Managing
the Home-Based Business
Sometimes the fact that
a business is run out of a home gives it an air of casualness that
can encourage an entrepreneur to be careless about business essentials.
But a home-based business is still a business.
The home-based business
requires planning and management just like any other business. The
effective management of any business is critical to its success. You
can have the best products or services with customers ringing the
phone off its hook, but if the business is not managed properly, the
dream can turn into a nightmare.
Take time to review the
essentials of any good business management system from operation procedures
to record keeping to insurance and tax obligations. Your home-based
business may have unique characteristics in these areas.
Systems and Set-up
You need to develop effective
systems to manage the financial, marketing, customer service, and
regulatory operations of your home-based business. Your business plan
should map out how you intend to manage the operation. As the sole
proprietor, as you may well be in your home-based business, you will
be responsible for managing all the activity of the business. Decide
on effective ways to handle what must take place day-to-day to keep
the business running smoothly and profitably.
Record Keeping
Keeping track of customer
orders, purchasing information, and financial records are just a few
of the important areas for keeping and maintaining good records. Software
programs are available that range from accounting to maintaining customer
information.
Set up financial and accounting
systems in the beginning. Consider maintaining the financial information
on a computer. Computer-based accounting systems can provide valuable
information with minimal investment of your time. Keep your financial
records current. Set time aside daily or at least weekly to update
any financial information regarding the business. On a monthly basis,
review the financial situation of your business. Develop strategies
to improve the profitability through increased revenue or reduced
expenses.
Don't be afraid to hire
a bookkeeper or contract with an accounting service. If you do not
have the time to keep up with the financial end of your business,
it still is imperative that you have good financial records. Your
financial statements are the best indication on how well you are doing,
and it's hard to overestimate the importance of that information.
Insurance
If you have equipment,
records, or furniture used for your business in your home, check with
your insurance agent to be sure your homeowners policy adequately
covers your business assets. Some homeowners policies will cover a
limited amount of business property in the home. Consider what additional
coverage you need for your business.
IRS and the Home-Based
Business
The Internal Revenue Service
has specific requirements to taking deductions for the business use
of your home. There are limited deductions available if you use part
of your home exclusively and regularly for business as a principal
place of business, if you use your home as a place to meet or deal
with customers, or if you are using a separate structure not attached
to your house in connection with your business.
The IRS publication #587,
"Business Use of Your Home," gives extensive tax information regarding
home-based businesses.
Here are some ideas for
effectively managing your home-based business.
Tips and Techniques
1. Develop a regular
system for maintaining financial records, preferably on a computer.
Hire an outside bookkeeper or accountant if you need to.
2. Keep your business
and personal finances separate. Keep separate checkbooks and accounting
systems.
3. Manage your time effectively
to meet customer delivery needs. Take time to get feedback from
your customers on your product or service.
4. Use an answering service
or answering machine so your customers can reach you when they need
to place an order or discuss a problem.
5. Discuss your business
operation with experienced business advisors who can help you determine
what regulations you must follow and systems you should have. IRS
has guidelines for what can be expensed in a home-based business.
How you use equipment will sometimes affect deductibility. Don't
assume just because you use a piece of equipment or make an expense
in the business that it is deductible. Be sure to acquaint yourself
with these guidelines. Don't wait until April 15 to learn which
expenses will be deductible.
6. Keep focused. Discipline
yourself to manage effectively and operate your business. Even the
smallest of businesses must be managed to be profitable.
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