Money Management Basics for a Home-Based Business Owner

While the freedom to travel, spend time with family, or just play video games all day is often cited as the reason most entrepreneurs start their own business, money is always a pretty big reason as well. According to the book The millionaire next door the typical millionaire owns their own business, rather than working for someone else, giving them more control over their money. However, with control comes responsibility and many new business owners have ruined their finances because they knew how to manage them.

There are countless books on all aspects of money management; however, like most things in life, there are a few simple rules that make all the difference. Of course, to be a serious business owner will ultimately require a deeper understanding of money management, there are some basic things that make or break a new business early on.

initial capital

Ideally, the business owner has enough money up front to pay for all necessary equipment, software, licenses, fees, insurance, and other expenses, plus enough additional money to cover expenses for the first few months or years. Since this is rarely the case, it is vital to have a work plan to compensate. One of the most popular options is to bring in outside investors, if the business owner has good credit and especially if payment can be delayed until the business is profitable, this can be a great option. Many new business owners are forced to settle in or pay as they go, for the business owner taking this route it is even more important to have future expenses clearly planned out and even then it is worth considering getting a line of credit or some they fail safe in case the business doesn’t generate the money soon enough.

track money

However, those who are out of work are not the only ones who have to worry about cash flow. In the old days, tracking expenses was tedious and often confusing; many business owners dreamed of the day when they could hire a professional to run it for them. Now, thanks to software advancements of the last few decades, quality and accurate financial management software is easily accessible to almost anyone. Not only does this software make the job of tracking income and expenses almost easy, but most CPAs and other financial advisors use the same software, so they will already be familiar with the information presented.

Prices

Getting the price right is a careful balancing act that has to get the business right to get the business through the first few months, not to mention long-term success. The general wisdom is to offer something personalized or unique, and then charge customers a premium for it. While there is logic to this approach, it’s not a one-size-fits-all solution, make sure customers are willing to pay more for the unique feature or level of quality provided. Often the customers themselves are the real key to this equation, they will usually indicate, one way or another, if the prices are too high or if it is a virtual giveaway.

Health and Retirement Insurance

Imagine how long the average company would survive with 100 percent of its employees sick in the hospital. This is the nightmare scenario often faced by new business owners who refuse to get good health insurance after leaving their jobs. In a one-employee business, it is absolutely important that the employee be able to work and generate income for the business. It’s also worth looking into supplemental or other insurance that pays for business owners in the event of an accident. There’s no reason to let a few weeks’ illness or a broken arm spell the death of the business.

Taxes

One of the biggest benefits of owning a business is the difference between personal taxes and business taxes and the ability to take advantage of many legal tax incentives. Because a successful business has a positive effect on the economy, the government gives businesses and business owners many tax breaks and additional incentives not available to the average employee. However, business taxes are also much more complicated than taxes for an employee. The best solution is to find an experienced and well-trained CPA, preferably one that already has several small businesses as clients.