Calculating Income from Business

From previous posts, you’ve learned that starting a home business is not expensive, competition is easy to find, and help is available from many sources.  In this post, we provide a simple way of roughly calculating what your income needs are and compare them to expenses.  Thanks to Jeff Williams of bizstarters.com for providing the general calculation example.

1) As with any budget, the first step is to write down minimal personal income needs.  Take this figure and multiply it by 1.5 to cover taxes, expense, and the unexpected.  A great free source for budgeting and related tools is http://www.mint.com.

2) The next step is to determine how much money is gained per sale of product or hourly fees from consulting.  This exercise requires personal experience, market research, and contact with industry peers and colleagues in similar positions.

3) Take the above amount per sale and divide it in half to account for taxes, benefits, and any other miscellaneous expenses related to receivables.

Comparing number 1 to 2&3 should provide a rough estimate of how many sales are required (or consulting hours worked) to determine if the business idea is viable.

A consulting example:

Monthly Expenses:  $2000 (personal and business)

Multiply by 1.5:         $3000 (ongoing total monthly cost)

Consulting Fees:        $100/hour (we will use 30 hours per week)

Total consulting:       $3000/week

Divide by 2:                 $ 1500/week or $6000/month (income after taxes)

= $6000 (income) – $3000 (expenses) or $3000/month after taxes and expenses to live on.  Is this doable for you?   It certainly can be for many!

We assume many numbers here, expenses, income, number of hours worked, etc.  Each situation, position, and individual is unique.  Run your own set of numbers to determine if self-employment is feasible.  This rough estimate is also useful for part-time work.  If a “regular job” covers living expenses and a desire exists to supplement income, use only business expenses in step 1.  You may determine that an extra $200 per week is adequate for a nice safety cushion or extra toward retirement income.

By Dion  Shaw

Dion Shaw is the founder and owner of Homepreneurs.


Disclaimer:

Homepreneurs does not represent itself as a professional finance or accounting entity.  The numbers and examples provided above are for illustrative purposes only.  Actual figures may vary significantly and research for each situation should be performed in all cases.  Homepreneurs accepts no liability, assumed or otherwise, for statements made above.

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