Planning the Financials of Your Home Business
Planning the Financial of Your Business
• How much money do you need to start this business (Day 1)?
• How much money do you need, monthly, to operate the business?
• How much money do you need, monthly, to live on? Where will this money come from during times of little or no business (such as during startup or down times)? Will this come from savings, partner’s/spouse’s income, parttime job, or other source?
• How much money can you reasonably expect to make from the business initially? (Take the going rates from the Marketing section of your business plan and expand them here.) What variables exist in pricing? What is the maximum income you can generate?
• What can you reasonably expect to earn from the business during the first year? Second? Third? Fourth, Fifth? Years Six through Ten? Although you will “crunch numbers” in the next article, as you prepare information for this section of the business plan, think about where you want to be in 5, 10, and 20 years. Knowing what life you want to be living in the future can help you make decisions about what services you offer and how much you work today.
Describing Your Assumptions and “What Ifs”
This section of your business plan performs two separate tasks:
1. It clarifies what assumptions you have made.
2. It provides you with objective measurements for closure and expansion.
In this section of the plan, you’ll need to answer these questions:
• What assumptions have you made in order for your financial projections to work? What happens if those assumptions are incorrect?
• What assumptions have you made in your marketing and logistics? What happens if those assumptions are incorrect?
• At what point would it be impractical to run the business? At what point financially would you decide to throw in the towel - that is, how much money would you have lost (or risk losing), and for how long? If the business made money, would there be other factors that would make you consider closing or selling the business? (For example, your business is profitable, but will come under greatly increased regulation if you continue to operate it in to the next 3–5 years. Or your business is profitable, but requires you to be available weekends and evenings—something, perhaps, that you didn’t realize at the time you started the business.)
• At what point would it be impractical to run the business from your home? For instance, at what point would you need to hire so much additional help that you could no longer operate from home legitimately? At what point would you have to purchase so much additional equipment that working out of your home would be impractical?
Tags: home based business, home based business plans, home business