How to Start a Home-Based Business

What do Amazon, Apple, Google, Disney, Mattel, Hewlett-Packard and Harley-Davidson all have in common? They all started as home-based businesses (more specifically, they started in garages and sheds).

A survey by Global Entrepreneurship Monitor found 69% of budding business owners in the U.S. run their businesses from home. With low overhead costs and many opportunities available through the internet, it is often the easiest route.

You can get your feet wet without the costs of an office and can grow your business gradually. You may outgrow your home at some point, but many businesses don’t. Of the 69% of businesses that start from home, 59% continue to operate from home once they are established.

If you want to start a home-based business, here are some tips and best practices.

Make sure a home-based business is right for you

First things first, you’ll want to ask yourself whether a home-based business is right for you. Are you able to focus while at home?  “Starting a home-based business is similar to starting a regular business in many ways. The trick is to stay focused in your own home,” says Eric Anthony, founder of  StreamingObserver.com.

“Put aside an area in your home that’s specifically for work. Don’t work on your business from the couch or kitchen table. Even though you don’t have an office you drive to every morning, it’s important to get your brain into work mode even if that just means sitting down at your home desk.”

There won’t be any structure except the one you create and no discipline except that which you impose on yourself, so you need to analyze yourself and your situation to decide whether you think you will be able to be successful working from home.

Check local zoning laws

Zoning laws control the development of land and typically designate zones as industrial, residential, commercial or recreational. As you can probably guess, homes are usually zoned in a residential area. According to the U.S. Small Business Administration (SBA), problems can potentially arise when you are conducting commercial activities from your home. While running a home-based business is permitted, there are restrictions on the appearance of your home, traffic to and from your home, external effects or nuisances and certain activities.

Most of these restrictions are reasonable and are in place to prevent disruptions to the neighborhood. For example, you can’t change the exterior of your house for the purpose of conducting business, and can’t have displays or storage outside. Furthermore, the number of visitors to your business is restricted as well as the number of employees working from your home. It’s best to choose a home business that others wouldn’t know you are running from home unless you tell them.

Read more from the SBA on home-based business zoning laws

Brainstorm business ideas

If you already have a fine-tuned business idea that you can start from home, that is great. If not, it’s time to start researching and brainstorming. There are many routes you can take, from an offline service-based business like a hair stylist, childcare provider or nail technician to an online service-based business like a consultant, virtual teacher or writer to selling products you manufacture or middle-man. You could also become an independent consultant for a business such as the currently popular LulaRoe clothing brand or the timeless makeup brand MaryKay.

Make a list of viable ideas that you are interested in. Don’t hold back. Once you have a good list, go through and narrow down the ideas you think are best. Feel free to ask for feedback from friends, family, and coworkers. Create a shortlist of five to 10 ideas.

Perform a profitability analysis

You will want to look at the profitability of the business ideas that made your shortlist by determining how much you can potentially earn from the business versus how much it will cost.

  • For earnings, look at each product or service you are considering. Identify how much you can charge for the product or service.
  • Next, estimate the quantity you think you can sell per day, per week and month.
  • Then, calculate your costs. If it’s a product, how much does it cost to buy or make it and deliver it to customers? If it’s a service, what costs are involved and how much are your time and skills worth?
  • Also, consider how much time and money you will need to invest in the business to run it.  You will quickly find out that a home-based business can be a time vacuum if you’re not careful, and time is a cost.

Let’s look at an example. Say you are considering a home business providing English lessons to students online. You can invest 20 hours per week. Each lesson requires an hour of planning and an hour for giving the lesson. You will also need to spend four hours and $100 per week on advertising, which means you can provide eight lessons per week.

You check out the prices of your competitors and the average cost of English lessons and decide to charge $60 per one hour lesson. This will earn you $480 per week for 20 hours of work, which works out to $24 per hour. After subtracting your marketing costs, you could make $1,520 per month from this business. With this information, you can analyze whether that is a business you want to pursue. Is that enough income? Is there a future for the business? Will you be able to scale it? Could you make more for your time pursuing another route?

All of these questions can help you figure out which of your business ideas is most profitable.

When it comes to objective profitability, the higher the profit margin and lower the time required to run the business, the better.

Choose the most viable idea

Now that you have analyzed your business plans and know which ones are the most profitable, it’s time to decide on the business idea you will pursue. If it is all about making money for you, you could strictly look at which idea stands to make the most.

However, if you want to do something you enjoy and are passionate about, you will want to weigh your personal preference along with the profitability factor. If something won’t be profitable, but you love it, you will want to categorize it as a hobby at this stage to ensure you don’t pour time and energy into something that won’t earn you money.

Weigh all of these factors and choose the most viable idea.

Write your business plan

With your business idea chosen, you will need to flesh out all of the details in a business plan. This will include what your company will provide, as well as its goals, structure, necessary funding, products or services, marketing plan and sales strategy. Learn more about what an SBA business plan should include.

Take care of your legal paperwork

There are several legal formalities you will have to get in order which include the following.

Choose a business structure

There are several business structures to choose from that will affect your taxes and liability. It is important to review your options, understand the consequences of each and choose the best one for you. The SBA recommends consulting with a legal adviser.

Learn more about business structures

Register your business name

If you choose to operate your business as a corporation, limited liability company (LLC) or limited liability partnership (LLP), you will need to register your business name with your state, as per the SBA. Sole proprietors don’t have to register their name. However, some states require name registration if the business wants to use a name other than their own personal name.

Obtain an Employer Identification Number (EIN)

An EIN is a nine-digit number given by the IRS to identify your business for tax purposes. According to the SBA, It is required if you operate as a corporation or partnership as well as if you have employees.

Apply for an EIN

Register for state and local taxes

In addition to paying federal taxes, you probably will have to pay state and sometimes local taxes as well. Doing so often requires you go through a business tax registration. Click on the link below to learn more about the requirements in the state where you live.

Find out the tax requirements in your state

Obtain permits and licenses

There are federal and state licenses and permits that may be required to legally run your business. You will need to find out which you are required to hold and get them.

Finance your home-based business

Once your business plan is written and all your legal paperwork is finished, you’ll be ready to get financing lined up. At this point, you should know the costs your business will require to get started. If you don’t have the funds available in savings or through friends and family, there are several options available.

Personal loans

Personal loans provide you with an amount of money that you can pay back over time. The cost and terms of the loan will depend on your creditworthiness. They can also vary greatly from one lender to the next, so you will want to shop around to see what is on offer.

Read up on the best personal loans companies for 2017

SuperMoney provides a free personal loan prequalification tool that makes it easy to review and compare offers. It takes two minutes to answer a few questions, then you receive personalized rates from a number of vetted industry-leading lenders, all without hurting your credit score.

Credit cards

Credit cards are another option for financing your business costs. While they may not provide as much money as you can get through a loan, they can help to cover smaller expenses. Open a card specifically for your business so that you keep your personal and business finances separate. If you are interested in this route, review credit card offers on our Business Credit Card Review page and check out our top picks for business credit cards in 2017.

To learn about more options, read how and where to find funding for a small business.

Stay connected

Lastly, even though you are operating from home, it’s important to stay connected.

“Working from home doesn’t offer the same networking opportunities as a typical office environment does,” says Evan Harris, co-founder and CEO of SD Equity Partners. “Thus, it’s important to take advantage of any networking events that you can attend to make connections with others within your industry.

“Whether you are looking to form a partnership, hire an agency, or acquire new customers, networking events are an important factor in the success of a home-based business. ”

Ben Friedman, co-founder and head of operations at All Set, a Boston-based startup recognized as a top 10 Boston startup, says “Put your best foot forward. Having a website and social media profiles that are robust, professional and clean are an absolute must.”

“Once you have the clients, make sure you are overly available. Make it seem like you are online at all hours, working hard to deliver. Schedule emails to go out at certain times, be available via phone, Skype, Slack … any and all forms of communication. The easier you are to get a hold of, the more the client will trust you.”

Get started

It will take time, research, effort and patience, but starting a home-based business is within everyone’s reach.  As the GEM survey showed, more than half of U.S. small businesses are run from home, so yours can be, too. Keep these tips in mind and best of luck on your new venture.

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