In this article:
- Have a solid idea
- Questions to ask
- Laws and regulations
- Create a business plan and get organized
- Insure your business
- Create a workspace
- Hire employees (if necessary)
- Determine tax obligations
Have you been thinking about starting a home-based business? Maybe you’re tired of “working for the man” or you just want the flexibility to create your own schedule and manage your own tasks. Either way, you’ll want to be sure you know what it takes to start a business from home before going all-in.
Follow along as we guide you through everything you need to know to start your home-based business. From laws and taxes to some of the more fun things like hiring employees and creating your home office, we’ll help point you in the right direction.
Before you start a home-based business, you need a solid idea
Of course, you can’t start any business without a killer idea. You need a business idea that people are actually willing to spend money on. Maybe you already have that idea, or maybe you’re at ground zero and still thinking about what you can do.
Consider these questions to help you come up with your business idea:
- What do you enjoy doing?
- What talents do you have?
- What skills can you offer that others are willing to pay for?
- What is something you could easily offer while working from home?
Whether you can offer a service or you have a great product that will help your customers, make sure to round out your idea in a way that you can sell it and actually make a profit.
Questions to ask before starting a home-based business
Once you have your awesome business idea, there are a few key questions you’ll need to think long and hard about.
Will a home-based business work with your lifestyle and residence?
The idea of having a business from home is appealing, but you need to make sure it realistically works with your current home life. Are there too many distractions in your home to get the work done that you need? Is there a separate space where you can work and keep a good work-life balance?
What are the startup costs going to be for this business?
Home-based businesses can have relatively low startup costs depending on the type of business you want to run, but it sure isn’t going to be free. Make sure that you are equipped to handle these costs at this time.
Learn more: Check out our helpful guide to funding options for starting a small business.
What is a realistic income that you can make with this business?
Starting your own business is awesome, but if it’s not going to quickly provide at least the income to support itself (and ideally more) then it may not be the best investment for you.
Make sure you have enough to live on until your startup budget runs dry.
What is the current market like for your business idea?
Market research is going to be crucial for ensuring the success of any business, but especially one that is run out of your home.
There are potentially unique issues related to retail sales, shipping, warehousing, and taxes for home-based businesses. See below to learn more.
Go deeper: Find all of the market-related questions you should ask in our article market research for small businesses article.
Learn the laws and regulations regarding home-based businesses
Even though you’re starting a business from the privacy of your own home, you still have to abide by federal, state, and local laws and regulations. It will be important for the success of your business to ensure that you know what those laws are.
Check local zoning laws
There may be local laws the prevent you from being able to run a business out of your home. Check with your city, county, state, and even HOA (if applicable) to make sure your business fits within any local requirements. If you’re starting a small business in a small town, you should also ask around to see if your community has additional requirements or restrictions.
If it doesn’t, that doesn’t mean you should give up. You may just need to find a commercial space to start your business from.
Pick your business structure
You need to identify your business structure. This will help determine what your tax obligations are and it will have implications for your startup and other liabilities.
The basic business structures that may apply to your home-based business include:
- Sole proprietorship
- S corporation
Learn more: How and when to incorporate your small business
Get your tax IDs
If you choose to incorporate your business as an LLC or S Corp, you’ll need to acquire an employer identification number (EIN). Your EIN is issued for tax reporting purposes. You may also need a state tax ID number depending on where you are located.
As a sole proprietor you can choose to use your social security number or get an EIN.
To get your EIN, you can go to irs.gov and apply for one by filling out form SS-4.
Certain types of businesses are required to have licensing and permits. Check federal, state, and local laws to determine if your business will need any licensing.
You can visit the U.S. Small Business Administration (SBA) to apply for the permits and licenses you might need.
Create a good business plan
Investors, banks, and potential partners won’t take you seriously unless you have a solid business plan.
If your idea and business are completely new, it may be somewhat difficult to come up with the projected revenue numbers you’ll need to complete your business plan, but you should do the best you can.
You should definitely flesh out your “executive summary” or elevator pitch, company vision, mission statement, market analysis, marketing strategy, and financial projections, and know them by heart.
Working from home isn’t going to work if you aren’t organized. You’ll want to develop a clear plan of action for your business and hold yourself to it, as well as engage in tasks such as marketing your business, hiring the right people, and keeping good records.
Get your business insured
Your homeowner’s or renter’s insurance isn’t going to cover your business, so you’ll want to take action to get your business insured as you are starting up. There are several business insurance options that you can choose from, depending on your needs:
If any customers, business partners, or other business-related visitors come to your home for meetings, then you’ll want to have liability insurance. This will protect you and your business from being liable if any injuries or damages occur to your guests while in your home.
Professional liability is important for protecting you against any claims clients may make of negligence or failure to deliver.
Business property insurance
Homeowner’s or renter’s insurance doesn’t generally provide coverage for equipment that you use for your business if some kind of disaster occurs. Examples of equipment you may use from home include printer, computer, furniture, products, items related to your service, etc.
Business automobile coverage
Your regular auto insurance may not cover accidents that occur during business-related deliveries or trips. If your vehicle is used for business purposes, then it is a good idea to look into what your own insurance covers and if you need to pick up additional business auto insurance as well.
Depending on your business, there may be some other insurance options you need to look into. For example, worker’s compensation insurance will cover anything that happens to employees while on the job and commercial crime insurance can protect you from theft and fraud.
We recommend meeting with a business insurance professional to help you determine which insurance will be most beneficial for your home-based business.
Find and set up a workspace
Finding and setting up your workspace is going to vary a lot depending on the type of business you run. For example, if you’re running a daycare or catering business out of your home you’ll have a lot more requirements for your space than if you were offering web design services.
The first step is to find space that you can use and dedicate to your business. Maybe you have a room that will be perfect for your office and client meetings. Or maybe you’re just working from your dining room table. For some businesses that can work just fine.
For specific types of businesses (like our daycare and catering examples) you should check with local and federal regulations to ensure that you have the proper space and it meets legal requirements before starting your business.
Once you’ve found your space, it’s time to set it up. We have a few tips that will help you no matter what type of business you are running.
Make a list of the things you need for your home office
It doesn’t matter what type of business you have, you’ll need some kind of office setup and materials for it. This can include any of the following items:
- Pens, pencils, other writing utensils
- Paper, notebooks, sticky notes
- File cabinets
- Furniture for any client meetings
Also, consider additional needs related to your specific industry.
Get a phone and email account dedicated to your business
The goal of any business is to get leads and customers, and this often comes from phone calls, texts, and emails.
Get a separate phone that is solely for your business to help you stay organized and keep your home and work life separate.
Create a website for your home-based business
Even small, local, home-based businesses can benefit from a well-built and well-run website.
Read our article on why every small business needs to have a website.
Brighten things up with proper lighting
You’ll want good lighting in your home office just to work with. But lighting can also help set the tone for your business if you have customers meeting you in your home. Bright, natural light is comforting and more professional.
If your home doesn’t allow for great lighting naturally with large windows and overhead lights, you may need to create that ambiance with desk and floor lamps.
Proper lighting also helps alleviate any safety concerns for visitors.
Determine if you need additional help
Tons of businesses start out as solo concerns, but as you grow, or if your business plan is aggressive, you might find that you need some additional hands on deck to keep up with the incoming work.
Determine the amount of work you are anticipating and whether you’ll need to hire any employees to help you out. You might start small and work alone and then as you grow and get more clients decide to hire another person or two.
You’ll also want to decide if you’re going to have any employees helping you at your home or if they will be working remotely.
Taxes for your home-based business
Just like any other type of business or job, you are required to pay taxes on your earnings. Do your research to determine what your tax obligations will be so you can start setting that aside or even paying it out each month.
You’ll find that you can deduct a lot of things from your business taxes that you weren’t aware of. We’ve created a list of deductible items broken up into three categories: business, home, maintenance.
- Cost of goods
- Employee pay
- Business insurance
- Office supplies
- Business use of your car
- Professional services (accounting, consulting, legal, etc.)
To obtain the amount that you can deduct from your home-related expenses for your business, take the percentage of your home that is used for your business. You can divide the square footage of your workspace by the entire square footage of your home.
- Utilities (heating, water, sewage, electric, internet, phone)
- Cleaning supplies/services
- HOA fees
- Property taxes
Any repairs, remodels, or maintenance that you make to your home related to your business can be written off on your taxes.
Keep accurate records of all expenses and finances. This is crucial to ensuring a good tax season and preventing IRS audits.
Managing employee taxes
If you have employees on your payroll, it is your responsibility to get the proper documentation from them to process they pay and calculate the taxes that will be withheld. We highly recommend hiring an accountant or finance professional if you do have employees on your payroll.
Talk to professionals
If all of this goes way beyond your ability, you may just want to hire a bookkeeper who can help you out. As a business owner, it’s always a good idea to have a professional at least help you with your taxes during tax season each year.
Important note: These tips are general and not intended as legal advice. Every business is different and you should consult with a tax professional to determine the best course of action before submitting taxes for your business.
Claim your online business profiles
Before you sell a single widget, you need to claim your online business listings on Google, Yelp, TripAdvisor (if applicable), Facebook, etc.
When customers start reviewing your business online (and they will), these review platforms will automatically create a profile for you if you haven’t done it yourself. You want to be in control. Make sure you claim your profiles and start seeing the benefits of reviews.
Read our easy how-to articles to get started:
Start getting and retaining customers
Once your home-based business is started, it’s time to start managing your customer relationships from “consideration” through the sale, and building trust for repeat business.
You may have already provided some services for free or at a discounted rate as you were testing out your business. Continue to use these techniques where feasible to help you grow your small business.
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