Having a good basic accounting book around really helps. When looking for a book, be sure that it was published after 1986. 1986 was a year for alot of big changes in taxes, especially depreciation.

The Balance Statement

Sometimes the bank or investors will want to see a Balance Statement. Yikes! A Balance Statement is a financial report showing the amounts in assets, liabilities, and owners equity on a certain date.
Assets are:
Equipment: computer, printer, desk, chair, fax
machine, sewing machine, jig saw, computer software.
Supplies: paper, envelopes, printer cartridges, fabric,
thread, saw blades, wood, paint
Money: bank accounts, petty cash, what others owe
you (accounts receivable).

Liabilities are:
What you owe others: loans, credit charges, Aunt Sally
(accounts payable)
Owners Equity is:
Basically what you have invested into your business

It is called a Balance Statement because the Assets =
Liabilities + Owners Equity. Always.

Assets ........................Liabilities
Owners Equity
Computer 2000 ..........Visa 1250
Capital 845
Printer 350 ..................Kinko's 50
Fax Machine 120 .......Dad 5000
Paper 50
Desk 100
Chair 25
Cking Acct 4250
Accts Recvble 250

7145 = 6300
+ 845

next column

Next, how much have I made? The Income Statement. This tells what you have made after taking in account for all your expenses. It is usually done at the end of a period. It's up to you, week, month, quarter or year.

Grandma's Crafts
Income Statement
For the month ending 1/31/98

Revenues:
Baby Quilts: 300
Crocheted Doilies 50
Wall Quilts 450
Crocheted Afghans 100
Total Revenues $900

Expenses:
Fabric 150
Thread 25
Batting 50
Yarn 25
Mall set up fee 15
Price Tags 10
Total Expenses 275

Net Income $625

Grandma doesn't have "home expenses" because she doesn't have an area yet JUST for her business. To qualify with the IRS to use your home expenses on taxes the area must be exclusively used for the business. So Grandpa will have to get busy and corner off part of the rec room. She didn't make any long distance calls and doesn't have a 2nd phone line. Hey, she's just getting started.

Let's say poor Grandma didn't make a profit. So maybe
she needs to charge more or maybe her things aren't really that great. She still needs to know WHEN will she get ahead? This is called a Break-Even Point. It will show the spot where she will not have a profit nor will she have a loss. Since she has different products, I'll use the baby quilts. So instead of selling $300 worth, she sold only $150, with the same amount of expenses.

next column

Grandma's Crafts
Income statement at the Break
Even Point

Sales (25 quilts @ $25 each) $625
Expenses:
Fixed $200
Variable (25 quilts @ $17) 425
$625


Now Grandma & Grandpa are thinking. How much profit would they like to make? How about $800 for 25 quilts?

The formula for this is:

Sales at desired income level = fixed costs + net income/Contribution Rate.

$200 (fixed costs) + $800/.32 = $3125 amount in sales $3125 / 25 quilts = $125 new price $3125/$25 = 125 quilts If she just wanted to make 25 quilts she'd have to raise her price to $125 or make and sell 125 quilts at $25. She can do this for each product or lump them altogether for an average price per item.

The examples above are real basic. Every Home Business is different, some have a product like Grandma and some provide a service (house-sitting). But each of these has a "per unit" type of system. Just as Grandma charges $25 for a baby quilt, the house sitter would charge so much per day. Each day's charge for each house would be considered a "unit". You may do a variety of services, but each service has an individual price and cost to you.

Your accounting and bookkeeping doesn't have to be on paper in little columns. There are alot of computer programs out there that do the adding and making the statements for you. They even can make neat colored graphs to show whatever you want. If you really don't know anything about accounting or bookkeeping, I'd get that post 1986 book and work examples in the books on paper. Or do the examples on your computer program. Be sure what name you store this under in your computer program it is something like "Example Co". Don't "pretend and experiment" with your real business name!

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