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It
is so easy to allow things to drift when you're working at home, and
concentrate merely on totting up the sales revenue.
Remember,
this is what may happen if you do not positively manage your business
finances:
1.
You will experience cash flow problems. Allowing cash to flow in and out at
its own will almost ensures a failed business. If you are blessed with
masses of sales income in the early days, then you will have time to put
things right. If you don’t, then you may run out of time. Cash flow will
bring you down. One of the most common causes of business failure is cash
flow, and many of those businesses could have flourished with better
financial management.
2.
It is inevitable your business will be less profitable than it could
otherwise be. Financial alertness, which financial management will bring,
ensures you are making better and more timely decisions. That results in
more profits and better cash flow, and ultimately the survival of your home
business.
3.
If you are not watching your finances closely, it is easy for you to
continue with unprofitable activities, programs and products
For
example, you may be an affiliate for 3 products.
The
one bringing you the highest commission each month may be unprofitable
without you even knowing it, if you are not tracking the spend on
advertising that product.
4.
Your business may not grow as it otherwise could. If you do not manage your
finances, how will you ensure that part of the profit is put into growing
the business, for example with more advertising or other forms of
marketing. Also, you need to budget for increasing your knowledge.
How
do you manage the home business finances? If you own a very small online business
your financial management will not take up much time. The best time to set
things up to keep the right sort of records is at the very beginning, when
you first set up the business.
This
is a massive subject if you want to go into fine details, it would require
a large manual. I will cover here just a few points. Bear these points in
mind in the context of your own home business and circumstances, and you
should get your business onto a sound footing, from which you can develop
more sophisticated systems if you need them.
It
is very likely that your records will only need to be very simple at first,
but it makes sense to get some sort of information structure in place right
at the start, then as things expand for you, there will no need to play catch
up.
Your
home business will flourish if you have your finger on the pulse of its
finances at all times. Here are a few suggestions:
1.
Just as a CEO calls for regular finance reports in a company, you, as CEO
of your own online business, need to ensure that your finance director,
also you, provides all the necessary information to satisfy your needs for
statutory returns (eg your country's tax department) and for monitoring the
different elements of your business. In effect, you have 2 separate but integrated
sets of records. The first is for the true financial accounts, which are
for your statutory needs.
The
other is your set of management accounts. In other words, you also want a
management information system that helps you make decisions that will improve
the profitability of the business.
Management
information system sounds very grand, but it need not be. It should just
provide you with enough information to make timely and sound decisions,
such as when to drop a particular program from your portfolio. I have
dropped a number of affiliate programs in the past because their return, if
any, did not justify the amount of time and expense being dedicated to
them. I was only able to do that because I had enough information to make
the decision, sometimes very soon after joining a program.
2.
Try to set aside a time each week or month to review your finances. Prepare
a monthly profit and loss account covering the whole business to see the
overall position. Also, try to break that down in a way that helps you see
the profit and loss of each product or online program which you may be
marketing.
Use
that as a time, but not the only time, to consider decisions about
increasing activity in, or dropping, a program or product, or to alter
their marketing mix..
3.
When setting up your expenditure records, consider which costs will be
fixed each month, and which are variable. A fixed cost is an overhead such
as power for your home office, or your internet and computer expenses. A
variable cost is more under your control in the short term, for example
advertising costs.
4.
If your business comprises more than one online program or product, (for
illustration A and B) try to allocate as much expenditure as possible to
either A or B. This becomes part of your management information. You can
use it to see if A and B are profitable. If you cannot allocate the
expenditure precisely between A and B, use your best guess. If you cannot
do so, then consider if the expenditure is really a fixed cost.
5.
Ensure your income records keep track of where income has come from. This
will be used with the expenditure records in 4.to track profitability of
different products.
6.
If you are dividing your time between A and B, try to jot down each day the
time spent on each in particular. This information may one day help you to
make an important decision.
Time
is a limiting factor. You need to make use of it. If your time comes under
pressure, there will come a day when you will need to decide how your time
is most profitably spent.
You
may find some surprising results. I once had an advertising sales business,
and my partner and I sold space in 7 specialist magazines. One of them only
brought in a few hundred pounds each month, and my partner wondered if we
should drop it. When I checked back a year for the times spent on that and
other magazines, the one she wanted to drop actually brought in the most
revenue per hour of all of them. So we kept the magazine going, and it
later expanded. Without those time records, we would have made a bad
decision without ever knowing.
7.
From the start of your business activity, try to formulate a plan and a
budget. This will help structure your financial management. Do not worry if
your first forecasts are wildly out. As you gain knowledge of your business
and its market environment, your forecasts may improve. The important thing
is to keep in the management way of thinking. That will help you keep your
finger on the financial pulse. Your business will be more profitable in the
long run.
8. In
conjunction with 7. prepare a cash flow plan and keep it updated. This
could be a saviour for your business, and avert unnecessary pressure on
yourself later.
The
above has only really been an introduction to the subject of financial
management of your home business. You will be doing yourself a great favour
if you try to learn bit more each month about the different elements
mentioned.
About
The Author:
Roy
Thomsitt is the owner of the home online business website,
http://www.change-direction.com
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