Every Home Business entrepreneur has the same goal - to earn money, it can be
as little as $20 a month or as much a $1,000,000 a year. That being said, as with
any business keeping track of incoming and outgoing cash is vital to the success
or failure of your business.
At first, the costs of hiring an accountant to manage your cashflow or create a
budget for your business may be a bit more than you are willing to take on. So
to enure you do not miss this very important aspect of starting your business
let's go through the 7 steps to set up your budget that you need to take.
A Budget is nothing more than estimating costs and income. It is your responsibility
to review your budget regularily and adjust it based on actual or real numbers.
There are several applications on the market to perform the mentioned steps.
I use and suggest you use Microsoft Excell
Step 1: Decide on the time period of your budget that you are comfortable with,
usually people choose weeks or months. This means you need to calculate every cost
to a weekly or monthly basis. For Example if your opt-im mail list costs are $120
a year, the monthly costs are $10 and the weekly costs are $2.31 per week ($120/52
weeks=$2.31)
Step 2: Make a complete list of all recurring costs you already know: i.e.
Affiliate memberships, web hosting, your autoresponder, opt-in lead subscriptions
and so on. Consult your credit card statements and search your bank statements
for subscription payments. Transform the costs to the unity of time you have
chosen in Step 1 (i.e. monthly or weekly).
Step 3: Now make a list of all one time payments you plan to have this year, and
calculate the accruals for the periodicity you have chosen in Step 1. Example:
you plan to buy Website building software for $500 this year (this is your Budget).
You could calculate then a monthly costs of this software as $41.67 a month, or
$9.62 per week.
Add the costs obtained in Step 3 to the list you have already prepared in Step 2.
Now you have the complete list of your estimated monthly or weekly costs.
Step 4: Now we come to the best section: your Income!
In any business your earnings are derived from sales. There are either direct sales
or indirect sales from your downline, if you are running a network marketing
business.
Estimating your earnings is obviously much more difficult than the estimation of
your costs. Ideally, you may express your earnings as a percentage of your marketing
spending. If your marketing effort is not able to produce sales, you may review it
and look for other marketing strategies. If you have tracked your marketing spend
properly, you may be in a good position to estimate your conversion rate (the
percentage of your clicks that lead to sales) and thus, can express your earnings
as a percentage of your marketing costs.
Example: If you are running a Campaign with ABC Search Engines to promote your
business. You pay $0.05 per click and achieve 300 clicks a month. Your corresponding
recurring costs of $15 a month are already considered in your budget.
Your conversion rate may be 1%, so you expect three sales per month. If you get
$8 per sale, your monthly earnings are $24 a month. This means your profitability
is 25% ($24-$15)/$15. For every advertising dollar you get $1.25 sales.
The total profitability of your business will be lower, since you need to consider
the total cost and not only the ABC marketing cost.
The problem may consist that at the beginning you will not know the conversion
rate of your campaign, so you will need to work with estimations. Once you have
the real numbers, review your estimations based on that numbers. Your budget will
get more and more accurate, the more data you can provide.
Step 5: Now you can build your budget based on costs and estimated earnings month
by month.
I strongly recommend to reinvest part of your earnings and increase your marketing
spending month by month. This as this is the way to create momentum early in your
business.
It is now time to put all data into your Calculation Sheet. Start building columns,
one column per period (week or month). Each period will have 2 coloums, one for your
budget and one for your actuals.
Divide your rows in "Earnings" and "Costs", subdivide them in several rows for your
earnings (in the case you are working with multiple programs, reserve one row per
program) and one row per each cost element identified in the steps 1 & 2.
At the bottom of each coloum create a sum, this will give you a total of your
costs and earnings per period. Below the two sums create a cell that will calculate
the earnings minus the costs - this will give you an accurate picture of where you
stand financially each period. You will see immediately if you have positive or
negative cashflow.
Step 6: Review your budget on a regular basis. The more data you have, the more
accurate your budget will get. Calculate period by period your conversion rate
and monitor the results of your marketing activities. Update your budget as your
figures become more accurate over time.
Step 7: Now run your business!
Your Budget is now a powerful instrument to give you a good financial basis if
you are on track or not. Some people have the tendency to oversee spending and
over estimate earnings. If you feed your budget with real data, it will give you
an instant view of the results of your cashflow! All businesses need a budget, a
good budget will keep you on track, and give you a clear understanding of what
is working, what is not and where your money is going and coming from. Without a
good budget it is easy to loose your business and not know why
Remember it is absolutely normal that in your first months (or years?) you will
have more costs then earnings. This is the case for every business. However you
should be now in the position to forcast when your break-even point will be reached.
You may decide to invest more in marketing activities if they seem to be profitable,
or save costs by reducing your recurring expenses.
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