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It doesn't have to be unpleasant or messy, but it does have to be done. You may be well on your way to building a full-time home-based business or may just be tossing the idea around right now, but having a clear understanding of your current and future financial commitments will play a MAJOR role in your strategic plan for business success.

Home-based business owners don't normally wake up one day and say, "Yep. I'm quitting my job today and starting a home-based business."  There is usually a period of time for contemplation, exploration, making the decision, creating a plan, and then starting to execute steps within the plan to achieve the final goal.

The process can take anywhere from several months to several years before an employee is in a position to walk away from her job to begin life as a full-time entrepreneur.

Being financially responsible is critical to not only home-based business success, but to create the financial cushion required to transition from being an employee to a full-time entrepreneur.

Understanding your current financial position is mandatory and doesn't have to take more than an hour of your time if you follow the five basic steps below.

1.  Calculate how much money you currently have sitting in bank accounts, investments, registered retirement savings plans, GIC's, real estate, etc.  If you were to leave your job today, would there be any form of payout (ie. sick plan credit, pension plan contributions, unused holidays, anniversary pay, etc.)?

2.  Determine how much you earn on a monthly basis either through employment, child support payments, rental properties, dividends, your existing home-based business, etc.

3.  Record your monthly household expenses.  Some examples to get you started are:

-  mortgage/rent
-  property tax/house and mortgage insurance
-  utilities (heat/water/hydro)
-  phone/cable/satellite/Internet
-  yard maintenance/snow removal
-  groceries and household supplies
-  vehicle fuel, insurance and maintenance costs
-  medical
-  child care
-  personal care (hair/nails/clothing)
-  entertainment (movies/sports/books/plays)
-  club memberships, publications, etc.

4.  List your monthly business expenses, for example:

-  Internet
-  phone (separate business line)
-  autoresponder
-  shopping cart
-  long distance
-  bank fees
-  office supplies
-  tools
-  web hosting
-  marketing
-  advertising
-  part-time help
-  coaching services
-  shipping/postage, etc.

5.  Identify your outstanding liabilities such as:

-  credit card balances
-  personal loans
-  lines of credit, etc.

When you calculate your earnings and revenue on an annual basis and deduct your personal and business expenses. How much do you have remaining at the end of the year?  Can a portion of this be put aside to build your financial cushion?

If your current business revenue isn't enough to cover your business and personal expenses and if you were to quit work today, how long would you be able to survive on your other revenue sources or savings and assets, taking into account your monthly expenses?

Have you considered all unexpected expenditures that could arise in the next year or two?

Is your car running on its last two cylinders?
Has your furnace almost reached its life expectancy?
Is your vacuum cleaner starting to growl at you?
Is your partner's job secure or do you foresee unstable times ahead?

This exercise is by no means intended to scare or discourage.  Financial stability is an area that needs to be addressed so you can keep your feet firmly planted and plans realistic as you build your home-based business.

Understanding where you are and what potentially lies ahead will help you make sound financial decisions as you plan your future.

After completing these five steps, you may realize your dream to break free of your job might take a year longer than expected, or you may learn that in order to move forward at a quicker pace, you may have to bring in a partner or investor, or learn to leverage your time, money and effort more efficiently to expedite progress.

Perhaps seeking professional guidance on reducing debt and managing finances is in order?

No matter what results you generate, don't let them shake your spirit. Knowing exactly where you are financially will help you make informed, practical decisions so you can create your ideal future.

To increase your level of success at home-based business, make sure you have a financial advisor and accountant as part of your success team.

2006 © Laurie Hayes - The HBB Source

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