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Continued...
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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Managing
Your Home Based Business Finances
