People will put tremendous effort into making money through their stay at home business. Focusing on revenue is extremely important but it is also important to minimize the outflow of cash. I am always amazed when an accounting client will tell me that they do not know what they can expense through their business or even what they have expensed through their business. Both these items are very important.
Our businesses pay income tax based on its net income. So when we reduce net income then we reduce our income tax payment. Therefore we must make sure that we are taking every tax deduction within the law. If you don’t know what you can deduct from your income then you should contact a trusted tax advisor. Alternately, there is much literature out there that will help you learn. The internet and library are great, free resources. If you complete your own tax returns, then your tax software will have lots of useful information. If you are not minimizing your taxes, then you are just giving away your money. In One of Robert Kiyosaki’s Rich Dad series of books he mentions that you may be able to give yourself a raise simply by lowering your taxes. If you don’t have the time or aptitude to learn all the rules yourself, then look for a great tax advisor for your team. This could pay for itself and more.
I am also surprised when people bring their receipts to us at the end of the year. Many times these receipts are not even organized. Countless people have not been recording their revenue and expenses anywhere throughout the year. Somehow they are managing their business by what is in the bank account and swirling around in their head. This is a very dangerous way to run your business. I have witnessed that the success of our client’s businesses is directly correlated to their attention to the financial details of the business. This is not a scientific correlation, but the fact that the organized business has a greater likelihood of success is apparent to me from the examples I have seen.
Some basic things that you should do right away:
1. Set up a separate bank account and credit card for your business. This will help you organize and will help to prove to the taxing authorities that you do, indeed, have a business (especially important when expenses exceed revenue at the start).
2. Get some basic accounting software that will help you to reconcile your bank and credit card accounts. This software will also categorize your revenue and expenses allowing you to review your financial results on a regular basis.
3. Regularly and critically review your financial information. Can you increase revenues or decrease expenses? How much of your revenue are you actually keeping? Are your revenue and expenditures properly balanced?
Only very basic information has been discussed here. Although you may not want to divert your time away from revenue producing work, you will also need to focus on keeping the money that you do make. If your situation allows it, you can hire some help (or enlist family members) to help you monitor your stay at home business’ finances. But you must make the effort and you will be glad that you did.
Word count: 553