Cash Flow Financing Activities Common Stock Additional Paid In Capital Money Management Essentials For the Home Based Business Owner

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Money Management Essentials For the Home Based Business Owner

While the freedom to travel or spend time with family or just play video games all day is often cited as the reason most entrepreneurs start their business, money is always a pretty important reason as well. By the book The millionaire next door the typical millionaire owns his own business instead of working for someone else, which gives him more control over his 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, as with most things in life, there are a few simple rules that make a difference. Being a serious business owner will ultimately require a more thorough understanding of money management, there are some basic things that determine the success or failure of a new business from the start.

Starting capital

Ideally, a business owner has enough cash at start-up to pay for all equipment, software, licenses, fees, insurance and other necessary expenses, plus enough extra cash to cover expenses in the first few months or years. Since this rarely happens, it is essential 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 the repayment can be deferred until the business is profitable, this can be a great option. Many new business owners are forced to pay as they go, it is even more important for a business owner who chooses this route to have future expenses clearly planned and even then it is still worth considering getting a line of credit or some are safe just in case the company is not making money soon enough.

Tracking the money

But boot-strappers aren’t the only ones who have to worry about cash flow. In the old days, tracking expenses was tedious and often confusing; many business owners have dreamed of the day they could hire a professional to manage it for them. Thanks to software advancements over the past few decades, almost anyone can afford quality and accurate financial management software. Not only does this software make it easy to track income and expenses, but most CPAs and other financial advisors use the same software themselves, so they will already be familiar with the information presented.

Appreciation

Setting the right price is a careful balancing act that needs to be done right to get the company through its first few months, let alone long-term success. The common wisdom is to offer something custom or unique and then charge customers a premium for it. While this approach is logical, it’s not a one-size-fits-all solution, so make sure customers are willing to pay extra for a unique feature or level of quality. Often the customers themselves are the real key to this equation, they will usually indicate in one way or another whether the prices are too high or a virtual giveaway.

Health insurance and pension

Imagine how long the average company would survive with 100 percent of its employees sick in the hospital. It’s a nightmare scenario often faced by new business owners who neglect to get good health insurance after leaving a job. In a one-employee business, it is absolutely essential that a single employee can work and generate income for the business. It is also worth looking for additional insurance or some other type of insurance that will cover the business owner’s expenses in the event of an accident. There is no reason why a few weeks of illness or a broken arm should spell the death of a business.

Taxes

One of the biggest advantages of owning a business is the difference between personal and business taxes and the opportunity to take advantage of many statutory 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 that are not available to the average employee. However, business taxes are much more complicated than taxes for an employee. The best solution is to find a well-trained, experienced CPA, preferably one who already has several small business clients.

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