For many people, owning a business has always been the dream. Others eventually find that it just makes financial sense to them to monetize a particularly marketable skill that they have. Whatever your reason for owning a business, starting your business out of your home can be a smart way to minimize your startup costs and fine-tune your business model. But even home-based businesses come with a lot of responsibility and information that you need to know. You might be full of questions: Does my city allow me to start a business in my home? What kind of license do I need? What is a surety bond, anyway? Here’s the info you need: the seven major steps to starting a successful small business from home.
Make sure you’re allowed to run a business from your home.
Before you make any plans for running a home business, you need to ensure that you’re allowed to have a business in your home. If you rent your home, look at your lease. Many landlords specifically prohibit their tenants from using rental properties as a place of business. However, even people who own their homes should check neighborhood laws about whether zoning laws prohibit operating a business from home in your area. You should also consider whether your business idea is a good fit for your neighborhood—for example, will your neighbors be frustrated that your clients are taking up the limited parking on your street?
Decide on a business idea.
You need to answer the fundamental question of what goods or services your business will provide. Your business idea could solve a common problem or offer itself to an underserved market. It could also simply be a business that provides a product or service that’s in high demand. No matter the business type, demand is the one must-have. Once you have a basic idea for your business, think about what goods and services you could sell. Perform some market research and learn about what competitors offer. What are their best products, and what are the ones that you could do better? Don’t rush this stage; take the time that you need to understand the market.
Write out your business plan.
The second step for your business is writing out a business plan. The plan will be the basic roadmap for your business, so it should include all of its most important fundamentals, such as:
Product and service offerings
Target customer demographics
Financing (including loans, credit cards, or private investment)
Competition analysis
Number of employees and their roles
Each of these aspects will take some serious thought, so, again, take your time with your business plans. The Small Business Administration offers free business plans and advice on writing your plan, including the lean business plans that startup founders often prefer.
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Choose a legal structure for your business.
Decide whether you want your business to be a sole proprietorship, a partnership, or an LLC. Other types of business structures exist, such as S corporations and C corporations, but they’re mostly reserved for larger businesses. Here’s a simplified rundown of how each of the major options works:
Sole Proprietorship: This is the simplest structure for a business. A sole proprietorship helps keep things simple because it creates minimal separation between business and personal assets. It can also leave your assets vulnerable if your business has many liabilities.
Partnership: Similar to a sole proprietorship, but for multiple people. Spouses or family members who own a business together often use this form.
LLC or LLP: A limited liability company (LLC) or limited liability partnership (LLP) separates the business’s financial liability from its’ owners, providing the owners some financial protection if the business fails.
Apply for any business or professional licenses that you need.
Most businesses need one or more government licenses to operate legally. Your state and local government might require all businesses to apply for a business permit. You might also be required to get a specific professional license for the industry you’re in, such as a mortgage broker license or a freight broker license.
Application processes vary widely by the type of license you need. They often include taking a licensing exam, submitting an application to the state licensing board, and obtaining a surety bond. A surety bond, such as a mortgage broker bond or a freight broker bond, is a legal document that financially guarantees your obligations as a professional. Always start by learning about the complete application process before you put down any money, as application fees are often non-refundable.
Assemble your insurance, EIN, and business bank account.
There are a few more miscellaneous items to take care of. Insurance is a big one—your business needs to be protected from things like civil liability and property damage, especially since you’re conducting business from your home. Consider starting with a Business Owner Policy (BOP) to consolidate multiple types of coverage into a single policy.
You’ll also need to apply for an Employer Identification Number (EIN) with the federal government. Applying is essential for any business that has employees or files certain types of taxes. Read the IRS’s guide to EINs to find out more about whether you need one and how to get one. Finally, don’t forget to get a separate bank account for your business. It’s crucial to keep your personal and business finances separate, even if you’re a sole proprietor.
Prepare your home for your business.
Before beginning operations, you need to ensure to set up your home how you need it. Depending on your business model, your home could require any of the following modifications:
- Standard office supplies such as pens, paper, a printer, and a stapler
- Shipping and packing supplies
- A home office or workspace
- An area suitable for meeting with clients
- Space for filming video content
- Room to store and use any required special equipment
- Parking for a work vehicle
It’s also a good time to make general improvements to your home and do some tidying-up. Starting with a clean house helps get your business off on the right foot!
Source: Martina Pellecchia/Shutterstock.com
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