Make Money
What Do You Need to Operate a Home-Based Business?
So, you’ve decided to jump in with both feet, take control of your destiny, and run your own business. Even better, you’ve decided to run that business from your home.
Whether you’re starting a side hustle, freelancing, consulting, selling products online, or launching a full-time business, running a home-based business can give you flexibility and lower startup costs than renting office space.
But don’t let that fool you into thinking it’s easy.
One of the biggest mistakes people make is assuming that because they’re working from home, they don’t need to approach their business professionally.
The reality is that many of the same rules and responsibilities apply whether you’re operating from a downtown office building or your spare bedroom.
Before you launch your business, make sure you understand what’s involved. Taking a little time to plan now can save you a lot of frustration later.
A Workable Idea
You must have something to sell if you’re going to make money. That something can be your time, your expertise, your talent, or products and services. Whatever you decide, it’s a good idea to conduct some market research to be certain there’s a demand for what you have to offer.
You’ll also want to take note of competitors and determine what you can do to stand out. Once you have all of that information, writing a business plan is a great idea. This will serve as your roadmap and give you the documentation you’ll need should you decide to seek outside financing.
Another fact to consider is whether the idea has staying power. Ideally, you’ll do something with the constant demand for which there is a definite need from a significant portion of the population. Further, you’ll want to sell something that people will buy, even when the economy slows down. You also want to find something in which you have a passionate interest.
The Ability to Do What Needs to Be Done
There’s more to running a business than clocking direct deposits. You’ll have to earn them. Do you have the expertise you’ll need to do so? Can you bring on people who do?
If you’re going it alone, you’ll answer phone calls and emails, process orders, write contracts, submit invoices, and pay bills as well as handle taxes and accounting. You’ll also need to create budgets and spending plans to ensure the ongoing profitability of your business. Finally, you’ll need to market your business, so people know you exist!
Space to Operate
Many a company has been started around a kitchen table, in a closet, or in a garage. Bill Gates famously started his company in his family’s garage…albeit a nice one.
You don’t necessarily need an entire room dedicated to your business, but you do need a space where you can work without constant distractions. Plus, the IRS will allow you to claim a home office deduction for the space that you use that is dedicated to your business.
You should also think about the technology you’ll need to run your business successfully. At a minimum, most home-based businesses require reliable high-speed internet, a computer, and a way to communicate with customers or clients.
Depending on the type of business you’re running, you may also need video conferencing software, cloud storage, scheduling tools, accounting software, or project management tools.
The good news is that many of these services are affordable and designed specifically for small business owners.
Proper Zoning or a Variance
Make sure it’s legal to do what you want to do out of your house. If your business involves the use of chemicals, heavy machinery, or any other element capable of negatively impacting the immediate atmosphere, you might be better off renting space in an industrial park. Some businesses qualify for exemptions based on your state’s cottage laws. You’ll need to look those up to ensure that you are fully compliant with your location’s rules.
Ditto if you’re going to be doing a lot of shipping and/or receiving goods with delivery trucks. Your neighbors might not appreciate the extra traffic after a while. By the way, you’ll need to garner the blessing of your homeowner’s association too, if your neighborhood has one.
Licenses and Permits
Odds are, your state and local governments are going to want to know what you’re up to. Make sure you have all the right licenses and permits in place, so your activity can be taxed appropriately. If you’re selling products, you’re going to need a sales tax permit as well.
Get a Tax ID number to protect your Social Security number. If you’re creating something original, seek to patent it; trademark your business name, and copyright it, too.
Keep Your Business and Personal Finances Separate
Here’s a mistake I see far too often.
Someone starts making money from their business and deposits everything into their personal checking account. They use the same debit card for groceries, gas, business supplies, and client expenses. Then tax season arrives. Now they’re trying to figure out which transactions belong to the business and which don’t.
Save yourself the headache and open a separate business bank account as soon as possible. Even if you’re operating as a sole proprietor, keeping your finances separate makes bookkeeping easier and helps you understand how your business is really performing.
If you track your expense by charging them to a credit card, dedicate that one credit card to your business expenses so that it is easier for you to track.
If your business starts growing, you may also want to consider whether forming an LLC makes sense for your situation. An LLC can provide additional legal protection, but it’s important to speak with a qualified professional to determine what’s right for you.
Proper Insurance
Homeowners’ insurance policies do not always cover the property for businesses. Check to see what provisions your policy makes. For example, your car won’t be covered in business situations by regular car insurance; you’ll need a commercial auto policy. You’ll also need General Liability business insurance if you have customers coming and going or you enter clients’ homes and/or places of business. This type of policy covers accidental bodily injury or property damage to others, among other things.
Don’t Overlook Cybersecurity
When people think about protecting their businesses, they usually think about insurance and that’s it but these days you also need to think about cybersecurity. Even small home-based businesses are targets for scams, phishing attempts, and data breaches.
If you store customer information, process payments online, or use cloud-based software, protecting your accounts should be a priority. At a minimum, make sure you:
- Use strong passwords
- Enable multi-factor authentication
- Back up important files regularly
- Keep your software updated
- Be cautious when clicking links in emails
It only takes one mistake to create a very expensive problem.
Use Technology to Work Smarter
One advantage today’s entrepreneurs have is access to tools that can save time and help run a business more efficiently.
Accounting software can track expenses. Scheduling tools can reduce back-and-forth emails. Customer relationship management systems can help you stay organized. AI tools can help you brainstorm ideas, create content, draft emails, summarize information, and automate repetitive tasks.
The goal isn’t to let technology run your business. The goal is to let technology free up your time so you can focus on growing your business.
Sufficient Finances
Working at home is much less expensive than renting, leasing, or buying a facility, but you’ll still encounter costs. Consider all of the line items for which you’ll need cash.
These can include:
- Professional support such as a lawyer or an accountant
- Supplies and materials
- Business licenses and fees
- Fees for your domain name, hosting, and website design
- Marketing materials
- Technology such as credit card processing, video conference software, etc.
You’ll need to find funding sources if all of this is going to run you more than you have in hand. While you’re running the numbers, figure out what your ongoing costs will be to help you price your products and services profitably.
Running a home-based business can be rewarding, but it requires more than simply setting up a laptop on your kitchen table.
You’ll need a solid business idea, the right skills, an appropriate workspace, and a good understanding of the legal and financial responsibilities that come with owning a business.
Take the time to set things up properly from the start. It may seem like extra work now, but it can save you time, money, and stress down the road.
A successful home-based business isn’t built overnight. It’s built one smart decision at a time.
