Starting a home business won’t be easy, but with hard work and this guide to walk you through the process, you’ll have your own business in no time!
In this article, we’ll cover everything, from the required licenses and tax laws to the detailed process of starting your home business.
Should You Open a Home-Based Business?
Owning a home business might sound pretty convenient. After all, it allows you to run things in your own way. While it’s exciting to be in control of your own business, there are lots of factors that will contribute to your potential for success.
Before we jump into those, though, let’s take a look at some of the benefits that come along with a home-based business:
- Flexibility: By running a home business, you eliminate the commute and increase the number of work hours available in a day. You can also decide what your schedule will be like from day to day.
- Reduced Overhead: Let’s face it — renting space to conduct business is expensive. Why spend extra money when your workspace can be right in your home?
- Enjoy Fewer Taxes: There are a number of tax benefits to working from home. For example, if you have a dedicated home office, you may qualify to have a home office dedication on your taxes.
While all of these things are helpful, however, operating a business from your home isn’t always as easy as it might seem.
Questions to Ask Yourself Before Starting a Home Business
Before you start your home business, ask yourself these questions:
- Can the business I want to run be successful conducted from my home?
- Does my lifestyle fit with a home-based business?
Making sure that the answer is “yes” to both of these questions before getting started. This will save you time and stress in the future.
1. Can Your Business Actually Be Conducted at Home?
Are you comfortable having clients or customers in your home? Do you have the space that you need to be able to store all of your products? Do you have a quiet place to take phone calls?
It all comes down to your home business ideas. Retailers often need large spaces to keep stock, but e-Commerce and consulting work are often much easier to do from home.
2. Does Your Home and Life Fit with a Home-Based Business?
Your home is your personal space, but working from home will likely change how that space operates.
If you don’t have a large enough space, this can raise some issues. If other family members are working from home or completing schoolwork online, it can be hard to concentrate. Making sure that you have a dedicated workspace that is respected will be essential.
Tasks Before You Get Started with Your Home Business
Now that you’ve thought about the basics, it’s time to start considering the legal details.
Familiarize Yourself with Zoning Laws, Licenses, and Permit Requirements
There are several kinds of rules and regulations that can affect a home-based business. Here are some of the most common ones:
- General Business License: This allows you to legally operate your business from home.
- Professional and Trade License: Depending on your business type and state of residence, you may need a license.
- Home Occupation Permit: Some neighborhoods are zoned to allow home businesses, while others are not. You’ll need to check the local guides for business zoning laws to ensure that you can legally operate your company from home.
- Sales Tax Permit: Tax permits are only required for taxable services and products. If you want to sell an item or service, you may need a permit.
- Health and Safety Permit: Depending on the kind of business that you operate, a health and safety permit may be required.
- Sign Permit: To have a sign advertising your business placed outside of your home, you may need a permit from the local governing authority.
- Construction Permit: If you’re planning to extend your home by building a workshop or an office, check with the city planning department to get a permit if necessary.
- Homeowners’ Association Restrictions: Some business types may be prohibited in your neighborhood or complex, so it’s best to double-check your covenants and restrictions so that you aren’t hit with fines or fees down the road.
By understanding the required licenses and applicable laws before you open your business, you can prepare for success.
Learn About Tax Laws for Your Home Business
There are a number of tax laws that may apply to your home business. Some of the most important ones to be aware of relating to your expense tracking.
Categories covered include:
- Direct Business Expenses: These represent the cost of your materials, supplies, products, and other related expenses.
- Operating Costs: The IRS allows home business owners to claim some expenses as deductions. Check with a tax professional to find out which categories may apply to your unique situation.
- Vehicle Expenses: If you use a vehicle for business-based travel, you may be able to deduct some of your expenses. Check with the IRS to determine whether this applies to your business.
By understanding the applicable categories of write-offs and deductions for your business, you can ensure that you keep track of receipts so that you’re fully equipped to handle your business taxes at the end of the year.
How to Start a Home Business in 9 Steps
You’ve considered the basic needs of your business and the applicable laws and regulations. Now, it’s time for the fun part! Here are the 9 steps to starting your home-based business.
1. Decide on a Home Business Idea to Pursue
What is it that you want to do? Perhaps you want to curate items into a subscription box designed for pet lovers. Maybe you want to explore selling your artistic creations online using eCommerce tools. The possibilities are endless!
2. Write a Business Plan
Once you’ve determined the type of business that you want to pursue, you can start writing up a business plan.
- An executive summary
- A brief overview
- Market analyses
- Financial projections
- Description of products and/or services that will be offered
A business plan is an outline of your steps moving forward. It can help to keep you on track. You can also set goals for yourself and your business so that you can celebrate the milestones that you reach along the way.
3. Choose a Name and Business Entity
It’s time to name your new creation. You’ll want to choose something attention-grabbing and memorable. Search online to see if the name is available or if another business is already using it.
Then, you’ll want to choose how your business will operate as an entity. There are several options, including:
- Sole proprietorship
- General partnership
- Limited liability corporation (LLC)
Make sure to research the pros and cons of each, along with the tax reporting structure that’s required.
4. Register Your Home Business
If you choose to be an LLC or C-corp business, you must register with the state that your business will operate within.
5. Get a Business License (if Necessary)
Make sure to obtain any of the necessary permits or licenses, as mentioned earlier in this guide.
6. Separate Your Business and Personal Finances
Managing your finances is an essential part of running a home business. You’ll want to protect your personal assets since your company will likely be responsible for debts, liabilities, and expenses. It’s best to keep your business assets separate from your personal ones.
Bookkeeping and accurately filing your taxes are imperative. It’s also a good idea to open a separate banking account that is dedicated to your business.
7. Purchase an Insurance Policy
Insurance is a great way to protect your business from potential risks. It should be one of the first things you do. In particular, most businesses will need to have liability insurance in place.
8. Build Your Team
When the time is right, you can add an employee or two to help with the workload. Make sure to check in with your accountant to make sure that you have the right paperwork on hand as you add in team members.
9. Choose Your Vendors
When you work with trustworthy vendors, you tell your customers that you value integrity. By researching vendors and partners ahead of time, you can avoid costly mistakes.
10. Brand Yourself and Advertise
Custom packaging is a great way to help your business stand out to your potential customers.
While there are many moving parts involved, starting a home-based business can be a rewarding experience.
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