How To Budget For Success If you're like many start-up homebased business owners, you haven't budgeted enough for marketing expenses. Our homebased expert reveals why you can't ignore this crucial element to success.

In her book due out this month, Bringing Home TheBusiness (Perigee), our "S.O.S." columnist Kim T.Gordon reveals 30 "truths" every homebased business ownermust know, from marketing your business to living and working underthe same roof. This exclusive excerpt discusses a particularlyimportant part of entrepreneurship: start-up marketing capital.

Truth: Most homebased business owners use their own money toget started and often undercapitalize critical areas likemarketing.

Imagine your same business, but in a different location--aleased office space. What would your rent be? What would you do towin business? Anything you're not doing now? The only realdifference between your homebased business and any other smallbusiness is location. But because many people consider home a safehaven, it's easy to become comfortable and complacent. Youforget to run your homebased business like any other, withestablished budgets for key programs, including marketing.

The SBA tells us that two of the principal reasons forsmall-business failure are undercapitalization and lack ofeffective marketing programs. That's not surprising, becausethe two go hand in hand. You should be willing to spend at least$5,500 to set up a bare-bones home office. That includes a computerwith a modem, a backup zip drive, a monitor, a printer, a faxmachine a telephone, plus basic furnishings. You'll need a deskand filing cabinet, plus a comfortable, ergonomic chair and a lampor two. Any additional software and equipment will add to thisbasic cost.

Develop A Marketing Budget

You should also expect to spend at least $5,500 on marketingprograms in your first year in business. Some homebased businessowners undercapitalize marketing because they don't seethemselves as "running a business." Do you fit thisdescription? If so, you've adopted a dangerous mindset. Withoutsome form of marketing, sooner or later you'll find yourselfout of a "job." You see, nothing in the business worldremains static for long. You may have a contract from a majorcompany today, but your contract can dry up, that business may beacquired by an even larger one or your contact there may change,leaving you, an independent contractor, scrambling for morework.

Your actual budget will depend on:

• The size and location of your market. If you plan tosell a consumer product nationwide, for example, your marketingcosts will be dramatically higher than if you market a businessservice in your hometown.

• The type of marketing tactics required. Some marketingtactics require a larger budget than others. For instance, it willcost more to mount a TV campaign to market a consumer product thanit will to send four-color sell sheets to business-to-businessprospects.

• How difficult your prospects are to reach. Some targetaudiences will require greater resources and efforts to penetrate.For example, you can expect to pay more for a direct mail list ofinformation services managers at technology companies (which ismore difficult to create and update) than for a list of allresidents in a particular zip code.

• The sales tools you'll need to compete. No matterwhat kind of business you're in, your tools must be of thehighest quality. But the types of tools your business requires willdictate the budget that must be allocated. For instance, acontractor meeting with homeowners might require a four-panel colorbrochure, pre-printed estimate sheets, and an attractive photoalbum with examples of completed jobs, while a high-technologymarketer will need expensive equipment to make the sale, includinga laptop computer, LCD projector with screen and presentationsoftware.

• The level of competition in your market niche. It costsmore to mount a campaign to effectively break through competitiveclutter than it does to communicate with your target audience in anenvironment relatively free of competing messages. If your marketniche is filled with well-established and entrenched competitors,you'll have to employ a wider range of marketing tactics andfight hard for positioning and top-of-mind awareness.

Funding Options

Did you fund your start-up with a traditional business loan?Probably not. Typically, home businesses seek smaller start-uploans than are profitable for financial institutions. Simply put,lenders can't make enough money from a $5,000 or $10,000 loanto make the risk worth their while. Home business start-ups alsohave difficulty securing traditional small-business loans due totheir lack of significant tangible assets, such as equipment, realestate and receivables, to use as collateral. The SBA offers aMicroLoan Program primarily for start-ups owned by women andminorities in inner cities and rural areas. But most homebasedbusiness owners fund their own start-ups using their savings,personal loans and lines of credit, loans from family and friends,and credit cards.

If you've started your business using your own funds, youmay be tempted to cover the cost of your equipment and overlookother critical components to success, including sales and marketingprograms. Businesses that use bank financing to cover theirstart-up costs rarely make this mistake, because to obtain a bankloan you must have an effective business plan that detailsimportant information such as who you'll market to, whythey'll want to buy from you, your sales and marketingstrategies and marketing budget.

Set Financial Goals

Did you know that homebased business owners have higherhousehold incomes than the average American worker and that a largepercentage earn six-figure incomes? Marketing is an investment inthe future success of your homebased business and should beconsidered an operating expense to be factored into your pricingstructure. Set strong financial goals, and use sales and marketingprograms to generate leads and sales that will get you where youwant to go.

One rule of thumb is that you'll need to earn at leastone-third more as an independent home business owner than you didas an employee to realize the same salary. (And, of course, as yourbusiness grows and you hire independent contractors or employees,the amount you project in earnings must increase proportionately.)In many cases, you can expect your marketing costs to draw againsta higher percentage of your gross income during the start-up phaseof your homebased business.

That was clearly the case for Ken Norkin of Takoma Park,Maryland, a successful advertising agency copywriter who decided tostrike out on his own. When Norkin started his business in 1991, hewanted to position himself as a business-to-business,high-technology copywriter who could make short work of complexassignments. He targeted advertising agencies, design studios andselect local corporations and associations in the Washington, DC,area. Norkin decided his best marketing tool would be oversizedpostcards. For a start-up investment of about $1,500, he created5-by-7 cards that were creative, clever and funny, with a differentcard for each target audience. He sent an initial mailing ofseveral hundred cards, and then repeated the process periodicallythroughout the year.

Norkin's investment was amply rewarded. Two days after hisfirst mailing, Norkin got a response from an advertising agencythat became a client--and has been ever since. Over the past eightyears, that client alone has generated hundreds of thousands ofdollars in sales for Norkin.

But what if your start-up marketing program requires more thanseveral thousand dollars? What if you need half a million or moreto reach your market? That was the challenge for the founders ofAtomic Web Inc., which created a turnkey Web site development toolfor businesses and individuals called website 2 Go, which includese-mail, a complete statistical package of tracking tools andsupport, and Web site hosting. The four partners, Steve Chambers,Lynn Van der Veer, Don Dailey and David Dear, who each work fromtheir own home offices in the Washington, DC area, needed half amillion to a million dollars to work on their service full time andtest a major marketing program.

The partners were initially turned down for loans by severalbanks. But they had two things going for them. Their product wasunique in the market--a drycleaning business, for example, coulduse their service and have a custom site up in hours without havingto write its own content--and they were in a high-tech industry,which made them attractive to entrepreneurs with venture capital.They enlisted the services of an investment broker who helped themdefine their goals and arranged meetings for the team withpotential investors. Ultimately, the partners secured theirstart-up funds by signing an agreement with an investor who wasstarting an incubator. The investor and the broker received stockin Atomic Web in exchange for the funding, and the partners alsoreceived stock in the other companies in the incubator. Thisencourages all members of the incubator to contribute to eachother's success. With their funds in hand, the Atomic Webpartners are taking website 2 Go to select markets in anticipationof a successful national roll out.

Find Funds For Growth And Expansion

Once your homebased business is up and running, you'll findthere are more funding options available to you. Say you'vebeen successfully marketing your company on a regional basis fortwo years, and you need additional funding for growth and expansionto reach national audiences. You'll find a warmer receptionfrom traditional funding sources, provided you're prepared tolook beyond your local bank. Contact the SBA (800-827-5722) orvisit their Web site (http://www.sba.gov) for information on SBA-backedloans. You can also search the archives of Entrepreneurmagazine (https://www.entrepreneur.com) forits annual feature on the best banks for small businesses, whichincludes information on banks that make the largest number of loansto small businesses.

No matter whether you have outside loans or are financing yourbusiness on your own, don't let limited funds stand in yourway. I know one successful home business owner who had to borrowsubway fare from her babysitter to visit her first prospect. Thereare all kinds of creative marketing strategies that will take yourbusiness to the next level.

Bringing Home The Business can be found at major bookstoresnationwide.