Smart steps to get your homebased business off the ground
right. Advancing technology, dissatisfaction with corporate life and the
ever-increasing collective strength of small business are all contributing to
the explosive growth in homebased businesses.
million self-employed Americans work at home–and those numbers are projected to
continue growing.
steady growth in homebased business,” confirms Cheryl Eftink, deputy district
director of the SBA in Des Moines, Iowa. “Homebased entrepreneurship fits the
lifestyles and the work styles of more and more people each year.” Technology
has made it much easier to operate a variety of businesses from home, where
overhead is lower, tax advantages are greater and the commute is nil.
Sounds great, doesn’t it? Before starting any homebased business, however,
you must be able to answer two critical questions: Are you personally suited to
working in a homebased environment? Can your business idea succeed without a
commercial location?
Successful homebased business owners are disciplined but flexible
self-starters who thrive on challenges. To make sure you’re the kind of person
who will enjoy working from home & try for
home loan if needed, Pam Meyers suggests taking a personality or aptitude
test before moving forward with your business. Meyers owns Independent Business
Solutions in Oklahoma City, a homebased service that provides independent
administrative assistance to other businesses. She says such tests are
administered through temporary employment agencies or by local colleges and
universities. The fee is usually modest–typically, $50 to $75–and what you
discover about your abilities can be invaluable in ensuring your success. For
example: “You may find that you’re not cut out to handle a homebased business
solo, but that you could develop a business with another person,” Meyers says.
Once you have an idea of the type of business you want to start, consider
what you need in the way of space, equipment and location. Then evaluate your
home to see if it meets those needs.
Your home may be your castle, but don’t assume you can do anything you want
in it. Many municipalities have ordinances that limit the nature and amount of
commercial activities in residential areas. Some prohibit homebased businesses
altogether. Others allow homebased businesses but restrict signage, traffic,
employees, commercial vehicles and noise.
“Cities are just starting to recognize homebased businesses as legitimate
business entities,” says Sean Fitzgerald, managing director of Destination
Irvine, a public/private economic development program in Irvine, California.
Fitzgerald recommends finding out what, if any, ordinances are in place
regarding homebased businesses before applying for your business license; you
may need to adjust your plan to be sure it complies with these laws. Call your
local city hall’s general information number and ask to be referred to the
appropriate department–usually the planning and zoning department, or perhaps
the business and occupational licensing office.
If you’re unhappy with local regulations, Fitzgerald says, get involved in
the local political process and work to change the rules. In the meantime, you
may be able to get around the restrictions by applying for a variance with your
zoning commission. The key is to be flexible and use common sense. It’s only
fair to run your business in a manner that won’t negatively affect the
neighborhood. “Be aware you’re in a `Do unto others’ situation,” Fitzgerald
says. “Don’t do things you wouldn’t want others to do.”
In rural areas, there may be no restrictions at all. When Givhans, South
Carolina, residents David Campbell and Glenn Turner started C&T Small Engine
Repair LLC in Campbell’s garage, they were far enough out in the country that
there were no ordinances restricting the type of business they could run.
Once you’ve confirmed that you can indeed start the business of your dreams
in your home, check with your insurance agent to be sure you either have or can
get the insurance you need. Many homebased entrepreneurs learn the hard way that
traditional homeowners policies cover their businesses inadequately or not at
all. Fortunately, the insurance industry has recognized the opportunity in
insuring homebased businesses, and many companies are creating new plans
targeted to homebased entrepreneurs.
Sit down with your insurance agent to analyze exactly what your potential
risks and liabilities are, as well as the cost and type of coverage available,
before you begin investing in business-related furnishings and equipment.
Where in your house should your office be? For Meyers, the decision was easy.
“I have the corner office with windows, of course,” she says, poking fun at that
traditional trapping of corporate success. Her office is in a spare bedroom with
windows in two walls.
When choosing a location, examine your needs and available space, then try to
blend the two. If clients visit your office, it’s best to have an office with a
separate entrance so customers don’t have to traipse through your home. Ideally,
your home office should be a separate room with a door you can shut to
concentrate in privacy. If this isn’t possible, be creative. Many furniture
makers sell armoire-like home-office units that unfold during the day and close
up at night so your work is out of sight. The goal is to arrange a work area
that’s functional and doesn’t overtake your personal space.
When Jenny Taliadoros started Main Street Stamps in Kingfield, Maine, she was
living in a small house and set up her office in the dining room. But as her
business–which designs and manufactures art stamps–grew, so did the space it
took. “It was taking over the whole house,” Taliadoros recalls. “I was always
working, so it was always there.” Eventually, she moved into a bigger house,
where she could use a basement as an office. It’s comfortably decorated,
completely equipped and situated in a way that allows her to close the door and
leave her business behind.
When furnishing and equipping your office, figure out what you must have (and
can afford) and what you can do without for now. When Turner and Campbell set up
their business, their initial focus was on buying the tools and equipment they
needed to provide mobile and on-site small-engine repair service. To keep costs
down, they bought the bare minimum of furnishings: two desks, a file cabinet and
a microfiche machine, which they needed to read parts lists. They expect to
computerize their record-keeping later this year.
Here’s the basic equipment you’ll want to consider:
computer, you need one for correspondence, record-keeping and e-mail
capabilities. Include a backup system, and use it to avoid losing critical data.
An uninterruptible power supply (UPS) is essential, too, to protect your
work-in-progress from unexpected power outages. Laser printers provide the most
professional-looking output; they cost more, but your business image is worth
the investment.
business. Always answer it with the company name; make sure it’s off-limits to
children and other household members not involved with the business.
own answering system for times when you can’t take calls. Whether you use a
machine or voice mail (most phone companies offer this service for a nominal
monthly charge) is a matter of preference. Make your announcement professional,
concise and complete; this is not the place to be cute or clever.
appropriate equipment and services to meet them. Ask your local phone company
what services it offers. Add-ons such as call waiting, three-way calling and
caller ID can enhance your productivity.
slow and interrupts your work. Invest in a stand-alone machine with its own
phone line so you can send and receive faxes 24 hours a day, whether your
computer is on or not.
metered mail gives your company a “big business” look. If you mail more than 10
or 15 pieces per day, and especially if sizes and weights vary, a meter with an
electronic scale can save you time and money.
cost/benefit analysis. For very small quantities, your fax machine may be
adequate, but an actual photocopy machine will give you better quality at a much
lower cost per copy.
sure your desk and chair are comfortable and ergonomically sound. You also need
sufficient and convenient storage space for files and records.
is an important communication tool. Cellular service is becoming more affordable
by the day, so shop around for the best deal.
usually the best tool. Don’t want to give out your cell-phone number and incur
the cost of unwanted calls? Give out your pager number instead; that way, you
can decide which calls to return and when.For many homebased business owners, the car is an extension of the office. Be
sure it’s appropriately stocked with supplies. Meyers, for example, keeps a
notebook in her car with an information and time sheet for each client so she
can respond to their needs when she’s out of the office.Because expenses related to running your business are generally
tax-deductible–and the IRS has relaxed the rules on what is an allowable
home-office deduction–the tax advantage of being homebased is more attractive
than ever. “If your home is your principal place of business, or if you use a
home office to meet with customers in the normal course of your business, you
can deduct certain expenses related to maintaining your home office,” says
Charles L. Norman, a senior manager specializing in entrepreneurial services
with Ernst & Young LLP in Toledo, Ohio.
In the past, the IRS disallowed the home-office deduction if you performed
your actual work at other locations, such as client offices, and used your home
office simply for administrative functions. But that will change in 1999, says
Norman, when a home office will be considered a principal place of business if
you use it for administrative or management activities and there’s no other
fixed location where you conduct similar activities. In other words, even if you
perform much of your work outside your home, your home office will be
deductible.
Expenses that benefit only the business area of your home, such as the cost
of carpeting an office, are deductible. You can also deduct a portion of
indirect expenses–the costs involved in maintaining your entire home, such as
utilities (electricity, trash collection and the like). Deductions are based on
the percentage of space you use for business purposes, so if your office takes
up 10 percent of your home’s square footage, you can deduct 10 percent of your
utility costs. Other indirect expenses include real estate taxes, deductible
mortgage interest, casualty losses, rent, insurance, repairs, security systems
and depreciation.
Many taxpayers worry that taking the home-office deduction will trigger an
IRS audit, but if your deductions are legitimate and you’ve kept good records,
that shouldn’t be an issue, says Norman. To maintain complete and accurate
records, he advises using any of the popular bookkeeping and accounting software
programs to track income and expenses. Set up a filing system for receipts, and
discipline yourself to stay current with your record-keeping. “Keep your records
for at least three years from the date the return was filed or two years from
the date the tax was paid, whichever is later,” says Norman.
Also set up a separate bank account for your business. This not only helps
document your financial details for tax purposes, but it helps you establish
yourself with your banker and other potential lenders, as well as creating a
professional image with vendors.
“The rules for running a homebased business are the same as for running any
business,” says Eftink at the SBA. Even so, there are some psychological
differences you’ll need to deal with.
Isolation can be a major problem for homebased business owners. If you thrive
on solitude, you’re likely to love working from home–but if, like most people,
you need human interaction, you must either choose a business that puts you in
regular contact with customers or find another way to meet that need. For
example, joining networking organizations or leads exchange groups can give you
a welcome opportunity to socialize and promote your business at the same time.
When you’re homebased, it’s easy for the distinction between work and home to
blur. Business projects tend to spill over into personal times and spaces. To
stay sane, Eftink recommends drawing a clear line between your personal and
business lives. “Start the day as if you’re heading to a traditional office,”
she says. “Keep your home work separate from your home life.”
Some homebased business owners say exercising the discipline to work hard
enough is a challenge, but for many more, the problem is just the opposite: They
don’t know when to stop working. Every start-up business requires long
hours, but when your business is always at hand, the temptation to work all the
time is harder to resist. Schedule breaks and downtime to stay healthier and
more productive in the long run. Remember, the goal is to work at home–not to
feel like you live at work.
Remember, too, that being a homebased sole operator doesn’t necessarily mean
you have to do everything yourself. Look for tasks you can outsource–often to
other homebased businesses. These include administrative chores (accounting,
record-keeping, word processing); sales and marketing; and even production. When
Taliadoros started Main Street Stamps, she did everything herself . . . at
first. “I wanted my business to grow, but I couldn’t do it alone,” she says.
Taliadoros contracted with independent representatives to handle sales and hired
contract laborers to help with production.
The most important ingredient in success? Take your business as seriously as
you want others to. Go through the basic steps that are essential to any
successful business–have a plan, know your market and secure adequate funding
before you start. Insist that friends and family give your homebased business
the same respect they would give it in a commercial location. And why shouldn’t
they? As a homebased business owner, you’re on the leading edge of an exciting
wave that’s changing the way America works.
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