Home Business 101 – Record Keeping For a Home Based Business

To introduce this topic “Record Keeping for A Home Business”, I must repeat a statement you have seen many times before in this series – “a home businesses is just that, a Business.” New statement – YOU CAN’T RUN A BUSINESS WITHOUT KEEPING RECORDS! Many people planning to start a small business from their home are surprised to find that keeping records of the business is one of the requirements. It is. I can’t help you there, but I can give you a few tips to make it easier.

Why do you have to keep records?:

Taxes - the most obvious reason is to prepare your tax returns. For more information about taxes I would go to the Internal Revenue Service website (irs.gov) and check three items under “Business” – “Starting a Business” – “A-Z Index For Businesses” – and, “Small Business Forms and Publications.”

To monitor progress and prepare financial statements - good records help you monitor the progress of your business. What products or services are selling and returning the most profit? Did you realize positive results from your last marketing campaign? Which sales letters or landing pages are making the best conversions? Are you really making any money? We could go on and fill this page with questions, but the bottom line is that without accurate and adequate records you don’t have a clue.

Customer service - there will be numerous times you will have to go back to your records to resolve a customer inquiry or provide information.

Managing cash flow - even a small home business can benefit from managing cash flow. Cash coming into the business never equals outflow. Good records let you anticipate these differences and prepare for them by making wise purchases to minimize outflow, or offering sales or new promotions to increase inflow when it is needed most.

Marketing – anyone who has been in business (any kind of business) for any length of time has heard “the money is in the list (of customers, prospects, leads)” and “test everything to see what works and what doesn’t.” That is excellent advice, but can’t be done without keeping records.

What Records do you have to keep?

The very simple answer is all records having to do with money flow into and out of your business. A far more precise answer (having to do with tax records) will be found in the Internal Revenue Service website (irs.gov) under “Small Business” – “Starting A Business” – Record Keeping.” There are, as we’ve seen, reasons other than taxes to keep records, so let’s get back to the statement “all records having to do with money flow into and out of your business.

Money flowing into your business might be:

  • Money from selling your own goods or services
  • Commissions from selling goods or services for others
  • Bonuses for recruiting or special sales (Network / Internet Marketing)
  • Money you (or a partner) contribute into the business
  • Money from other sources such as borrowed from a lender or investor
  • Money you make from sale of all, or part of, your business

Money flowing out of your business might be:

  • Home expenses for that portion of your home used as an office
  • Payments for product to be re-sold
  • Payments for all services and expenses, such as marketing, advertising, supplies, accounting, education, etc. required to run your business
  • Payments to buy or replace business assets, such as computers etc.
  • Payments to yourself (or partners) in the form of a draw against equity

What is the best way to keep these records?

My experience in small business leads me to say – without hesitation – QuickBooks. I don’t have space in this Article to tell you all the reasons why, but QuickBooks is a good system that eliminates repetitive record entry, is accepted by all Accountants, and is quick and so easy that even I can do the books.

One thing I can tell you about small business record keeping is this – if you don’t organize your records from the start, and stay on top of your record keeping chores daily, I can almost guarantee that you will come to grief – probably sooner than later.

I’d like to leave you with eight tips CRITICAL to business record keeping success and sanity:

  1. Never mix business and personal paperwork. For instance, by using one checkbook or credit card for business and personal use.
  2. Make sure your records can be understood by anyone, not just yourself. I strongly suggest you use one of the widely accepted automated software record keeping systems. My personal recommendation is QuickBooks Pro.
  3. Always use the memo section of your checks to record the specifics of the expense.
  4. Record transactions as they occur, or at least on a daily basis. Reconcile bank statements the day you receive them. Retain all bank statements.
  5. Get help before things get out of control. Your Accountant, or Business Counselor should be able to help, or at least point you in the right direction when help is needed.
  6. Develop and maintain a good back up system. If you are using computer software back up daily onto disk or jump drive (my preference) and store the disk or drive in a fire resistant cabinet or other safe place. All permanent records of the business like licenses, contracts, organization filing papers, etc. which are paper documents, should be copied or scanned electronically, and stored the same way.
  7. Unless you have a tax accounting background, plan to have your taxes prepared by an Accountant (at least the first year). Check with the Accountant to make sure you understand what records will be required, and that you will be able to supply them.
  8. Prepare and carefully review a Profit and Loss Statement and a Balance Sheet monthly. Flaws in your record keeping system (or mistakes) will show up there, and can be corrected in a timely manner before they get overwhelming.

For more information about starting a business form your home, look for the next article in this series; “Home Business 101 – Doing Business On The Internet.”

Is Starting a Business For Me?

Entrepreneurs start businesses at any time, regardless of the state of the economy or opinions of others. They are driven by a dream and desire to bring something of value to the market and society. And, are not afraid to experiment and fail along the way.

We are fascinated with people who make something out of nothing, invent products and show us new ways to use well-known stuff. There are individuals who are driven by grand ideas and have vision to do great things. Others are modest in their undertakings and have a simple desire to provide for their families.

Most of us have entrepreneurial qualities but for different reasons do not find ways to utilize them. The first question that comes to mind of any aspiring entrepreneur is “Is starting a business for me?”

This is a great question and deserves an honest answer. Most individuals can own and successfully operate a full-time or part-time business. Being a business owner is rewarding but a challenging endeavor.

The aspiring entrepreneur would like to know what it takes to start a business from the ground up and be a business owner. Business ownership offers many benefits such as being able to full fill a dream, seeing the fruits of your labor and directly benefiting from it, not being dependent on capricious bosses and the latest corporate restructuring. You have more control of you destiny by owning a business than working for someone else.

However, business is like a living thing and needs constant attention. In a start up stage it requires a lot of creativity, dedication and total commitment. It requires significant amount of energy to take off the ground and face the challenge and ambiguity. Even though people often are aware about the difficulties they may encounter still, tens of thousands of business are started every year in the US alone.

It is helpful to introduce some streetwise wisdom: It takes three to six months to test a business idea to find out if it is worth pursuing it and make it a business. After you successfully test your idea, it takes about three years to find out if you have a truly good business concept. And takes over ten years to become truly profitable.

Most start ups require full-time commitment. However, in many occasions a part-time business may be a better route to follow. Often family, career or civic commitments limit the time available for entrepreneurial ventures. In this situation individuals can embark in a start up as time permits. Part-time businesses it still require regular effort. For example, a hobby is suited become a part-time businesses. It requires minimum learning and can quickly produce results. However, usually would have limited market and is difficult to grow.

Another way to enter business ownership is to buy an existing business. It allows instant access to established operation, owner expertise, customers and income. However, you are buying someone’s dream. Each business reflects owner personality, desires and values. Buying an established business is less risky but, does not diminish the need for commitment, effort and dedication. There is no guarantee that you will enjoy higher rate return on investment than staring your own.

Only, one that absolutely loves to work for large organizations or for others and always avoids any form of risk should not try to start or own a business. Such individual may not be able to condition his mind to small business dynamics. It is better to look for a new job, not wasting time and resources starting or buying a business.

Starting a business from the ground up needs considerable effort and resources but, is exciting and potentially very rewarding endeavor. It attracts young and old, people who want to fulfill life long dreams and ones that are looking for income to support their families. Most start ups and small businesses fail but they always allow us to gain valuable experience and help us learn a great deal about ourselves. It is worth starting a business before you are restructures out of a job or being old and never tried to fulfill a dream.

Internet Business Or Traditional Brick & Mortar Business

During this economic down turn many people are looking for various ways of making money, and due to the recession people now realise that job security is a thing of the past and can not be relied upon as in recent decades where an individual would stay with the same company for 10 to 20 years or more.

When one opportunity is gone there is always another waiting to be realised. There is now a growing trend towards internet businesses which can come in many business models.

Generally it could be MLM or Net Work Marketing, Affiliate Marketing, Dropshipping, Brokerage, Advertising, Community and many more. There are countless opportunities springing up all the time, it is estimated that there are one and a half billion people using the internet globally and growing at an overall world wide rate of 23%.

With the recession in full flow and the banks reluctant to lend money with out security, it’s worth your time and effort to look at a internet business compared to a traditional bricks and mortar business before making any commitment.

Assessing a traditional business to begin with The first thing that is required to start a business is money or funding possibly business loan, loans in the current economic climate are almost non existent unless you are a using some form of security.

Let’s break it down, what type of business? This will involve acquiring a business premises of some description securing a lease agreement, Forming a new company, refurbishing cost’s new equipment, insurance, advertising, upfront fees for utilities, business cards etc, at a conservative estimate the cost for this small enterprise will be approximately to the tens of thousands, Then there is the hiring of staff to consider and many other hidden cost related to the specifics of a business.

You will require running capital to manage the business on a weekly basis this is specific to the individual and the type of business.

People who start up a new business under estimate the true cost. That’s because they have no experience to fall back on, also there are all manner of other important points that need to be factored in before even starting. For example feasibility study, location, products, competition and the time scale it will take from acquiring your premises to your new business opening date this is a single most stressful period as there will no money coming in and plenty going out of your pocket.

An estimated 90% of small businesses fail with in their first year.

To start an Internet business, looking at the start up cost. As mentioned previously The search for the right business model that an individual may wish to sign up to is an obstacle in it’s self as the vast array of online opportunities can have opposite effect and confuse the prospective entrepreneur there are many business models to go by but the cost in comparison is minimal to a regular business, a website hosting and domain will set you back to the hundreds add to this specific software which you may need to run your particular business can also be a couple of hundred. For few hundred Dollars you are ready to go at a basic level. On the higher end of the scale a top tier programme can be in the thousand bracket, it’s all a matter of choice as to what you as an individual would like to pursue.

Once the initial set up in an internet business is complete the major cost in the running the business will be in promoting it. The various forms of advertising are wide-ranging whether it is paid or free.

Paid advertising or direct marketing can be quite costly although considered the most effective. But this is only to be attempted once the individual has a good grasp how pay per click works or you will lose money. There are other, free forms of advertising. Writing articles, participating in newsgroups, print advertising, and email marketing are other examples.

Statistics reveal that there is an astonishing 95% fail rate in starting out in online businesses.

• With the internet business you never have to stock anything
• No staff and staff salaries to worry about
• Be open for business 24/7 to a potentially global market
• No commuting involved therefore saving valuable time & money
• Potential to earn with very little start up capital is enormous
• Risk is kept to a minimal

Right now there has never been a better time to start an internet business!