Money Management for 'Mompreneurs'

By Jeffrey D. Carlson



The word "mompreneurs" is a trademarked term to describe women who are raising children and operating small businesses at home. They typically merge their personal and professional lives, simultaneously juggling dentist appointments and deadlines, self-promotion and school conferences, play dates and presentations, networking and naps.

Technological advancements have made it possible for an increasing number of adults to work from home, so the flexibility of owning their own business appeals to many women. In 2006, the Center for Women's Business Research reported that women-owned firms without employees, including these mompreneurs, are not only increasing in number, but their revenues are growing faster than all firms in the United States without employees.

Statistics include:

¥ One of every 11 adult women is an entrepreneur.

¥ Between 1997 and 2004, women-owned, non-employee firms grew at 18%, twice the national rate (of 9%) for all non-employee firms.

¥ There are 5.4 million sole proprietresses that generate $167 billion in sales and compose nearly a third of all firms with no employees.

While most mompreneurs are skilled multi-taskers, they may not pay close attention to money management details involved in running their home-based businesses. The following is a financial checklist to help keep them (and other home-based business owners) on track.

Take care of the administrative and legal details. Before you start a home-based business, be sure to check the zoning ordinances in your area and any possible restrictions in your neighborhood. Decide if you will be incorporated and explore whether you will need patents, trademarks or copyrights on your work.

If your business will be incorporated or a partnership or have employees, obtain an Employer Identification Number (EIN) through the IRS. Determine if you are required to charge sales tax on your product or service and become familiar with the process, if needed. Register your business name (this is usually necessary to open a business checking account) and obtain any local, state or federal licenses required to operate your business.

Confirm that you have adequate insurance coverage. Talk to your insurance agent about the need for additional homeowner's insurance to cover your business equipment, inventory, liability, etc. Depending on your business and personal circumstances, you also may want to investigate professional liability and health insurance.

Be creative in financing the startup or expansion of your small business. Consider loaning yourself the money from personal savings or a financial windfall, borrowing from family and friends or obtaining business loans from banks or government programs. You may want to consult a financial adviser before using credit cards, home equity or retirement assets to fund your business.

After your business opens, consider these cash-flow tips: invoice promptly; periodically evaluate and raise your prices; work on retainer; and get some (or all) of your money up front and have access to a prudent business reserve such as a savings account, credit line or credit card. Then create and implement a spending plan to operate and grow your business.

Get ready for business taxes. It's critical to keep complete and separate records for your business and to track all income and expenses. This includes recording all sales, invoices, receipts, payroll and purchases, as well as keeping copies of all receipts, invoices and cancelled checks. Record your business mileage in a logbook that you keep in your vehicle.

You may want to meet with a tax adviser/CPA to learn about the various state and local tax and accounting issues for your business; these issues include potential deductions and substantiation requirements, when to pay estimated taxes and if you are planning on hiring an employee.

Last but not least, save for your retirement. Once you start generating an income from your business, consider saving a percentage of it every year in a SEP-IRA or other small-business retirement account. SEP accounts are easy to set up and your contributions are tax deductible.

Once your account is established, you can contribute every year up to your tax filing deadline, including any extensions. In 2007, you can generally contribute the lesser of 20% of your net income or $46,000, whichever is less. Your contributions can vary each year, offering you some flexibility when business or personal conditions vary.

Whether you're just getting started as a mompreneur or have operated a home-based business for several years, you may face both personal and business challenges. Consider consulting a professional financial adviser to help you set financial goals and create an action plan to achieve them.



Jeffrey D. Carlson is a certified financial planner practitioner with Ameriprise Financial Corp. in Columbia. He can be contacted at 410-740-8000 and jeffrey.d.carlson@ampf.com.