is absolutely necessary to provide the financial history of the business. And, should you choose to sell your business, you will need to maintain the records that provide so much value. In most instances, we talk about these records as if they are all kept separately in separate software files. Can you combine some of these records in prepackaged software? Sure. Just be sure that any piece of software works well for you and provides you with all the information you need and want to run your business. Don’t try to fit your needs in to the software – rather, the software should allow you to customize it to fit your needs. Use software on a 30-day trial basis if you are uncertain whether it is the right tool for you.

Please read our other post on opening online home business preparation that we will post later on today!