A home-based business is still a business. The fact that work is now being undertaken from the home, in preference to a shop or office, makes no difference. To be a success, a home-based business will require commitment and time, but it is also important to create a home-based business budget to keep track of the finances.
When creating a budget for any home-based business it is also important to separate work from the home. Whilst the business may have been set up to improve home finances, the business is a separate entity.
Traditionally, of course budgets have been written down using pen and paper, but today it is advisable to make use of the technology available. Technology can make it much easier to forecast and report finances as required. There are numerous accounting software programs on the market, including the likes of Quicken, Microsoft Money and QuickBooks. The latter is one of the best although all of them work best when full versions are purchased. A good program though will ensure that money is not unnecessarily lost from a business. A home-based business budget though can also be created using a spreadsheet program like Microsoft Excel, although some skill is required to get reports and predictions from the data.
A home-based business budget is basically made up of incomings and outgoings. So a good place to start is with the positive, the income of the business.
Depending on the type of home-based business, income may be a large figure received once a month, or could be hundreds of smaller sums. Either way it is important that all sources of income are recorded, ensuring that none are missed. Once totalled, this will result in one, hopefully, large figure for total income.
Unfortunately, the budget doesn't stop there and just as there is income, there are outgoings. Some of these outgoings are immediate, and some are paid monthly, quarterly or yearly, thus the budget will help ensure that there is money available to pay future bills.
There is no right or wrong way to organise outgoings, and everyone has their own priorities. A good place to start is with taxes, as Benjamin Franklin once said, "in this world, nothing can be said to be certain, except death and taxes". Each country has their own rules and regulations for self-employment, and so it is important to know the law, but income needs to be reported and taxes paid on that amount. Additional taxes will also need to be paid if the home-based business is employing additional staff as well.
Another outgoing demanded by many countries is the payment of insurance; most home-based business will need some sort of business insurance. There may also be things like loan repayments to consider in the outgoings, if a loan has been taken out to start the business.
Working from home also involves other expenses, including the payment of utility bills. It is not always possible to separate electricity, telephone and water usage between personal use and business use but unless an estimate is put don on the budget the business may look more profitable than it actually is. There are also other daily expenses to put down in the home-based business budget, and include supplies, tools or equipment, and advertising.
Hopefully, income is still outstripping expenses at this point, as there are still a few more things that need to be considered within the budget. Within the budget it is important to set aside a proportion of the income into an emergency fund. It is of course impossible to set aside for the unforeseen but consider such things as having to buy a new computer if the existing one breaks. There are many things that could be vital to the business and without that emergency fund the business would not function.
In an ideal world there are three more things to consider for a home-based business budget. The first of which is setting aside some money to reinvest in the business. The second is to take out some profit, the salary for which the business has been established. Lastly some money should be paid into a pension fund.
Some people when creating a home-based business budget also like to place targets into their calculations. Targets for how much income they believe is achievable monthly or yearly, and thus how much profit can be achieved. The budget though can help to show whether any initial targets are overly optimistic, and the budget can even show whether the home-based business is going to help with finances, or indeed cost more than the achievable income.
The success of any home-based business budget though is in being thorough. The budget itself will only be as good as the data put into it. Therefore it is no good looking at it once a month, it needs to be a daily occurrence, otherwise it is too easy to forget to note down an expense or a bill paid, which will skew the budget.