One of the advantages of starting a home-based business is that it usually costs less than starting a business that requires office space or other facilities. Most people already pay for a home or apartment, so starting a business from that location entails very little extra overhead.
Aside from eliminating the need to pay for office space, warehouse space, a restaurant, storefront, etc., the average home business also typically requires a much smaller starting investment. This is especially true of network marketing, where most business opportunities cost under $1,000 to get started in, though some network marketing opportunities do cost more.
Some home business opportunities involve an initial cost under $100 and may even advertise “free” signup.
Unfortunately, the lure of such low entry costs often causes people to overlook the more prominent, long-term picture.
This short article will cover three areas regarding budgeting that many people commonly overlook:
1) Make sure that you understand the total direct startup cost. “Direct” is defined here as what you’ll pay to the company you are signing up.
2) Learn and develop a realistic budget for your indirect and ongoing monthly costs. These include setting up a home office if you don’t already have one, phone costs, additional training and seminars, travel, leads, advertising, etc.
3) You MUST reinvest in your business for it to grow!
Let’s take a closer look at the three areas outlined above.
DIRECT STARTUP COSTS
Direct Startup cost includes your signup fee, any basic kit of sales or training materials that you are required to purchase (or strongly advised to), any training that you are required or advised to purchase at the time of signup, and, a big one to avoid in most cases, a required initial amount of product or inventory.
Try to get as much information ahead of time about what you’ll need to spend to be successful. Very often, opportunities emphasize a low startup cost. Still, the company, its literature, or those representing it fail to fully inform prospective representatives of additional expenditures you must make to advance and maintain your position with the company.
Again, be extremely careful, if not shy away from opportunities that try to get you to invest large amounts ( more than a few hundred dollars ) in inventory, samples, etc., or that commit you to purchase expensive leads. I use a few hundred dollars as the threshold here. However, if you are dealing with certain high-end products, just purchasing one may cost more than that, so adjust accordingly. The point is to ensure you don’t buy more than YOU need for your consumption.
Suppose you sign up with a company that sells $1,000 therapeutic massage chairs and can afford to buy one, okay. Just don’t get into buying more of them because you need to keep them on hand to demonstrate and sell to others. Almost all modern, reputable direct-selling companies take orders and ship directly to your customer, so, with rare exceptions, there is very little need to purchase or stock inventory.
Likewise, if you spend even as much as several hundred dollars on nutritional products for you or your family, that’s fine too. But if you then purchase hundreds or thousands of dollars more of the product to qualify for an increased level of compensation or bonus money, again, not a wise thing to do at all. Businesses make money by selling legitimate products and services to others at a fair and honest profit.
You DO NOT make money if you are the only one buying the products and services yourself!
It is common for some companies to offer various levels at which you can start and continue to qualify monthly. This is especially true of nutritional companies. Determine ahead of time which level you can be satisfied with and whether or not your budget will allow you to continue to make whatever purchases are required each month to stay qualified.
Another common requirement with companies of all times, especially those in the telecom and financial services industries, is that job seekers must purchase some training package to qualify for specific promotions in compensation and bonuses. It is usually an option that you can elect to add either at the time you sign up or later, though sometimes you may lose specific opportunities by not doing so in the beginning. Again, be sure to get all the information about the requirements. In these kinds of programs, even though the purchase of the additional training is “optional,” if you do not, you will not be promoted, and thus you may miss out on substantial extra income and bonus money.
In each of the above scenarios, you may also require to step up in the compensation plan that others you have either personally sponsored or are within your organization have made this additional investment. And, since leadership is by example, always remember that it will be more accessible to interest others within your organization if you’ve made the same investment.
To recap: Make sure when you research an opportunity and signup that you understand not just what the “basic” or minimal costs are to get your foot in the door but that you understand the actual cost of getting off to the right (and best) start that will give you the maximum chance of being successful.
INDIRECT AND ONGOING MONTHLY COSTS
A large percentage of people involved in a home business or network marketing for the first time overlook their after-signup and ongoing costs. If done correctly, there is no reason why these costs need to be high. However, without the additional investment, you quite literally may find it extremely difficult to get your business off the ground successfully.
As you can learn by reading some of the articles and free reports on ABCIncome.com, it is usually NOT the best idea to start by talking to your friends, family, or co-workers. Therefore, you will need to purchase (or generate) some leads. Here again, through articles and training available from ABCIncome.com, you’ll learn why you should never pay more than 5 to 50 cents a lead unless it’s a lead you generate.
However, even if you assume an average cost of 20 cents per lead, which is 500 leads for $100, you’ll probably go through at least 500 to 1,500 as you work through the learning curve to profitability. So, if, hypothetically, it only costs you $39.95 to sign up, you would still need to budget at least $300 more to purchase enough leads to have a reasonable chance of becoming profitable. These guidelines apply whether you deal in small amounts like those above or much larger ones.
In addition, you have to, at the very least, figure in the cost of telephone calls and, if you conduct your business via local meetings, perhaps even the cost of renting conference room facilities, etc.
Whether dealing with smaller amounts of hundreds of dollars or more significant amounts running into the thousands, remember that lack of capital is one of the leading causes of failure in all businesses. If you cannot afford to invest the money that your business will genuinely need to get business off to the right start, you may want to seriously evaluate whether or not you might be better off waiting until you can.
REINVESTING BACK INTO YOUR BUSINESS
More often than not, when someone ends up having more money come in than was the case previously, especially if it’s a significant amount, they often spend all or most of the money instead of seriously considering how much they should invest back into their business. Big mistake!
If you don’t reinvest back into your business, you may not be able to sustain sufficient growth and revenue to make your business viable. That’s why the old saying, “it takes money to make money,” still has a great deal of truth.
Because most home businesses require relatively little overhead, you can keep more of what you make. Whereas in a traditional business (such as your local grocery store), as little as 5 cents out of every dollar may end up as profit, home businesses and network marketing often enable you to earn as much as 30% to 50% profit or more.
The more money you are accustomed to making, then, in theory, the less this may apply to you. You’ll need to adjust these examples accordingly if you already earn a high income and 6-figures.
However, for example, ‘s sake, let’s say that someone who earns $2,000 a month all of a sudden gets a check due to their home business efforts $1,000. Perhaps before that, they had some bills they were behind on, or maybe there is a dream vacation they’ve wanted to take, etc. Spending most or all of those new earnings may be tempting.
However, you likely incurred some expense in earning that initial check, including your initial signup costs. If so, it might be a good idea to “repay” or put it back into your budget at least that amount.
Let’s say, for example, ‘s sake, that your expenses looked something like this:
Signup costs: $500
Products you purchased: $200
Leads and advertising: $200
Total = $900
You may likely have incurred even more expense initially getting started. However, if your first check was for $1,000, you need to consider that you’ve only made an initial profit of $100. Especially if you are tempted to spend that initial check on something else, you might not be happy about the prospect of earning a net profit of $100.
However, when you consider that you’ve now successfully added $100 to your budget that wasn’t there before, that’s not bad. Especially when you consider that, as mentioned above, the average profit for a traditional business may be as little as 5 cents on the dollar ( 5 per cent). And most traditional businesses involve substantially more startup costs and may not show a profit for months or even years. So, to earn $100 ( or a 10 per cent) profit in just your first weeks or months in the business, again, isn’t all bad at all.
What you do with that remaining $100 is up to you, but below I’ll offer a few suggestions as to how you might want to think as the weeks and months go by, and you continue to grow your business.
If your first month you earned $1,000 and made a profit of $100, then in your next month, as long as you continue to do the same things, it’s very realistically possible that you may earn at least as much, if not more.
Keeping in mind that these are only hypothetical examples. Some people earn much, much more in their first weeks in their new businesses, while most probably earn much less. It’s not uncommon for the first check in a network marketing business to be less than $300.
However, using the same kinds of numbers we are already working with, let’s assume that your second month looks something like this:
Signup costs: N/A
Products you purchased: $200
Leads and advertising: $200
Total Earnings = $1,100
Total Expenses = $400
Total Profit = $700
Your profit margin is already improving because you don’t have to factor in your initial signup costs. As your business starts to grow, you’ve also earned a little more money this month.
So, you now seemingly have more money in your budget. At first, you only made an actual profit of $100, but now you seem to have an extra $700 this month.
If you are tracking your expenses, you can easily see that, at least currently, your expenses are running about $400 a month every month and that, at least so far, you are making a net profit of $700 a month.
So, what do you do next? Extenuating circumstances may prevent you from reinvesting in your business as much as you would like. You may have pressing bills that need to be paid, for instance.
However, barring extenuating circumstances, it’s time to start thinking about how serious you are about your business, how much you want to reinvest, and how quickly you want to try to grow your business.
First, there is an old rule that money financial planners, money managers, and home business experts would likely tend to agree. It’s called the 10-10-10 rule. Always put at least 10 per cent of your earnings (preferably your gross earnings, as opposed to taking it out of your net profit) into savings and “safe” investments for the future and retirement.
Reinvest AT LEAST 10 per cent back into your business.
And depending upon your faith and beliefs, apply at least 10 per cent toward helping others, whether family members, your church, your favorite charity, etc.
The more money you make, the more opportunity you have to change the numbers by reinvesting more into your business and yourself.
As business and success philosopher and speaker extraordinaire Jim Rohn points out, the more money a person makes, assuming they are managing their money wisely, the higher their percentages will be.
For instance, while the average person might save as little as 10 per cent of what they make and spend the rest, Jim Rohn saves and invests as much as 90 per cent of what he makes and lives off the remaining 10 per cent. Easier to do when earning a higher income.
You will continue adjusting your numbers as you continue working to achieve tremendous success in your business. In general, however, the more money you invest ( wisely ) back into your business on those things that make it grow and produce more income, the better off you are likely to be.
Eventually, you will reach a point where you have enough money to reinvest significant sums back into your business and your future, AND have plenty of extra money left over to do the things you enjoy in life!
If you are comfortable using a computer, then picking up good financial management and accounting program can assist you greatly with issues regarding budgeting and managing your personal and business finances.
There are some excellent products on the market. However, after having used them all since the very first such software appeared over a decade ago, my personal preference is for the Intuit line of products.
If you make less than $100,000 a year, then their Quicken line of software can handle your personal and business accounting needs while keeping them separate if necessary.
If you make more than $100,000 a year or plan to, you may want to consider using Quicken for your personal finances and their QuickBooks software for managing your business finances.
You can visit Intuit’s Website to learn more, and their products also carried by most major retailers that carry software, such as Best Buy, Circuit City, Office Max, Office Depot, etc.
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Another product/service worth considering is a very unique and powerful subscription service offered by Everyday Wealth. It offers many features similar to the software above. Still, it doesn’t require installing any software on your computer. It goes beyond what most financial software does by actually playing an active role in showing you how to leverage your current financial position and even your current debt into more incredible wealth.
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