When you have your own home based business, whether it is online or offline, financial management is one of key "departments". You really do need to keep on top of your finances if you want your own little business to have long term success, and you can do that by being a manager rather than by adopting role of a low rank employee.
Why do you need to manage home business finances?
It is so easy to allow things to drift when you're working at home, and concentrate merely on totting up sales revenue. Remember, this is what may happen if you do not positively manage your business finances:
1. You will experience cash flow problems. Allowing cash to flow in and out at its own will almost ensures a failed business. If you are blessed with masses of sales income in early days, then you will have time to put things right. If you don’t, then you may run out of time. Cash flow will bring you down. One of most common causes of business failure is cash flow, and many of those businesses could have flourished with better financial management.
2. It is inevitable your business will be less profitable than it could otherwise be. Financial alertness, which financial management will bring, ensures you are making better and more timely decisions. That results in more profits and better cash flow, and ultimately survival of your home business.
3. If you are not watching your finances closely, it is easy for you to continue with unprofitable activities, programs and products. For example, you may be an affiliate for 3 products. The one bringing you highest commission each month may be unprofitable without you even knowing it, if you are not tracking spend on advertising that product.
4. Your business may not grow as it otherwise could. If you do not manage your finances, how will you ensure that part of profit is put into growing business, for example with more advertising or other forms of marketing. Also, you need to budget for increasing your knowledge.
How do you manage home business finances?
If you own a very small online business your financial management will not take up much time. The best time to set things up to keep right sort of records is at very beginning, when you first set up business.
This is a massive subject if you want to go into fine details, it would require a large manual. I will cover here just a few points. Bear these points in mind in context of your own home business and circumstances, and you should get your business onto a sound footing, from which you can develop more sophisticated systems if you need them.
It is very likely that your records will only need to be very simple at first, but it makes sense to get some sort of information structure in place right at start, then as things expand for you, there will no need to play catch up. Your home business will flourish if you have your finger on pulse of its finances at all times. Here are a few suggestions:
1. Just as a CEO calls for regular finance reports in a company, you, as CEO of your own online business, need to ensure that your finance director, also you, provides all necessary information to satisfy your needs for statutory returns (eg your country's tax department) and for monitoring different elements of your business. In effect, you have 2 separate but integrated sets of records. The first is for true financial accounts, which are for your statutory needs. The other is your set of management accounts. In other words, you also want a management information system that helps you make decisions that will improve profitability of business.