How to Manage Overhead Expenses and Emergencies in a Home Business

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Working from home is a dream come true for many people. However, the freedom that comes from being your own boss and rolling up to the laptop in your underwear doesn’t extend as far as you might thing. Any business has to grapple with overhead expenses and reconcile these costs of doing business.

Managing your overhead expenses is very important because forgetting to factor them into your rates can sink new or established ventures. These are things that aren’t necessarily related to a specific project or customer, but which to continue doing business you will need. They include your workspace or “office,” which could be anything from a corner of the couch and your coffee pot, to a dedicated office nook or room in the home, your furniture and equipment such as desks, laptops, and printers, and supplies that you use up in a relatively short amount of time, like paper, staples, and pens.

Overhead expenses get confusing for home-based business owners because it can be hard to draw a clear line between household expenses that you should pay for out of your salary, and true business expenses, which should be accounted for by the business and paid out of an expense account. The more expenses you include as a business, the lower your taxable income, but you’ll also lower your profitability at the same time, and if you get too creative, you’ll have the IRS auditing you to ask tough questions about exactly how you run your business and why you thought that item should be considered a business expense.

On the opposite side of the equation, if you don’t claim appropriate business expenses, you’ll be paying more tax than you should, you’ll have artificially inflated your profitability, and you’ll be decreasing your personal wealth by paying for extended expenses directly out of your pocket. Some people will have greater flexibility or financial margin, but the important thing about business finances is that you always want to set up your systems and practices with the worst-case scenario in mind.

Chances are you’re not operating with a large amount of margin, and your clients won’t pay the kind of rates you’d need to charge to cover off unexpected emergencies, so any time you can put a barrier between your business and a crisis situation, you want to get that in place.

For instance, if you’re working from home, you’ll have some very predictable business overhead expenses that are either recurring, or easily split into monthly percentages, and can be factored into your pricing structure. The portion of your rent or mortgage that pertains to your office space in the home is recurring and varies little from month to month. Your computer depreciates by a predictable amount every year based on tax law, and you may have purchased it on a payment plan that spreads out the cost over a schedule as well.

But business owners who work from home have to be able to deal with an in-home crisis and return to work as quickly as possible. Build in a little extra to your fees and put aside that money against emergency situations like when you spill coffee on your laptop. If something else in the home is damaged or breaks down, even if it’s not a normal business expense, it can impact your business. If the air conditioning system or the boiler breaks down suddenly, that’s a home expense that has direct impact on your ability to do business, and you can’t afford to have both your personal space and your work destabilized.

Warranty plans and insurance are an effective way to manage unpredictable spikes in overhead costs. They break down a sudden cost into a predictable amount on a regular basis that you can more easily factor into fees. You can assess what the highest priorities are for your region and line of work, and plan ahead to mitigate the impact of an emergency. If you know what is most damaging to Georgia homes in a general sense, purchase home warranty Georgia-specific cover. You’ll then be protected against sudden appliance or home system failures that could draw your attention away from your business, reduce your profitability with a sudden high expense, or directly prevent you from completing work in your usual manner.

Running a home business means you are responsible for all aspects of the business, not just the specific tasks for clients that make up your projects or product. Tally overhead expenses, work out which ones apply to your business, and prepare for emergencies by using warranties and payment plans to spread out costs over time in a predictable way.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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