Home Business

Creating an Exit Plan

Next in this section, describe specifically at what point it would be financially impractical to run the business. At what point would you say, “I’m not making enough money?” Or, at what point would you be making enough money, but not enough to justify the hassle, sacrifice, or hard work? For many people, money and

logistics will be tied together. In other words, perhaps at breaking even, you would not be willing to put up with as much sacrifice as you would if you were making six figures a year. These are the lines in the sand that provide your best dreams and worst nightmares. How long are you willing to work (or how long can you work) and not make enough to meet basic expenses? What if you cannot reach your financial goals? Would your business still be worth running? What if you met your financial goals – but never got a weekend free? n this section, you’ll determine your financial limits.

You might determine, for example, that you will have to close shop if you make less than $30,000 per year for two years. Also consider contingencies under which those limits might flex. For example, given the preceding scenario, could you continue to run your business if your children received scholarships paying part or all of their school expenses? Also in this section, consider at what point would it be financially or logistically impractical to run the business from your home.

To make this determination, ask yourself at what point you would consider moving to a separate location, outside your home. How many, and what type, of customers would justify a separate office, retail, or industrial space? You might decide to move the business outside your home if you have more than 30 customers (for example, the maximum you think you could handle without hiring at least one employee). This type of expansion is discussed later in the website.

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.

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?

Creating Your Business Plan, Part 1: What, Where, When, and How

Okay, you now know that you can do this. But where do you start? This article takes you through the biggest obstacles first – those half dozen “deal breakers” that might make you seriously rethink starting your home business. Then, step by step, we will outline a business plan for your home business. You will describe your business and its structure, document who your customers are, and define what services you provide and how you get business. Your business plan must also outline the financial plan and structure of your home business;

Home Business To do list

- Review employment contract

- Investigate health insurance options

- Scrutinize experience

- Compare desired business with actual home

- Review planning and development restrictions

- Hold a family/household meeting

Eliminating the Biggest Obstacles

There are six major obstacles to your home business – what business negotiators would call “deal killers.” These obstacles include limitations imposed by your existing employment contract, any outstanding legal issues you might be facing, your health insurance costs, inexperience in your chosen field, neighborhood restrictions, and family objections to the home business. Most of these obstacles can be resolved. But before you consider the cost of a new computer or give notice at your current job, you need to determine whether any of these issues present insurmountable barriers to the success of your new business.

You’ll need list

- Self-employment journal

- Current employment contract and related communications

- Copies of all current rental or homeowners’ restrictions/guidelines

Later we will start with your employment contracts