Step One - Expenditure Tracking

Write down everything you spend for two months. Have categories that make sense (entertainment, utilities, etc), so you can see where the money is going. You'll be surprised at how much money is spent in some areas, and you might also find that as you watch the money going out on paper, you begin to change your habits. Looking at your convenience store purchases on paper motivates you to skip a soda or two, just so you don't have to write it down. This a good exercise to repeat every year or so, if only for the habit-changing effect it has.

Step Two - Reduce Expenditures

Do this before you start making the actual budget calculations. Get spending under control and then you will have a better idea of how much to allocate to each category. With a bit of thought you can cut the cost of most things and activities in your life. Turn down the hot water heater temperature, combine trips to save gas, bring a lunch to work instead of eating at a restaurant. Find the relatively painless ways first - like spending an hour to find a cheaper insurance policy for your car. If these are enough, you may not need more drastic measures.

Step Three - Make a Budget

Using your current income and your expenditure tracking notes, create a monthly budget, allocating money to each category expenses. You may need $250 per month for groceries, $300 per month for paying down credit cards, and $120 for the retirement account, for example. Be sure to include all regular expenses. The totals should add up to a bit less than your income. If not, lower those allocations and take more cost-cutting measures.

You need to account for large and unpredictable items as well. You don't know when a car repair will be necessary, for example, but you do know it is an eventuality. Try this: add up the amount you spent on your car over the last two years and divide by twenty-four to get a monthly figure for expenses.

Step Four - Set Up Systems

You'll need systems for following your budget and tracking money spent. For things that are hard to track, like convenience store purchases, you can put the allocated money in an envelope at the beginning of the month. When it is gone, you are done until the next month starts and the envelop is refilled. For large expenses, like car payments, repairs, insurance and registration, it may be best to set the money aside in a separate bank account, where it can accumulate until you need it. Medical expenses can be handled this way to, and you should have an account or envelope for the "completely unexpected."

Budgeting Based On Values

Certainly it can help to learn to budget money, but there is another approach that begins with asking why you are making money in the first place. You need it to survive of course, and the steps above will help with that, but you don't manage your money just to pay bills. After all, money is a powerful tool that can serve you in your pursuit of anything that is important and valuable to you.

If you wanted easy, you would not have chosen to start your own home-based business. If you wanted easy, you would have decided to keep working for The Man.

In times of recession, it is vital that you have an "X Factor" -something you do or have-that is better and different than anyone else.

Indeed, if an entrepreneur is defined as a person willing to take a risk with money to make money then it follows that risk is part of this gig. It should also help to remember the words of Paul Harvey: “In times like these, it is good to know that there have always been times like these.” The good news is that starting and succeeding during a recession is quite doable. Consider:

• Disney began during the recession of 1923-24.
• Hewlett-Packard was begun during the Great Depression (in 1938).
• Microsoft began during the 1975 recession.

So how do you do you build long-term success “in times like these?” Here are 7 Rules to make your entrepreneurial journey easier:

Rule #1: Keep Your Overhead Low. With both businesses and consumers playing it close to the vest, the smart move in this economy is to keep your expenses as low as possible. Doing so not only increases cash flow but also serves to increase your profit margins.

Running your business from home helps a lot of course, but beyond that, look at other ways to keep costs down:

• Labor should cost less because, with the economy fairly stagnant, wages are depressed.
• Similarly, goods and services can be had at discounted prices if you look.
• Be a tightwad when picking insurance, phone plans, and health care plans. Finding fat here can really lower the bottom line and increase ready capital.

Rule #2: Make Cash Flow a Priority. Along the same lines, when things are tight, it is vital that you keep the cash-flow spigot turned on so that you have ready money when you need it (because you never know when you might need it)! Here are some ways to do so:

• Get paid. Don’t make the mistake that far too many home-based business people do: They allow unpaid invoices to accumulate and grow old. Have a Net 30 policy and stick to it.
• Don’t discount your fees or prices. See what your competition charges and charge something similar, maybe a tad less. Remember, people make their decisions regarding where to buy and who to hire based upon a lot more than price alone.
• Rule #3: You Must Have a Great Web Site. Notice I didn’t say “you must have a have a web site” or even “a good web site.” You must have a great web site. Every home-based business needs a professional web site, if for no other reason than it is how people check you out these days.

Today, not having a web site (and half of all small businesses still don’t!) is like not having a business card or not having a sign in front of your store. It is small business malpractice.

Getting a great site need not be difficult or expensive. For example, Microsoft (a company I do some work with) recently launched a new version of its web service, Office Live Small Business. For free, you get:

• A site: You can easily design and create an elegant, professional web site in a few short clicks (or even get help with it if you want).
• E-mail marketing help: There is a service that helps you send e-newsletters and other promotions using branded e-mails that match the look of your site.
• E-commerce: The e-commerce tool helps you sell either on your own site or on eBay. (This is the only service you would have to pay for.)

Network Solutions offers something similar, as does Yahoo Small Business. What I really like about these services is that they allow you to get a web address, create a site, market that site, and even sell on that site, all in one place.

Rule #4: E-Market, and then E-Market Some More. Once you have that nice site, then you need to have people visit it. E-marketing is inexpensive, but highly effective. It will help you continue to get new customers.

For instance, we have all heard how great pay-per-click advertising is. After all, Google did not become Google for no reason. But have you tried it?

Pay-per-click works because you are paying to advertise only to those people most likely to want what you are selling — that is, people who typed in your search terms and who then click your ad. If they don’t click, you don’t pay.
The nice thing about pay-per-click advertising is it does not cost much at all to try it, yet the rewards can be tremendous.

Rule #5: Have More Than One Profit Center. If you rely on only one main product or service, especially in this economy, you are like the investor who has but one stock. That stock may go up, but it also may go down. It’s risky. You need to diversify your business portfolio. Here’s how:

1.    Look for compatibility. Whatever new profit center you choose, be sure that it complements what you are already doing. You need to choose a new endeavor that does not confuse your customers.
2.    Look at line extensions. Offering extra products or services — creating line extensions — often is the best way to create additional profit centers. The key to extending your line is to correctly assess what products or services you can add that complement and expand your current offerings. 
3.    Start with baby steps. Whatever additional profit center you offer, be sure to start small. Do not just jump in without first really testing the waters. Start small, and test, test, test. See what works. See if it even does work. See how much money you can make. See what it will cost. Once you are certain that the plan will work, you can then devote more time and money to the project.

Rule # 6: Avoid Mistakes: There is less room for error during recessionary times. Some of the most easily avoidable mistakes are sales mistakes. And avoiding a sales mistake is critical since it can cost you vital business. Here are the worst:

• Not listening closely enough: Sales is not about talking someone into something; that never works. Rather, it’s about finding out what they want or need and then showing them that what you offer fits the bill. You find out what it is they need by listening.
• Excessive talking: A corollary to the previous tip is that sometimes it is imperative that you show some self-control and stop talking. Talking too much not only can turn customers off, it prevents you from asking questions. When you are not talking, you are listening.
• Not asking for the sale: There comes a time to ask for the sale.

Rule # 7: Hone Your “X Factor”: Think about the businesses you love and frequent most often. They do something unique, do they not? They have an “X Factor.”

In times of recession, it is vital that you have one, too. You should have or do something — at least one thing — better and different than anyone else. Last winter, my family went to Mexico, and every morning I stole away to the same place for breakfast. Was it for the great huevos rancheros? Well, yes, partially, but that’s not the main reason.

The main reason was their free WiFi. They were the only place in town that offered it. That was their “X Factor.”

What is yours? What can you capitalize on that you already do that is unique; something that will help people remember you? If you don’t have one, look at businesses you love and see if there is an idea you could copy. Loss leaders can make for a great X factor, as well as smart policies, distinctive products, good prices, customer service, or singing waiters. Get creative.

Try following these rules, and you will see that succeeding in times likes these is indeed very possible. HBM

Steve Strauss is often called "America's Small Business Expert." You can sign up for his free newsletter "Small Business Success Secrets!" at his website - the all newwww.MrAllBiz.com.