6 Practical Steps to Start a Home Business
Starting a business from home? You'll want to read this first.
When starting a home-based business, you have to be careful that you don’t take an isolated approach that leaves you exposed to unnecessary risks and potential for failure.
Sure, a home business differs from a traditional business in many ways, but it’s still a small business and you still need to take it just as seriously, even if it's beginning as a hobby. You have to treat it like a professional endeavor.
If you're still looking for the right home-based business idea, check out these 15 Real Businesses You Can Start While Working Full-Time.
Even though there are inherently less risks and capital on the line when starting a home-based business as opposed to going out and securing more expensive office space and all the additional services that come with it, there are still a number of practical steps that you need to consider early on in the planning process if you want to be successful with your home business.
Here are six of my most essential considerations when starting a home-based business.
1. How to Fund Your Home-Based Business
Unless you have the financial ability to self-fund your home-based business, you’ll need to consider alternative financing options that'll be realistic for your personal situation and business goals.
Will you take on investors, seek out a loan, incur credit card debt, look for joint venture partners, or pursue another funding strategy?
There are a variety of funding options available to home businesses, and the key is identifying the one that works best for your unique situation and longterm business objectives.
While small business lines of credit and equity investors are traditionally thought of as your best options, don’t overlook non-traditional funding mechanisms like secured loans.
Also known as homeowner loans, these loans are secured using your home’s equity as collateral against the debt. In other words, if you have $100,000 of equity in your home, you could potentially borrow against that equity to fund your home business.
Other options include raisin money from friends and family, crowdfunding, and even product pre-sales if you already have a list of potential clients who are willing to purchase your upcoming products or services. If you're starting more of a lifestyle business that you don't plan on selling in the future, I recommend staying away from equity investment, since your investors will eventually expect a return on their capital, which will only come from either going public or being acquired down the line. Your funding strategy will depend on a number of unique factors, so go ahead, and start brainstorming.
2. Dedicated Workspace in Your Home
Because of the many potential downsides of working from home, you’re going to need a dedicated workspace for your business within your home.
The type of space that you need will vary depending on your business, but regardless of what your home business is, make sure that your dedicated workspace is not in your bedroom.
If you’re starting a freelance business, then you likely only need a small office since almost all of your work will be done from a computer, and should require very little space. However, if you’ll be producing physical products, then a much larger space will be needed to accommodate your operation.
Where you do your work needs to be an exclusive work zone. There should be no televisions, couches, beds, or other potential distractions that'll psychologically detract from your productivity. Not only will this allow you to stay focused on your work, but it also has immense tax benefits.
3. Local Rules and Compliance on Home Businesses
Have you considered compliance? States, counties, and cities all have laws that govern how home-based businesses are structured and operated, especially from a tax standpoint.
Depending on what you’re doing, you may need permits to run the business out of your home, and it could be subject to strict requirements.
It’s better to figure these aspects out beforehand, rather than risk fines and fees after the business has launched. For example, if you're using your home as a retail location for customer transactions, you'll need to apply for certain permits that wouldn't be necessary if you're simply running an online business from your home office.
Zoning laws will probably be your biggest concern as you get up and running. Most zoning codes will restrict changes to the exterior of your home, outside storage and display, and parking of commercial vehicles. There may also be traffic restrictions and rules related to noise, odors, and hazardous materials that you'll need to take into consideration depending upon the type of business you're starting.
4. Bank Account and Financial Management for Home Businesses
Have you thought about how you’ll handle the finances related to your home-based business?
“It's much easier — especially when it comes to working out your tax — to keep your personal and business finances completely separate,” entrepreneur Hannah Martin says. “You could opt for a second personal bank account for your business if you wish, but if you’re planning to expand your company at any point, or borrow money for it in the future, it’s worth starting out with a completely separate business account.”
Opening a second set of bank accounts for your home-based business is the way to go, for many crucial reasons. Aside from the psychological benefits of segmenting your business from your personal accounts, doing this will help you immensely when it comes to tax season. Check out these essential home business tax deductions and make sure you're taking advantage of every opportunity to save.
5. Optimizing Your Daily Routine
Finally, you need to think about your daily routine, and strategically plan out your work schedule to achieve maximum effectiveness. There's something magical about physically going to an office that places you in the work mindset, so be sure you treat your workspace with this type of integrity.
Do you have kids? Are you married? Do your pets demand lots of time and attention? Are nosy neighbors constantly stopping by? Consider how realistic it is that you’ll be productive working from home, as it’s certainly not for everyone. A lack of focus will inevitably lead to failure with a home-based business.
If your business involves any form of creative work, be sure to set aside blocks of time to get your best creative work done when you have the most clarity of mind. If that's early in the morning, then adjust your schedule accordingly so you can get your best work done in this time period. If you're a night owl, then shift your schedule to start work later and do the more monotonous tasks at the beginning of your day.
6. Developing a Plan of Attack
A home-based business may differ from most traditional businesses that are managed and operated out of a commercial office space, but you have to approach it in a similar way if you want to stand any real chance of success.
There needs to be a strategic plan of attack in order for the business to be efficient and profitable. For more on how to plan the growth of your business for maximum success, check out these business planning resources and keep these tips in mind as you consider starting your own home business.