Home Based 411 » Money & Financing

Can You Afford a Home Business?

Can You Afford to NOT Plan Ahead?

While you don't have to be independently wealthy to consider starting your own home-based business, you do need to give serious consideration to the financial components associated with not only starting, but also maintaining, such a business. The critical nature of doing such research is evident based on the United States Small Business Administration's (SBA's) finding that the main contributing factor associated with the failure of new home businesses within the first five years of operation is due to a lack of securing adequate capital resources (http://www.sba.gov/advo/research/rs194tot.pdf).

What expenses do you need to evaluate to determine if you can afford opening your own business at home? We discuss the general categories below, but as each company has its own financial requirements, make sure that you are identify any special monetary demands that might be associated with your business plans.

• Start-up Expenses - This involves such costs as those related to: investigating your business idea; acquiring licenses, insurance, and other required legal components; setting up your home office; purchasing inventory; and advertising your business opening. You might even require funds available for payroll if you're going to require the assistance of employees and/or money to pay for professional (e.g., lawyers, accountants) support that's necessary to get your company up and running.
• Maintenance Fees - Because it might be a while before your business becomes profitable, you need to have enough money available to see you through until that point in time. You simply cannot allow bills to pile up with the intention of paying them once you reach a more financially secure position; by then, vendors might have closed your account, the telephone company could have shut off a critical line of communication with your customers, etc. Factor such expenses into your initial requests for funding and budget accordingly.
• Reserve Funds - While you'd probably rather not focus on the need to have money on hand to cover any emergency and/or unexpected expenses, denial or blissful ignorance will simply set you up for potential failure. In addition to setting aside such emergency funds, many people suggest having enough financial reserves on hand to cover three months worth of your regular expenses; others believe that you should have enough money in the bank to handle six months of expenses. It simply depends on your comfort level and how much money you can realistically acquire and/or set aside for such unavoidable expenditures.

When budgeting for these costs, keep in mind the potential loss in income that you'll experience if you'll be giving up a job that you currently have. On the bright side, you can add in the money that you'll potentially be saving by discontinuing your prior work... money that you would have spent for commuting back and forth to work, on-the-road meal expenditures, and wardrobe costs, just to name a few.

The time that you spend evaluating your business expenses and the financial resources available to you is a wise investment in ensuring the long-term success of your home business. Pre-planning will be more than "worth its weight in gold;" by estimating costs, anticipating financial pitfalls, and having monetary reserves to fall back on if necessary, your chances of not only succeeding, but actually enjoying managing your own business, will increase in an exponential manner. Your piece of mind will potentially profit right alongside your bank account.

Good luck finding the perfect home business opportunity!

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