How To Do A Family Financial Assessment

Author: Jeff Williams

Not starting a business with enough cash, known technically as
being "undercapitalized", is probably second only to not
researching your business concept as a major cause of small
business failure. This outcome is usually the result of
inadequate advance planning during the pre-launch phase. First
and foremost you must estimate what your family expenses are and
how you will assure that your business income is sufficient to
pay them. You should sit down with your family and honestly
discuss the minimum amount of money the household must have each
month to provide security. Ask each member of the family to
offer one or two areas where some expense can be reduced.

In addition to knowing your living costs, you must also be
brutally honest about your current debt situation. During the
1990's many families found themselves taking on increased debt
in order to just get by. If your family is one of them, you
should be realistic about your ability to take on more financial
responsibility. New businesses almost always require more money
to keep them running than the new owners estimate before
starting. Remember: every dollar you must pay each month for
credit card payments is a dollar not available to invest in
marketing your new company.

To help you calculate your current family financial situation
you should create a worksheet, which I call: My Current
Financial Situation. Listed below are the categories to include.
Some research among your household financial records may be
required.

> Family Budget

Break your household expenses down into two groups:

- Fixed expenses. These are recurring expenses that don't change
in dollar amount from month to month, such as your mortgage
payment or auto loan payment. You may also be investing a fixed
amount each month into a college savings plan.

- Variable expenses. All the rest of your monthly household
expenses, which change some in dollar amount from month to
month, such as entertainment, phone expenses, and groceries.

You may need to do some research.

To reveal these expenses may require going through your records.
We suggest that you review your cancelled checks for the past
three months. Make a worksheet with the primary expense
descriptions. List the dollar amount from each check under one
of the headings. Similarly, examine your past three months of
statements from each credit card account you use to pay
household expenses.

> Family Balance Sheet

This part of the Current Financial Situation worksheet shows two
additional aspects of your family financial situation:

- What you owe (debts or liabilities) E.g. Your mortgage loan
balance.

- What you own (assets) E.g. Your house, autos, furniture, etc.

Be honest. If you kid yourself about your monthly debt payments
before you launch your business, the cold, hard reality will
only add to your psychological stress later.

> The Business Burden

When you look at your monthly family income, you should consider
what will happen financially if you quit your job to pursue your
business full-time.

Your expenses will not decrease much, but your income sure will.
The difference between the family expenses and the family income
other than yours can be called the "business burden." What this
means is that unless you want your family's lifestyle to change
dramatically, you must produce enough revenue from the business
to cover the shortfall between expenses and the other household
income.

Every month that you do not produce enough sales to cover this
amount, you must borrow to keep the family going. This is why I
call this the "business burden".

About the author:
Jeff Williams worked for big business for years, until he
decided to take his career in his own hands. Since 1988, he has
guided more than 3,000 people to successfully go from employee
to boss. He is pleased to offer his free, monthly telegroup:
" Are You Ready To Leave Your Job?". Register at:
http://www.bizstarters.com/ready2leave.cfm Jeff may be reached
at 847-593-5305 or by e-mail at: jeff@bizstarters.com