No wonder so many people are interested in starting a home-based business. It can give you a free hand in how you spend your time and make money. But it’s not a quick process, and there is no guarantee of financial success. It requires long-term dedication and a clear understanding of what kind of work you’ll have to do.
In this guide, there’s everything you need to start a home-based business.
Preparation before starting a home-based business
Before you launch a home business, there are some points you should think through to ensure that your entrepreneurship runs smoothly.
Before you start a home business, you need to decide what products or services you want to offer. The following questions will help you with this.
- What can you offer?
- Do you have all the necessary education and skills to compete successfully in the market?
- Can you sell this product or service all year round or does it depend on the season?
- When the economy is weak, how do you think this will affect your business?
Market and competitors
Knowing your market, its needs, and what inspires people to make a purchase is very important for your success. You need to identify your target market and determine what makes your product or service different from others. Here are some points to consider:
- What is your value proposition? What is your competitive advantage?
- What is different about your product or service from your competitors?
- Who is going to buy your product or service?
- Will you work with businesses, consumers, or both?
Necessities and must-haves
Let’s see what your business simply can’t do without.
- A home office. You should have a separate room to run your business so you could work without distractions.
- Space for inventory, supplies, and equipment.
- Power needs (this could be extra sockets or extension leads).
- Second telephone line. It allows you to separate personal and business communication.
Legal forms of business organization
Should you run your business as a sole trader, limited liability company (LLC), S-corporation, partnership, or as a full-fledged C-corporation? Your decision will largely determine what steps you need to take.
The easiest and cheapest option is a sole proprietorship, but to better protect your business and for it to still be affordable you might want to choose a limited liability company. Your decision will affect your launch costs as well as your tax situation and your personal liability for the actions and debts of the business.
Contact your local government about getting a business license. If you sell material goods, get a sales tax license. Check zoning laws, landlord association covenants and restrictions, and your lease (if you rent your home) for regulations on running a home-based business.
Set up a bank account for the business. Consider getting an employer ID number. The advantage is that you can use it instead of your national insurance number in your business documents.
Insurance for home-based businesses
Consider getting some type of insurance, for example:
- Health insurance. There are many medical insurance options for the self-employed. The key is to find the option that works best for you.
- Extra home business insurance. Check your policy and contact the insurer for information on how to cover business losses.
- Car insurance. If you use a car for business purposes you may need to take out extra insurance.
- Liability. It is necessary when someone gets hurt because of your business.
Startup costs and financial sources
Calculate your startup costs, i.e. the amount of money you need to open your business. Here are some common costs associated with launching a small business:
- Professional services (accounting etc.)
- Equipment and furniture
- Renovation or construction costs
- Website fees
When you have made your list, look for ways to cut costs and finance the business without going into further debt. You have to think about how much bills you will need to pay before the revenue starts coming in.
Current income and expenditure
Here are some financial questions to think about.
- What will be your fixed expenses for equipment, services, salaries, and inventory?
- How many goods do you have to sell? How many hours of service do you need to provide to reach your break-even point?
- What is your target profit and how do you make it?
Launching a home business
After some preparation and Internet surfing, now it’s time to actually start your entrepreneurship. The whole process consists of 7 steps — follow them one by one, and by the end, you will have a full-fledged business.
Step 1. Assess your talents and skills
Running a prospering business usually requires learning new skills, such as marketing. But to develop a business idea, start with the skills you already have. They will help you with where to use your natural talents best.
Your talents are the foundation of any profitable business venture. Your character is also a significant factor in whether you should start a home business.
But what traits should a successful entrepreneur have? Such people typically share certain traits and attitudes, such as:
- openness to new experiences,
- desire and willingness to take initiative,
- motivation to achieve,
- risk taking.
You also need to be adaptable and flexible. Every day will bring new tasks that may or may not be planned. Sometimes they will even need to be completed at the same time.
Be honest in assessing your talents and personality to decide if a home-based business is right for you. Might it be that all you really need is a remote job? Becoming self-employed requires a very different attitude from being someone’s employee.
Also many people start a home business because they see it as a just natural extension of a favorite hobby. Nevertheless, having a hobby gives you no guarantee of a money-making home business.
Step 2. Come up with a business ideas
Combine your talents and skills to create business ideas. The main thing is that you have to be keen on your chosen direction. Decide what you want to do. Think about whether you are going to produce and sell the product yourself or hire professionals to do it while managing their work.
The brainstorming process will help you understand which business ideas suit your personality, skills, and interests. This will allow you to narrow down your choices to the sorts of business you are really interested in.
Step 3. Determine your profit potential
To start a successful home-based business, you need to assess the potential profitability of the business. You may have great talent or skill for something, but if people are not ready to pay for your product or service, it will not work as a business.
- How much are people willing to pay for this product or service?
- Will you be able to make enough income from it?
- What are your minimum monthly income requirements? Consider only those business ideas that have a realistic chance of making that amount of profit.
Give yourself time during which your business is allowed to be non-profitable. Ultimately, however, you need to consistently meet your revenue targets in order to run your business successfully.
Step 4. Write a business plan
Writing a business plan can be one of the hardest parts of starting a small home-based business. You need to research the market, the work of competitors, and the demand for your offer. Write out a rough estimate of income and costs. Look for suppliers of materials and equipment. Also you’ll need to determine the price of your product or service with a mark-up.
Overall, your business plan should contain all the information you need to prepare for running your business from home. If your plan shows that your idea is not viable, do not be afraid to put it off. Instead, choose another concept and go through the whole process again.
It is essential that your business plan includes:
- executive summary,
- overview of your business,
- market analysis,
- description of your product or service,
- marketing plan,
- financial plan.
By writing a plan you will be able to think in more detail about how your business will work. It will also prove useful when you apply for funding or look for investors. It’s very important to show potential investors or lenders that you have a plan for financing your business.
Step 5. Choose a name and business subject
After writing a clear business plan, you need to formally name your home business. You need to choose something catchy but also easy to understand so that people can immediately identify what you are selling.
You will need to make sure that the name you choose is actually free to use. There are several places where you can check this, even using Google.
As well as choosing a brand name, you will need to choose the type of business entity to determine the structure of your business. The type of legal entity will determine how your business is taxed and the legal risk you are exposed to.
If you feel uncertain with such matters, you can always seek legal advice.
Step 6. Get needed licenses
Even if you’re just starting a freelance business from home, it doesn’t mean you don’t need a business license. Still, requirements for it may be different from other types of businesses. The licenses and permits you need also depend on the state in which you are based.
If you are starting a small business from home, you will need to get the following types of business licenses:
- Home business permit. Most home-based businesses require a home business permit to be legally operating. Basically, this permit means that by operating your business from home, you are not creating significant traffic, noise, or harmful environmental conditions in your area.
- Property use and zoning permits. If you are starting your business from home, you need to familiarize yourself with local zoning ordinances that apply to home-based businesses in your area. You should contact your local or city government to find out what rules may apply to you.
- General business licenses and permits. You may need a business license, professional or trade license, sales tax permit, and many other things.
You can contact a professional or legal service to make sure you have taken all the necessary steps to run your business legally from home.
Step 7. Separate your business and personal finances
It’s important to separate your money flows. This way, you will protect your personal assets. You can do it by completing the following steps:
- Open a bank account for your business. You will use your bank account to manage the money coming into your business, i.e. to pay your suppliers, service providers, or employees.
- Apply for a business credit card. A credit card can help you establish business credit. It can be used for any transactions related to your business.
- Choose accounting software. Developed home-based businesses often use one of these automated systems to make book-keeping and paying taxes much easier. There are free accounting software options as well as professional programs designed for entrepreneurs.
The decision to run a home-based business is not an easy one. Remember that thorough preparation and extensive market research go a long way, while spontaneity rarely makes a fortune. Listen to yourself, run your entrepreneurship, and have fun as well as income. Good luck!