Content of the material
- 1. Refine your idea
- Define your “why.”
- Consider franchising.
- Brainstorm your business name.
- Clarify your target customers.
- Key tax breaks and deductions
- What Is Special About What You Offer?
- Step 8: Determine Your Startup Costs and Funding Sources
- Balancing Business Life with a Personal Life
- 2. Outsource jobs to free up your time
- 6. Purchase an insurance policy
- Apply for your EIN
- Work with an accountant
- Tax Deductions for a Home Office
- 4. Familiarize yourself with zoning laws, licenses, and permit requirements
- Are you looking for a home based business idea?
- Making life easier as a business owner
- What Should I do to get Started with a Home-Based Small Business?
- Funding Your Home-Based Business
- 14. The SBA Microloan Program
- 15. Small Business Factoring
- 16. Leasing
- 17. Peer-to-Peer Lending
- 18. Home Equity Line
- 19. Credit Cards
- 20. Family Members
- What are the advantages of running a business from home?
1. Refine your idea
If you’re thinking about starting a business, you likely already have an idea of what you want to sell online, or at least the market you want to enter. Do a quick search for existing companies in your chosen industry. Learn what current brand leaders are doing and figure out how you can do it better. If you think your business can deliver something other companies don’t (or deliver the same thing, only faster and cheaper), or you’ve got a solid idea and are ready to create a business plan.
Define your “why.”
“In the words of Simon Sinek, ‘always start with why,'” Glenn Gutek, CEO of Awake Consulting and Coaching, told Business News Daily. “It is good to know why you are launching your business. In this process, it may be wise to differentiate between [whether] the business serves a personal why or a marketplace why. When your why is focused on meeting a need in the marketplace, the scope of your business will always be larger than a business that is designed to serve a personal need.”
Another option is to open a franchise of an established company. The concept, brand following and business model are already in place; all you need is a good location and the means to fund your operation.
Brainstorm your business name
Regardless of which option you choose, it’s vital to understand the reasoning behind your idea. Stephanie Desaulniers, owner of Business by Dezign and former director of operations and women’s business programs at Covation Center, cautions entrepreneurs against writing a business plan or brainstorming a business name before nailing down the idea’s value.
Clarify your target customers
Desaulniers said too often people jump into launching their business without spending time to think about who their customers will be and why would want to buy from them or hire them.
“You need to clarify why you want to work with these customers – do you have a passion for making people’s lives easier?” Desaulniers said. “Or enjoy creating art to bring color to their world? Identifying these answers helps clarify your mission. Third, you want to define how you will provide this value to your customers and how to communicate that value in a way that they are willing to pay.”
TIP: To refine your business idea, identify your “why,” your target customers and your business name.
During the ideation phase, you need to iron out the major details. If the idea isn’t something you’re passionate about or if there’s not a market for your creation, it might be time to brainstorm other ideas.
Key tax breaks and deductions
If you run your business from home, you could enjoy some valuable tax breaks, including the home office deduction for IRS-approved home office areas. You might also qualify for a tax break on a portion of your home-related expenses, including:
- Homeowners insurance
- Homeowners association fees
- Cleaning services or supplies for the rooms of your home used in your business
- A portion of your mortgage insurance and interest
- A portion of your utility bills, including electricity, internet, heat and phone
- A portion of your home repairs and maintenance
The IRS has very strict requirements surrounding home office areas. Review them carefully before starting or relocating your business to your home.
It’s also important to recognize the taxes that could impact your home-based business. You could be responsible for income tax, self-employment tax, employment tax and excise tax.
What Is Special About What You Offer?
- Is the need for your product or service not currently being met or are there other businesses offering it? If there are others, how many others?
- What is about your product or service that is different from the competition? Are you faster, cheaper, more service oriented, etc.?
- How does your product or service meet the need of your target market? What benefits do they get by using it.
- What is your value proposition? What is your competitive advantage?
Use all this information to craft a marketing plan, outlining how you’re going to let your target market know about your business.
Step 8: Determine Your Startup Costs and Funding Sources
While you can start a home business on budget, it's not likely you'll build a profitable one without incurring some expense. Calculate your startup costs — the amount of money you need to open up shop. It's okay if you don't know specific costs, but you want to get as close as possible, perhaps even over-estimate expenses. Here are common start-up expenses:
- Professional services such as a lawyer or an accountant.
- Office furniture or equipment.
- Supplies and materials required for your product or service.
- Business licenses and other fees (i.e. franchise fees, permits, etc).
- Construction costs if you need to build or alter a room to create a home office.
- Website fees; domain name, hosting, website design (if you hire a professional designer).
- Business cards and other printed marketing materials.
- Other items specific to your business idea.
Once you have your list, look for ways you might be able to cut costs, and fund your business without going in debt. For example, can you make due with the computer and printer you currently have. Can you barter for website design?
You need to also consider:
- How much will you need to pay your bills until the money starts coming in from your home business?
- Will you be keeping your full-time job or is there another breadwinner in the family that can help you until you develop an income stream?
As you move closer to starting your business, keep a tally of expenses you didn't anticipate and add them to your list.
Finally, since it takes money to make money, look for funding sources for your business that ideally won't put you in debt.
- Where will the initial investment come from? Savings? Selling assets?
- Will you need a silent partner to help provide working capital, especially until you reach your break even point and being making a profit?
- Are you willing to use your home equity to finance your business?
- Is it possible you qualify for a loan? Check your city and state's websites on business resources as many localities have programs to help small business. You can also check into SBA loans from the U.S. Small Business Administration?
Balancing Business Life with a Personal Life
As a home-based business owner, perhaps even more challenging than time management is successfully balancing your business life with your personal life. Lori Quaranta struggled with this after starting her business, Consetta Web Solutions, in 2006. "When you work from home, you are always at work," says Quaranta, who is also a mother. "Keeping a work/life balance is harder than you think." Here are her top five tips for maintaining that balance.
80. Contrary to the beliefs of those in your personal life, you are at work even though you are home. Set boundaries and ask that they respect your workday when it comes to phone calls, pop-in visits, etc.
81. No matter how busy you become, it's important to take a break, or be sure to break for lunch and leave the house. Even if you go for a coffee or a walk, this helps tremendously to clear your head.
82. Make sure your work space is not part of your family space. Create a room specifically to use as your office, especially if you have children. This accomplishes two things: You know that when you walk in that room you are there to work until you are done, and then you shut the door and all family members know that they should respect your work space when you are in it.
83. Family time is sacred. For those that have clients in different time zones, clearly define the hours you can be reached by phone. I live on the East Coast and have clients on the West Coast — a three hour difference. They can be getting ready to leave work and want to call, and I could be ready to go to sleep and not at the top of my game. There will be times that you'll need to burn the midnight oil, but it should be an exception, not a daily occurrence.
2. Outsource jobs to free up your time
Most home businesses start out as a one-person shop, but you don’t have to be a jack-of-all-trades. You can always outsource jobs, Evans says. Sites like oDesk and PeoplePerHour can hook you up with affordable independent contractors. On these sites, you post your project and contractors bid on it. You select the contractor that has the skills you’re looking for and fits within your budget.
“Finding freelancers frees you up to focus on more important tasks,” Evans says. “However, if you have some free time during the lean months, save money and keep your own skills sharp by doing the work yourself.”
6. Purchase an insurance policy
It might slip your mind as something you’ll “get around to” eventually, but purchasing the right insurance for your business is an important step to take before you officially launch. Dealing with incidents such as property damage, theft or even a customer lawsuit can be costly, and you need to be sure that you’re properly protected.
Although you should consider several types of business insurance, there are a few basic insurance plans that most small businesses can benefit from. For example, if your business will have employees, you will at least need to purchase workers’ compensation and unemployment insurance.
You may also need other types of coverage, depending on your location and industry, but most small businesses are advised to purchase general liability (GL) insurance, or a business owner’s policy. GL covers property damage, bodily injury, and personal injury to yourself or a third party.
If your business provides a service, you may also want to consider professional liability insurance. It covers you if you do something wrong or neglect to do something you should have done while operating your business.
Apply for your EIN
Your Employer Identification Number (EIN) is a federal tax number that will identify your business entity. If you ever plan to register your business as an LLC or hire employees, you’ll need an EIN.
Without an EIN, you’ll have to use your Social Security Number to identify your business, so applying for an EIN can help you keep your Social Security Number safe. You can apply for free on the IRS website and receive your EIN within minutes.
Work with an accountant
Taxes are confusing to most people, and they get even more complex when you’re running a small business. Plus, you need advice on how to structure your business, how to set up payroll and how to track your expenses. That’s why it’s a good idea to hire an accountant.
An accountant can help you with all of this and ensure that your business is up to date with the most recent tax laws. And in the unlikely event that your business is audited, an accountant can walk you through this process.
[Read more: When and Why You Should Change Business Entities]
Tax Deductions for a Home Office
Getting familiar with the tax laws will be necessary as a home-based business owner. The more knowledgeable you are, the more likely you'll be able to save yourself major bucks when filing your taxes. Paul Robert Edwards highlights 10 top deductions for home-based businesses, but consult your accountant to make sure you apply them correctly to your company.
28. Expenses related to cleaning the home office
29. Depreciating the office space in the home
30. Household furniture converted for use in the home office
31. Household supplies used in the home office
32. Interest on your mortgage attributable to business use of your home
33. Internet expenses related to the business
34. Real estate taxes attributable to business use of your home
35. Repair and maintenance of the office portion of your home
36. Telephone, except the base local service, for the first line into your home
37. Utilities and trash collection attributable to business use of your home (for example, electricity, gas, and water)
4. Familiarize yourself with zoning laws, licenses, and permit requirements
Find out if there are any zoning laws that might prohibit you from running a business out of your home. Legally, no more than 40 percent of a residential property may be used for commercial purposes; if you’re operating your small business out of one room or a portion of a room in your home, you should be fine. If you rent your home, you must have written permission from your landlord in order to run a home-based small business. However, according to regulations passed in 2015, landlords cannot “unreasonably” forbid tenants from running a business from their property. Be aware that your landlord might try to raise your rent if heating or electricity is included in order to mitigate an anticipated increase in usage due to your home business.
While all businesses are subject to license and permit laws, which vary by state (the U.S. Small Business Administration offers information and links pertaining to the application process), there are specific licenses that pertain to home businesses, such as:
• General Business License: This entitles you to operate your business in your specific locale for a small fee.
• Professional and Trade License: Certain occupations demand a license; half of the states in the country require interior design licenses.
• Home Occupation Permit: Consult the SBA’s guide to zoning laws for home-based businesses to see if your neighborhood is zoned for home businesses.
• Sales Tax Permit: If you plan to sell taxable products or services, you may need a tax permit, so check with your state revenue agency.
Are you looking for a home based business idea?
See my article, 42 Home Based Business Ideas You Can Start Today. This article presents my best ideas for starting a business in your home plus my insight on each idea.
Also consider my longer and most popular article, The 300 Best Small Business Ideas. This comprehensive multi-page article offers expert advice on every single business idea. Includes home based, online, steady income, low cost, product and service ideas. Many of the ideas in this long article can be started part time.
Making life easier as a business owner
Today’s technology makes running a business from home easier than ever before. Keep in contact with your employees or service-based clients through video conferencing such as Zoom, WebEx or GoTo Meeting. Connect with your remote team members using project management technology such as Airtable, Trello or Asana.
As a business owner, you may find you spend long hours juggling many responsibilities. However, when you run a home-based business, it can become all too easy to let your work tasks bleed into your family time and personal space.
To keep a healthy work-life balance, establish set work hours and make a few rules for yourself to follow. For example, silence your phone during family meals or during one-on-one time with your spouse or kids. Don’t bring your work laptop out of your office. And consider getting two cell phones, one for business calls and one for personal use.
Running a business from home successfully takes some effort. You’ll need to think a little more carefully about taxes and legal requirements and the logistics of remote work. But with the right plan in place, you can make this flexible arrangement work for you.
What Should I do to get Started with a Home-Based Small Business?
After planning your business, you should look into state and local regulations for running your chosen business. Be certain that you are obeying all zoning laws when it comes to running a business in a residential house. Comply with the business licensing or fictitious business name requirements in your state and city or town. You may need additional licensing and permits to run certain types of businesses.
If you run an in-home daycare, for example, you will need a daycare license. If you will prepare and sell food, you may need a food preparation license. Contact your state or town office of business registration to learn the requirements in your area.
Create space for running your business out of your home. The amount of space you need to run a business from home depends on the type of business you choose. If you need an office, clear out a spare bedroom or clean up a basement for this purpose. Some businesses can be run from a kitchen table. If you stock products, consider shelves in a garage or an unused walk-in closet for storage.
Funding Your Home-Based Business
While a home-based business may imply lower costs, that doesn’t mean it’s cheap. Luckily, there are a few ways you can get funding for your home startup. These include:
14. The SBA Microloan Program
The Small Business Administration (SBA) Microloan Program provides up to $50,000 for small businesses. According to the SBA, the average sized microloan is $13,000. You can use these loans for:
- Working capital
- Inventory or supplies
- Furniture or fixtures
- Machinery or equipment
Keep in mind that you cannot use these loans to pay your debts. You also can’t use them to buy real estate.
15. Small Business Factoring
This involves selling your small business’s unpaid invoices for cash right away. For example, say you sell invoices that are worth a total of $15,000 to a factoring company. This company will then charge you a fee and provide you with a cash advance.
In this scenario, say they charge a 4% fee; 4% of $15,000 is $600. They will then provide you with an initial advance of cash. This advance will be a certain portion of the $15,000. Once they’ve collected your unpaid invoices from your customers, they will provide the remaining amount of the $15,000. The total your small business receives in the end is $15,000 minus $600, which is $14,400. The main benefit of factoring for small businesses is receiving cash fast when you need it.
Equipment can be expensive, but that doesn’t mean it has to be out of reach. You may be able to lease the expensive equipment your small business needs. Equipment can be rented on a monthly basis with more affordable monthly payments. Just as with other lease agreements, you may have the option to buy the equipment at the end of the lease. Types of business equipment you can lease include:
- Copiers, printers, and scanners
- Telephone systems
- Video surveillance systems
- Plant and warehouse equipment
17. Peer-to-Peer Lending
Instead of getting a loan from the bank, you can go through a peer-to-peer lending firm. These firms match borrowers up with investors. Through this matching process, investors get to pick which loans they want to fund.
18. Home Equity Line
You could use your home equity line of credit to get a loan for your small business. This option is cheaper than other options, but it comes with a notable amount of risk. For instance, if you fail to pay your loan or your business fails entirely, you could lose your home.
19. Credit Cards
This is an option that countless small business owners turn to. As you probably already know, if you don’t pay your credit cards off timely, you run the risk of accruing expensive interest charges or even ruining your personal credit.
20. Family Members
Asking family members for a loan is an option. However, if you don’t pay the loan off, then you could run the risk of damaging your relationship. This can be especially true if it’s a loan for thousands of dollars.
What are the advantages of running a business from home?
Running a business out of your home can offer several benefits over a typical office, which you may want to consider when making this decision. These advantages include:
Eliminates your commute: Operating a business from your home means you no longer have to travel to work. This benefit helps you save money by not paying commuting costs, such as gas or public transportation fare. You can also use the time you save to conduct daily work or personal activities instead.
Lowers your overhead costs: When you run a business from home, you can avoid buying or renting office space. This benefit helps you cut down on your operational costs because you do not have to pay for certain overhead expenses, including rent and utility payments.
Offers tax benefits: Individuals who run businesses out of their homes can sometimes receive tax advantages. For example, the home office deduction enables you to write off expenses for parts of the house used “exclusively and regularly” for business purposes. Consult with tax professionals to discuss whether such deductions apply to you.
Supports your work-life balance: Home-based businesses can also offer more flexibility between your personal and professional lives. For example, you may set yourself a flexible schedule that works with your family's needs. Being at home and avoiding commuting to work can also enable you to spend more time with loved ones or other activities you enjoy.
Related: The Benefits of Working From Home