Home Business

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.

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.

A home business is not a “one size fits all” venture.

Much of owning and operating a home business is personal and really all about you: who you are, what skills you bring, what you enjoy doing, and what your goals are. Deciding what business to own and operate and how to go about doing so, is a process as unique as your fingerprints. The business model your brother-inlaw swears is an infallible income magnet might require skills, experience, or chutzpah that you simply do not have.

Or you might simply be bored to tears at the thought of operating such a business – even if you could do it well. The business that makes you blissfully happy will drive another person crazy. (And that is a good thing because the person who would be driven crazy by your business is more willing to hire you to do the very task he hates!)

For this reason, your home business should be what makes you happy, what will motivate you to work long hours (besides avoiding bankruptcy), and what will make you happy to do day after day. The business you choose must be directly tied to you – not only to your skills and experience, but also to your own likes and dislikes, enjoyment, dreams and goals. Whether a particular business is suitable for you can only be answered by you.

2. Home businesses can survive with some minor mistakes at the beginning – but will certainly fail if owners expect the business to “run itself.”

Home business owners work hard, day after day. Depending on whether your home business is a full- or part-time venture, you can expect it to take more than 40 hours per week to run, and it could consume every spare moment you have. This is especially true during the first three years.

Yes, you will be able to attend your children’s soccer games on a Tuesday afternoon, or attend a matinee on the occasional Wednesday – but that will probably mean working more hours some other day. Do not confuse a flexible schedule with the lack of a schedule. In this sense, owning your home business is much like driving a car. There are a few big mistakes that might hinder your journey (such as not having a full gas tank, or, in the case of a business, not being fully funded to meet business and living expenses). But when you’re on the road, you can’t stop looking out the windshield! In fact, as you drive, you are constantly adjusting your car’s speed, direction, and position on the road to keep it heading in the right direction and moving safely through changing road and traffic conditions.
Owning your business is just like that.

After you get the business moving, you will need to adjust and revise a host of issues, from pricing and marketing to customer expectations to file storage. And, everything changes. Your customers change. The economy changes. Seasons change. Technology introduces changes to your particular industry or market sector. Just as you should never take your eyes off the road, you should never take your eyes off your business.

These will be the main five questions we ask you about home based business readiness and if this is something you are ready.

So read these work at home questions and think about them, answer them the best you can, and over the next few days we will post our answers to each question with an explanation!

Answer each of these questions true or false:

1. A home business should turn a reasonable profit within the first year – otherwise, there’s a problem.

2. A home business’ success depends heavily on starting it correctly.

3. Most home businesses follow the same general business plan and pattern and can succeed if owners adopt a few standard rules and practices.

4. You need money to make money, so you shouldn’t try to start a home business unless you’ve already accumulated some wealth.

5. A college degree is a key indicator of whether you can start and successfully run a home business.

In this artcile, we will go over a brief, true/false quiz and 10 key questions to assess your home business readiness.

By examining your responses to the first quiz, you’ll get a good picture of how well prepared you are for the realities of starting and running a home business. The results of the 10-question quiz will also help you understand your basic preparedness for running your own business. And, by examining your responses in detail, you will gain valuable information that can help you determine what to include in your budget and business plan.

Understanding the Work At Home Business Basics:

True or False

Let’s get you started thinking on your feet. (Okay, for this test, you are allowed to sit down – but answer quickly.) The following quick quiz will tell you how realistic your current approach to a home business actually is.

Each question is true or false. Provide your first answer, and take no more than 60 seconds per question. Thanks for reading our Home Business blog. Be sure to check back as we post the questions and answers to see how ready you are to start or take part in a home business opportunity.

Hopefully this can be your Success Copilot as a great starter for your home business ideas!

A home business reflects the business owner – both our good and bad traits show up in our home business. For that reason, it is very important to know our strengths and weaknesses and to try and correct those that will be detrimental to the operation of a business.

Such assessment is not easy. It requires a raw, unvarnished honesty that is rarely called on elsewhere in life. Get used to it. If you can keep that unflinching ability to continually assess yourself, warts and all it will help you resolve conflicts and correct small mistakes before they become big mistakes.

Now that you’ve assessed your business readiness, you’re ready to get started creating the backbone of your new home business—your business plan and budget.

Here is a look at all the Posts on “Ten Questions to Assess Your Home Based Business Potential”

Day 1 – Getting Started With Home Based Business

Day 2 – Home Based Business Start Up

Day 3 – Launching Own Home Business

Day 4 – Marketable Skills To Work At Home

Day 5 – Home Business Industry Knowledge

Day 6 – Self Discipline

Day 7 – Being Assertive and Organized With Home Based Business

Day 8 – Constant Learning And Creativity

Day 9 – Being Responsible In Your Home Business

Day 10 – Work At Home Business Summary

I hope you learned more about whether or not you are capable or ready to launch your own home business.

In the mean time, visit our work at home home page to see one of our many great home based business opportunities.

4. Asset: Self Discipline

+ If you currently perform your work without supervision, or work on longterm projects at home without supervision, you easily pass this question.

– If you are supervised constantly at work and never accomplish anything on your own at home, you fail this question.

How To Improve:

• Coaches and psychologists might help you uncover why you have a tough time getting moving without a taskmaster.
• Check with your doctor to see if undiagnosed learning disabilities might also be the culprit.
• If you would like to improve your self-discipline, try keeping track of your goals versus what you do on a typical day. What distracts you?

How do you spend your time? Write down what you do, every day, for two weeks. (You can use increments as small as five minutes.) A lot of self-discipline is getting rid of the time-wasting activities (or at least limiting them so that they’re the occasional reward, not the daily habit).

5. Asset: Long-Term Thinking

+ If you have completed a project that took six months or more to finish, and you fully understand how you maintained your motivation during that time, you easily pass this question.

√ If you completed a project of six months or more, but don’t really know or can’t explain what kept you motivated, or if your motivation included nagging from others, you pass this question – but barely.

– A no answer, indicates that you have not finished a long-term project, so you fail this question.

How To Improve:

• Tackle a project requiring multiple steps, but with less riding on it than running your own business.

You might learn woodworking and build your own furniture. Or, you might try to increase your education—taking an evening class or obtaining professional certification will tell you a lot about your ability to sacrifice now for future gain.

Be sure to check back with our home business blog or our work at home page for more information!

3. Asset: Industry Knowledge

+ You easily pass this question if you have at least three to five years’ experience providing the service or product you plan to offer through your business, and you know the industry well. But demote yourself to a check score if all of your experience is with only one employer.
√ If you have less than three years’ experience, but know the industry well, you still pass.
– If you have less than three years’ experience and do not know the industry well, you fail the question.

How To Improve:

• You really need industry knowledge. By that, I mean that you have some understanding of issues such as these, as they affect your business:

Are there slow and busy times within the industry? What professional organizations are important to belong to? How is your profession or industry structured? What divisions exist for entry level, mid-career, and advanced levels?

What happens during the normal course of business? For instance, if your industry is publishing, what happens in order for a book to be published? Can you name all the steps? Which steps would a
customer expect you to perform, and which would be referred elsewhere? What is the jargon used in your industry or profession? What words will you need to know in order to communicate with people while doing your work? How is the industry segmented?

Using publishing as an example again, do you know that the industry is segmented in to small publishers, specialty publishers, large publishers with multiple imprints, and so on? What rules govern your industry or profession? What licensing is required? Which government agencies regulate the industry/profession?

If you don’t have industry knowledge appropriate to the work from home business you’re planning to launch, there are two things you can do:

a) Stay in the work force and gain the knowledge you need, or

b) Choose an industry in which you have more experience and knowledge. This is one positive aspect of regular employment. Employers provide great on-the-job training—the results of which are tough (and expensive) to replicate. It is much more cost-effective to gain experience (and make mistakes) on someone else’s dime.