Financial Planning Tips for Work At Home Entrepreneurs

(Last Updated On: September 30, 2018)

To build a sustainable business you have to be able to pay your bills, compensate your employees, and buy critical stuff to run your daily operations as a home entrepreneur. In fact, no business can run without sales, and consistent availability of cash flow. Which are the key components of financial planning.

I remember the early days of running my business, I didn’t like math.

Don’t get me wrong, I love the numbers on a chart, when they show me how much revenue I make. But I run away from complicated calculations, and small missing transnational amounts, that ruins the general ledger.

I know exactly how it feels, when you keep entering your transactions all year-long, to find out by tax time that all balances are messed up. So you have to check all the reports over and over, until you find the error.

Financial Planning & Accounting

You can’t ignore accounting, and financial planning. Do it yourself or hire a professional, but there is no excuse. IRS will not forgive you, or your business for ignoring correct recording of your income, and expense transactions.

As an organized person, since I started doing business, I kept writing down my expenses in a notebook. And soon I discovered how awful the process is. Once I started to calculate, and rewrite the numbers many times in different types of ledgers, I became very exhausted.

So, I had to teach myself excel, then I started to feel the difference. Using excel spread sheets, I could create equations inside cells. Once I write or change any number, the results update automatically.

But, again I needed more organized methods. I was serious about my business, and I needed a more professional way.

Finding An Accounting Software

At the beginning I was looking for free tools to save costs, so I used GNU Cash which is an open source standalone software. It was easy to use, and I was taking frequent backups of all the files to avoid any data loss.

Later, I felt the need to hire some help in this area. So I had to say good-bye to GNU Cash, because I had to find a web-based application, that can be accessible from anywhere. And have the ability to grant only the needed permissions on the system. But, also I needed it to be free. After a lot of research, I found Free Accounting software.

My remote assistant hated it at first, because it was complicated, slow and was hosted on my sever. Which had some downtime issues those days.

After a while, she decided to leave to pursue her own career, somewhere else. And thanks god, I quickly found a brilliant Cloud Based Accounting Software!

The free trial, the dashboard, the easy transaction entry and reconciliation were awesome. I was immediately convinced, that it was the solution to all my problems.

I could access it through web interface, and mobile application. And I linked my PayPal and Bank accounts to it. So, I never needed any help in this area because thanks to automation features, 90% of my accounting became automated.

Since then, my tax reporting became easier. I was able to track my expenses anytime, and I even migrated from the separate billing software I was using. I used the Cloud Accounting software invoicing feature, to keep everything in one place. And very much reduce the amount of tasks, and time wasted, in the accounting area.

Financial Planning & Forecasting

Once I started to be serious about my business, I needed a financial plan. However, I was really clueless.

How can I forecast the sales of a startup business? I have no sales history to refer to, and there were no accurate data available from other players in the field.

After 5 years of trial and error trying to make a realistic financial plan for my previous business idea, I failed.

It wasn’t the fault of the idea, it was my fault.

Why?

I have an IT background, and I was a good web developer for about 10 years. Then I thought that it is a brilliant idea to start a web hosting business, to support by the existing web development projects.

I had enough knowledge about web hosting technology, servers, databases and of course programming languages.

But that wasn’t the case about web hosting market itself, I had no clue.

I didn’t know how to get enough sales. How to price. And above of all, how to financially plan to build a successful web hosting business.

Then I have learnt a great lesson. If you can’t make an accurate financial plan, that proves success in the future, you will eventually fail. Because success comes from sustainability. And sustainability comes from profit. Which comes from the fact that revenues are higher than expenses.

If there is no plan, you will end up paying more expenses than your revenues, and keep losing until you fail.

I failed in my first business because there was no plan. No threshold that will alert me to stop after a certain amount of loss.

In my current business. I have learnt all the ins and outs, estimated all expenses. Estimated sales. And was able to meet the plan with a very low margin of error.

Make a budget and reserve the capital. Don’t use your personal accounts.

In my previous business, I wasn’t correctly budgeting. I was counting on the fact that I will keep spending whatever the business needs to succeed. Actually, I wasn’t spending, I was wasting money.

Without strict budgeting, you follow your emotions, and make impulsive decisions.

You will keep putting pressure on your own income, and will not be able to fulfill the needs of your family.

Eventually, you will find that your own family is putting a different type of pressure on you.

If your family income is highly affected by your business negatively, your family will be the first and worst enemy to your business. That’s why you should secure the business capital, and separate it from your personal bank account.

Running out of cash because of bad decisions, means death for a business. You can keep giving life support to your business, from your own money until it takes you down with it. But as I said earlier, it is a bad idea.

When you plan your business financials , consider adding an adequate margin to cover any unexpected expenses, that might come on your way.

Be Realistic

Dreaming big is awesome, but being unrealistic isn’t. If you create a financial plan, showing that sales will have exponential growth after 3 months, you have to put the proofs that support your claim.

You maybe be creating this plan for yourself not for the investors, but this is very critical in both cases.

Your financial plan is your way to the future, if you want to get there you have to know the correct direction.

For example, if you set a high marketing budget, based on an estimate that your sales will grow quickly, and then the truth comes, and you didn’t get enough sales to cover your expenses. Then you are planning to fail.

One of the most important aspects of lean planning, is being realistic. That is why it is short and to the point.

But if you create a lean plan, you have to be not over optimistic, or pessimistic. Put your numbers based on facts, whether they are based on sales history from earlier years in your business. Or even based on market research, and case studies in the same market.

Don’t assume that you will be the next Google overnight, just because you believe that your idea is great.

What makes a sustainable business, is well planning besides cash flow.

If your real number becomes higher than your estimates in the plan, then you have succeeded. Otherwise, you have failed for not being realistic. In this case, you have to adjust or pivot.

Review Monthly

So, here is the part that I love. Which is to do a regular review on my lean plan, especially the financial part.

I totally love it, when I start my review and compare results to the estimates, it is very fulfilling in both ways.

If the results are higher than estimates, of course I become very happy. I note all the factors that helped me get there, in order to repeat and add to them.

When the results are less than estimates, I don’t get frustrated. I just point out the causes of this, and work on them to fix and adjust. This helped me very much to succeed.

Fixing the issues on the spot increases your chances to success eventually, and this can’t happen without regular review on your plan.

Let’s Sum Up These Financial Planning Tips

Your financial plan includes numbers. Those numbers are the metrics you will use to measure success, and failure in implementing the business plan to reach your goals.

Without financial planning, you are just gambling. You are throwing money and time away, hoping they get you back fortune. This can’t be the mindset of an entrepreneur.

If you haven’t created your financial plan yet, start now. No matter in what phase your business is. Grab a paper and a pen and start planning.

Make sure to start using an accounting software, that will help you greatly in your future forecasting. And if you are just starting, and can’t forecast realistically based on market research, or previous experience of a mentor or even a competitor, then pivot. Find another idea.

If you finally did a reasonable forecast, then set a budget with enough margin to avoid issues with cash flow later.

This is very critical for the sustainability of any business.

I hope that these tips could help you to fix your financial planning issues as a home entrepreneur.

Feel free to put some thoughts or questions in the comments area below.

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Shady Al Aref

Shady Al Aref

My name is Shady Al Aref Bellah, a small business owner and a family man. My wife is a stay at home mom and we have one baby boy. I love staying organized and helping others be the same. I truly believe that being organized is the key factor to be successful in work and life.

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