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 well under $100, and may even advertise “free” signup.
Unfortunately, the lure of such low entry costs often causes people to overlook the bigger, 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 with.
2) Learn and develop a realistic budget for what your indirect and ongoing monthly costs will be. These include such things as 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 back into your business in order for it to grow!
Let’s take a closer look at the three areas outlined above.
DIRECT STARTUP COSTS
This includes your signup fee, any basic kit of sales and/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 really need to spend in order to be successful. Very often opportunities emphasize a low startup cost, but either the company, its literature, or those representing it fail to fully inform prospective representatives of additional expenditures that you need to make in order to advance and/or maintain your position with the company.
Again, be extremely careful, if not shy away from altogether, 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 purchasing expensive leads. I use a few hundred dollars as the threshold here. Obviously, 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 make sure that you don’t buy more than YOU really need for your own personal consumption.
If you sign up with a company that sells $1,000 therapeutic massage chairs and you can afford to buy one, fine. Just don’t get talked into buying more of them on the premise that you need to keep them on hand to demonstrate and/or sell to others. Almost all modern, reputable direct selling companies take orders and ship directly to your customer, so, with rare exception, 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 just 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 all of the products and services yourself!
It is very common for some companies to offer various levels at which you can start and/or 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 and especially those in the telecom and financial services industries is that some kind of training package must be purchased in order for you to qualify for certain promotions in compensation and bonuses. This is usually an option that you can elect to add either at the time you sign up, or later, though sometimes you may lose certain opportunities by not doing so in the beginning. Again, be sure to get all of the information about what the requirements are. 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 it may also be a requirement that in order for you to step up in the compensation plan that others whom you have either personally sponsored or are within your organization have made this same additional investment. And, since leadership is by example, always keep in mind that it will be easier 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 true 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 very large percentage of people getting involved in a home business or network marketing for the first time make the mistake of overlooking what their after-signup and ongoing costs will be. 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 trying to talk to your friends, family, or co-workers. Therefore, you’re going to need to purchase (or generate) some kind of 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 yourself. 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 your way through the learning curve on your way to profitability. So, if, hypothetically, it only cost you $39.95 to sign up, you would still need to budget at least $300 more dollars to purchase enough leads to have a reasonable chance at becoming profitable. These same guidelines apply whether you are dealing in small amounts like those above, or much larger amounts.
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.
Regardless of whether you are dealing with smaller amounts of hundreds of dollars, or with larger amounts running into the thousands, remember that lack of capital is one of the leading causes of failure in all businesses of any type. If you cannot afford to invest the money that will truly be needed to get your business off to the right start, then 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 that was the case previously, especially if it’s a significant amount, they often spend all or most of the money instead of seriously giving thought to 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 to it.
Because most home businesses require relatively little overhead you can indeed 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 already accustomed to making then, in theory, the less this may apply to you. If you are already earning a high income and/or 6-figures, then you’ll need to adjust these examples accordingly.
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 for $1,000. Perhaps prior to that he or she had some bills they were behind on, or maybe there is a dream vacation they’ve been wanting to take, etc. It certainly may be tempting to spend most or all of those new earnings.
However, it’s very likely that you incurred some expense in earning that initial check, including your initial signup costs? If so, then for starters it might be a good idea to “repay” or at least put back into your budget at least that amount.
Let’s say for examples sake that your expenses looked something like this:
Signup costs: $500
Products you purchased: $200
Leads and/or advertising: $200
Total = $900
It’s very likely that you may have incurred even more expense initially getting started. However, if your first check was for $1,000 then you realistically need to consider the fact that you’ve really 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 having only earned 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 at all. 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 percent). AND, most traditional businesses involve substantially more startup costs and may not show a profit at all for months or even years. So, to earn $100 ( or a 10 percent ) profit in just your first weeks or months in the business, again, really 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 be thinking as the weeks and months go by and you continue to grow you 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 at all uncommon for a 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/or advertising: $200
Total Earnings = $1,100
Total Expenses = $400
Total Profit = $700
Just by virtue of the fact that you don’t have to factor in your initial signup costs your profit margin is already improving. You’ve also earned a little more money this month as your business starts to grow.
So, you now seemingly have more money in budget. At first you only made a true profit of $100, but now you seem to have an extra $700 this month?
Well, if you are tracking your expenses then you can easily see that, at least currently, your expenses are running about $400 a month each and 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 back into your business as much as you would like to. You may have pressing bills that need to be paid, for instance. However, barring extenuating circumstances, it’s definitely 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 make your business grown.
First, there is an age-old rule that money financial planners, money managers, and home business experts would likely tend to agree on. It’s called the 10-10-10 rule.
Always put at least 10 percent 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 for retirement.
Reinvest AT LEAST 10 percent back into your business.
And, depending upon your own personal faith and beliefs, apply at least 10 percent 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 back into your business and yourself.
As business and success philosopher and speaker extraordinaire Jim Rohn points out, the more money a person make, 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 percent of what they make and spend the rest, Jim Rohn saves and invests as much as 90 percent of what he makes, and lives off the remaining 10 percent. Easier to do when earning a higher income.
As you continue to work to achieve greater success in your business you will continue to adjust your own personal numbers. In general, however, the more money that 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 both enough money coming in to reinvest significant sums back into your business and your future, AND have plenty of extra money left over to do the things that you enjoy in life!
If you are comfortable using a computer then picking up a good financial management and/or accounting program can assist you greatly with issues regarding budgeting and managing your personal and business finances.
There are a number of good 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 both your personal and business accounting needs, while keeping them both separate if necessary. If you make more than $100,000 a year, or plan to, then you may want to consider using Quicken for your personal finances and their QuickBooks like of software for managing your business finances.
You can visit Intuit’s Website to learn more, and their products are also carried by most major retailers that carry software, such as Best Buy, Circuit City, Office Max, Office Depot, etc.
Up to 25% Off Quicken Products + Free Shipping
Another product/service worth considering is a very unique and powerful subscription service offered by EverydayWealth. It offers many features similar to the software above, but doesn’t require you to install any software on your computer and 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 greater wealth. Most people aren’t wealthy, but most people do have debt, and EverydayWealth allows you to literally turn your debt into increased wealth.