How Much Should You Invest In Your Home Business

November 5, 2016

Many people dream about starting a business that they can run while still wearing their pajamas. You may be a mom or dad who has a desire to run a little side business while your children are still growing up. Perhaps you have come up with a special recipe for brownies or cookies that you can sell from your home. In the past two years, I turned $10,000 of investment in a self-started business that is worth more than $1,000,000 already. So what should you do when you start up a business and how much should you invest?

1) Make a Separation of Church and State – the IRS is not going to like it if you inform them that you spent money on your personal credit card when it was really for your business. Sooner rather than later, make sure to get yourself a separate business checking account and business credit card so you can put the right expenses where they belong.

2) Do A Mini Pro Forma – Implementing a budget can be such a daunting task. Completing a business budget can be even more difficult due to the lack of history of expenses. You should never invest more in your business than you are sure you can afford to lose, much like investing in a speculative stock. Double your expenses after you run the initial numbers because it will take you twice as long to make money as you think it will.

3) Be Wary of The Hobby Rules – The important question is whether this is a business or just a hobby? If your business loses money in three out of five tax years, the IRS could question whether these are legitimate tax losses or the business is really just a hobby.

4) Don’t Skimp on Legal Fees – Many people start a business with out contracts, legal documents and getting their structure set up right. It is important you get this done the correct way first or you will surely pay down the road.

Written by: Ted Jenkin

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