2001: A Home Office Budget Odyssey

Start planning your finances now.
4 min read

This story appears in the January 2001 issue of HomeOfficeMag.com. Subscribe »

Okay, you're adjusting. It's January 1, and the cobwebs have cleared from the previous night's merriment. You're taking it easy, stretched out on the couch with some sandwiches and a soda. The Rose Bowl flickers on your tube. The new year has commenced.

You feel pretty good. Your business is thriving-2000 was your best year yet. But one New Year's resolution you intend on making-and keeping-this year is getting a better handle on your homebased business. And that means maintaining a solid budget.

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Have you budgeted for marketing expenses? Check out How To Budget For Success to find out more.

So while the football game is on, grab a pad and pencil-or your PDA if you're so inclined-and start mapping out a blueprint for your new budget campaign. Here's where to start:

What Is A Budget?

Simply stated, a budget is a detailed plan of future receipts and expenditures-a projected profit and loss statement. Right from the beginning, you can use your budget to validate the activities you have planned for the coming year. Can you afford to hire a new employee? Do you need to expand your facilities or equipment? When will be the best time to start your new sales campaign? When are sales slow? Knowing what all your business activities will cost and when such expenses will occur helps prevent any unexpected surprises that could lead to financial problems.

Before you draw up your budget, you need a clear picture of what you spend. Start carrying a pencil and a notebook, or a PDA, to record every expenditure you make. Do it for a month or two. This will give you a good idea of where your dollars are going, even your pennies. Don't overlook anything. A newspaper may only cost 50 cents, but it's still an expenditure.

Building Your Budget

The first part of your budget consists of an income-outgo statement for your personal life and a profit-and-loss statement for your business. It may seem like a lot of trouble to have one budget for your business and one for your personal life, but that's the way the IRS wants it. Besides, you'll want a business-only budget to clearly see how profitably your business is operating.

Included in your budget should be your income and outflow, preferably on a monthly basis. You should include your tax payment schedule (usually quarterly for homebased business owners) and a timetable for payments from clients. Knowing how often you get paid may seem inconsequential for building a budget, but it's not. Organizing that information will give you a better handle on your cash flow and also give you an opportunity to identify slow-paying vendors.

You'll also want to determine if you're carrying too much debt. To do that, add up the amount you spend on mortgage payments, credit card payments, taxes and insurance. Don't include utilities. Divide that total by your gross income. If the result comes to more than 35 percent, you're carrying too much debt. Microsoft has a nice tool for doping that here.

One debt issue that some SOHO's overlook is their credit cards. Credit cards can be handy, but they're the single biggest budget-buster in the home office world. Identify your credit card debt by month. If you don't have statements on hand, call or write your card provider who'll gladly provide you with new statements.

In terms of inventory, try shopping with friends when buying supplies like paper, pens and light bulbs. Group buying is a relatively new trend in the SOHO world, but you'll find that you get a better deal buying in bulk.

If you haven't invested in some home office financial software, consider doing so now. Software packages like Quicken 2001 Home & Business or Microsoft Money 2000 Business & Personal go for less than $100 and are invaluable in helping you track your finances.

After six months to a year, you'll have a much better idea of where your business stands financially. With your budget data, you'll be able to identify problem areas like overspending or late-paying clients, and then develop a plan of action.

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