Monday, May 21st, 2007
Bring out the Budget
Small decisions add up to big expenses. Home business owners understand this more than any other business owner. They begin their business from the ground up, with their own starter money, idea, and sweat. They make both little and big decisions every day that affect their business. While they might make one large decisions every month, they make literally hundreds in the same time frame. The hundreds together can impact their business just as much as that fat one in the middle of the month. Thus from a financial perspective, home business owners must establish a budget and stick to it.
Home business owners are especially at risk for not sticking to their budget. They have no board of directors to report to. Thus they should find some method of accountability whereby they can stick to their planned budget. They can begin with a financially savvy friend or their investment broker. These individuals, if willing, can help the small business owner make wise decisions on first drafting a budget and then sticking to it as he establishes his own business.
Budgets live on one basic principle: not spending more than a business earns. A home business can keep its numbers in the black by sticking with this simple principle when making small decisions. Business owners can ask themselves, “How will this affect my budget?” or “Where does this fit into the budget?” If the expense is avoidable and does not fit into the budget, then the owner has a fairly simple answer to their dilemma: do not spend the money. However, if the expense is truly unavoidable, then they need to reconsider their budget along with how they can make the expense work with their current fiscal picture.
Budgets begin with a piece of paper. When the business owner writes out his projected expenses and then his projected income, he often feels like he just made more money. When he can see how his business works on paper, he has the potential for stress relief, and then he can focus his attention on building his business and marketing his product instead of trying to make another dollar to pay another bill. Writing things out on paper truly does make a difference. It gives the business owner a tangible guide for spending and earning. It also creates a system of accountability among other business partners, should any come along in the near future. Others will be more inclined to invest in a business when they see that the business owner has a plan and possesses the discipline to stick with it.
Savvy business owners will also understand that when their expenses exceed their income, they must find a way to either make more income or cut their expenses. They become creative by seeking ways to cut out expenses without sacrificing production quality. They want to continue to stay in business by producing the same product or service in a quality fashion, but they must also stay true to their budget. If producing the product in a quality fashion leads to a loss of profits, then the business owner needs to re-evaluate his business model from the start including pricing.
Finally, the savvy business owner understands the myth that so many have believed in for years: you have to have money to make money. Quite honestly, businesses that borrow lead to stressed out executives and less profit margin. Those business owners who can find a way to finance their operations without seeking a lender will rest easier at night knowing that they are working to produce a quality product and not simply working to pay off a debt. Those who have incurred a debt must attack the debt voraciously. They must find creative ways to make extra income so they can eliminate the debt as quickly as possible and thus pay as little interest as possible. In the end, the sacrifice will be worth the great night’s rest.
Ultimately, a great home business relies on the savvy of the business owner. Those who succeed begin with a budget and stick to it from the inception to the closing of the business.
