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Business Center
Starting your own
business is a basic part of the American dream and it can
be personally and financially rewarding if you plan ahead
and arm your self against the inevitable pitfalls and problems
that can occur. Of the 1.4 million businesses formed in
the United States each year, a majority fail within four
years. The reasons for these failures vary but the most
common are insufficient start-up capital and poor business
planning.
Advantages
of a Homebased Business
This
may be a century of tremendous corporate profits and economic
growth, but for the vast majority of North Americans, the
beginning of the 21st century has been a dismal, uphill
climb, and many economists believe that this won't be getting
better any time soon.
Why?
Changing business and government attitudes are the reason.
There has seemingly been more anti-business legislation
in the last decade than in any other this century.
That "sucking sound" popularized by Ross Perot is not just
down to Mexico, but elsewhere as well. The result has been
a dramatic loss of heavy industry in the U.S.
The
young and the middle-aged alike are realizing that their
dream of "having a job with a company forever" is an illusion.
Companies have been downsizing, and capsizing for some time
now, and they continue to do so-more now than ever before.
Even the federal and state governments are getting into
the act with layoffs and attrition of jobs.
In
addition to all this uncertainty and mutual lack of loyalty
between companies and employees, even the workers who do
keep their jobs have no guarantee of promotions due to the
shrinking number of management positions.
Finally,
if all this isn't bad enough, under recent tax laws employees
are shafted more than ever with limits and thresholds for
their employee deductions and higher social security tax
limits. This results in more couples working than ever before
and, on many occasions, working more than one job. It is
now almost impossible to have only one job in the family
and make ends meet! Today, many households need three incomes
just to survive.
Sadly,
even having more than one job does not produce any major
positive effect on most people's bank accounts. Why? Because
of tax laws. This was well illustrated in 1994 by Jane Bryant
Quinn in her Woman's Day article on "How to Live on One
Salary."
Where
Your Income Goes
Ms. Quinn's example assumed that a man was earning $40,000
per year. His wife (we will call her Lori) wasn't working.
They had more month than money. (Sound familiar?) Lori subsequently
got an administrative job for $15,000 per year. You would
think this would improve the family's financial situation,
but when Ms. Quinn examined the economics of getting this
extra income, the results were startling!
Lori
had to pay federal and state taxes on her new income. Since
they filed jointly, the family's combined income was what
established their tax bracket. She paid $4,500 in new taxes,
most of which was non-deductible, for federal and state
income tax.
Lori had social security withheld from her paycheck at the
rate of 7.65 percent, which amounted to an additional nondeductible
amount of $1,148 being extracted from her salary. She also
had to commute to work 10 miles a day round trip, which
is probably conservative for most people. This resulted
(in 1995) in nondeductible commuting costs of $696.
Lori
also had some child care expenses, which give a partial
tax credit. Ms. Quinn figured that the amount spent over
and beyond the tax credit was $4,250 per year. Lori also
ate out each day with colleagues, spending an average of
$5 per day, five days a week. This results in a nondeductible
expense of $1,250 per year. ( I would love to know where
she ate fore only $5!)
Now that Lori has a job, she has to have professional clothing,
this means a hefty dry cleaning bill. Ms. Quinn assumed
that Lori's increased expenses here amounted to an extra
$1,000 per year, nondeductible, of course.
Finally, with both spouses working, Lori wasn't in the mood
to cook dinner every night. They bought more convenience
foods and ate out more frequently. This resulted in increased
food costs of a nondeductible $1,000 per year in minimum.
Add
it all up and Lori's take home pay was a paltry $1,156 a
year, for which she had to put up with a daily commute,
an unpleasant boss, and corporate hassles. (See the following
summary of all of these numbers, so you can do the math
for yourself.)
No
wonder more and more people are starting home-based businesses.
In fact, there are currently an estimated 30 million people
working from their homes. This number is expected to more
than triple, to 97 million, by the year 2000, and to keep
on growing. This has become and will continue to be one
of the greatest mass movements in the U.S.
Why
a Home-Based Business Makes So Much "Cents"
There are many reasons why so many people are favoring home-based
over traditional business.
There
is no commute (unless you have a really big home), no boss,
little if any chance of lawsuits, much lower overhead, no
employees, (or few), and far fewer government restrictions.
In fact, many of the laws previously cited don't apply to
small firms with few or no employees. It is for these reasons,
according to Entrepreneur magazine, that 95 percent of home-based
businesses succeed in their first year and achieve an average
income of $50,250 per year with many earning much more.
There
are really two sets of tax laws in this country. One is
for employees, and it allows deductions for individual retirement
accounts, 401(k)s (if you have one set up by your company),
interest and property taxes on your home (which some in
Congress want to do away with ), and charity. Then there
are the laws for home-based business people who conduct
their business either full-time or part-time. They can deduct,
with proper documentation, their house, their spouse, and
even children (by hiring them), their business vacations,
their cars, and their food with colleagues. They can also
set up a pension plan that makes any government plan seem
paltry by comparison.
For
Lori-and for you - the meaning of all this is simple:
Lori earned $15,000 in salary as an employee, but took home
only $1,156. She could have netted the entire $15,000 had
she earned it in a home-based business!
This
is an increase of almost 13 times her take-home pay as an
employee.
Notice
that Lori is not spending dramatically more money than she
is currently spending. She would eat out anyway, go on trips
and drive her car the same as before. By having a home-based
business, however, many of their expenses become deductible.
This concept is known as "redirecting expenses." With a
home-based business, she can now deduct some of the expenses
that she is incurring anyway.
Things
to Consider Before Starting a
Homebased Business
Conclusion
- Putting it all together. Is a homebased business for
you?
Success
-
Keys to success
NEXT
- Is your business Feasible?
Can it make money?
