Home Business

Defining Your Financial Assumptions and Contingency Plans

First within this section, you must answer the question, “What assumptions have you made in order for your financial projections to work? What happens if those assumptions are incorrect?” Are you assuming that your spouse will continue to work at his job, where he can obtain sufficient health insurance? Then that assumption goes here. Along with that assumption, write a contingency plan. What if he changes jobs? How much extra would you need to pay for health insurance? (Granted, he might leave his job five years from now, but you should have some idea of the cost of any alternatives.) What happens if your rent is raised higher than you anticipate? What if your homeowners association raises its rates beyond the expected $10/month?

Defining Marketing and Logistics Assumptions and Contingency Plans

Next, answer the question, “What assumptions have you made in your marketing and logistics? What happens if those assumptions are incorrect?” If you find that you cannot use the space you set aside - say a lengthy construction project starts on that side of your home as soon as you set up an office - where else in your home would you place your business? If you believe five of your current clients will come with you when you leave your employer, what happens when only three of them actually do? What you need to do here is think of the obvious assumptions you are making and come up with a plan that addresses, “What if it isn’t like that, after all,” as outlined in these scenarios:

• You’re assuming that you will work out of an area in your home. What happens if construction, noise, or natural disaster strike? What if you had to sell?

• You’re assuming that you will have health insurance coverage for your family through your spouse or partner’s employer. What if your spouse or partner were laid off?

• You’re assuming that you can work and watch your children. What if you can’t do that? What if you need to work and they need to be at violin lessons - at the same time? List, one by one, all the assumptions you are making. This can be difficult - because the very nature of an assumption is that we just “assume” and don’t think about other options or disruptions to the plan. To be sure that you address all of your major assumptions, visualize a day in the future - your ideal business day.

What do you do, during that day, step by step? These are your assumptions. They are right there - from assuming that the time you get up will be 7 a.m. to assuming that the phone will be quiet until your project is finished to assuming that you can get your work done before the kids return home from school at 3 p.m. Yes, this is a little like taking your dream and looking at it through nightmare-focused lenses, but that is how you unearth assumptions and consider alternate solutions in the event that those assumptions are incorrect.

Outlining Home Business Equipment Needs

In this section of the home business plan, list what equipment your business will need and whether you currently own or must purchase that equipment. Many home businesses require a computer, printer, fax machine, business phone line, and office supplies, as well as letterhead (including envelopes) and business cards. Your business might have other equipment needs, as well. Also in this section, describe the necessary supplies you’ll use in your business.

Imagine the complete cycle of meeting your ideal customer, convincing him to hire you, performing work for him, and being paid. What supplies do you need at each step? What about software? Beyond word processing and spreadsheets, you will probably need software to store and manage client contact information, invoices, and orders. You might also need special software to perform the services you offer, such as database, graphic design, and/or presentation software.

Defining Relationships with Outside Vendors Finally, within this section, answer the question, “What arrangements have been/need to be made with other businesses in order to provide the product(s) and/or service(s) offered by the business?”

Particularly if you offer “one-stop” shopping, you might need to subcontract with other businesses. For instance, if you are a writer and offer finished newsletters, you will need to work closely with a printer. Have you made that connection? Talk with any potential subcontractors and discuss how you will do business. Will you need to advance them a deposit when work is ordered, or will they bill for their services? Will you include the cost of their services on your invoice to the end client, or will they send a bill to the end customer separately? Come to a formal, written agreement, involving an attorney to finalize the contract.

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).