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Evaluate the Investment
Before waltzing into your boss’ office to drop off
your two-week’s notice, carefully calculate how
much money you will need to both operate your
business and keep food on the table. First,
consider all of the start-up costs associated with
setting up a home office, advertising your
business, obtaining appropriate licenses,
consulting with professionals, and purchasing
inventory. Next, estimate the ongoing costs, such
as utility, payroll, and maintenance expenses.
Don’t forget to add in living expenses. After you
evaluate the total investment, you may find that
you need to save up more money or hang onto your
full-time job for a little longer.
Full- or Part-Time Decision
One of the truly great advantages of being a
home-based entrepreneur is being able to start and
grow your business at your own pace. If you want
to jump in full force and devote all of your
waking hours to the rapid development of your
business, you can. However, if you want to take
things slow and gradually ease into business
ownership, you can take the part-time route as
well. In fact, many entrepreneurs choose this
second option, because it enables them to maintain
a steady income while securely testing the waters
of self-employment.
Get the Facts
Before launching a business, carefully study the
market for your product or service. Determine if
there is enough demand to support your decision to
compete. Additionally, if you decide to buy into a
home business opportunity or franchise, research
the offering thoroughly before signing any
contract or bringing out your checkbook. Complete
the following:
• Investigate the company’s history and review the
credentials of its upper management.
• Perform a background check on the company
through the Better Business Bureau and appropriate
chamber of commerce.
• Contact at least three other people who have
invested in the opportunity.
• Verify the investment amount required to start
and operate the business.
• Review the company’s earnings statement.
• Obtain terms and conditions in writing.
• Consult with an attorney if necessary.
Home Business Structure
After choosing a home business, you must decide
how you want to structure it, taking into
consideration both liability protection and tax
implications. Below are your different options:
Sole Proprietorship: As a sole proprietor, you and
your business are the same entity. Since a sole
proprietorship provides no liability protection,
separate insurance is required to protect personal
assets.
Partnership: Two or more entrepreneurs share work
responsibilities — and thus, profits — in this
type of business structure. Each partner is also
responsible and liable for business actions (i.e.
debts incurred) of other partners. Partnerships
are easier to start than corporations and are
subject to fewer government regulations.
Corporation: Incorporating allows home business
owners to free themselves from most financial and
legal liability. With incorporating fees, legal
filing fees, and annual costs, corporations are
more expensive to create and maintain than other
types of business structures. They are also more
closely regulated by the state and the IRS. A
limited liability corporation (LLC), which must
have a minimum of two owners, offers the tax
benefits of a partnership, yet the personal asset
protection of a corporation. An S-Type corporation
is also a good option for a home business owner
because it allows one to pay income tax only on
personal income, and not on corporate income —
thus eliminating double taxation.
Insurance
It is critical to obtain adequate insurance
coverage for your home business, above and beyond
your existing personal and homeowner’s insurance.
In some cases, you may only need to get a business
rider added to your existing homeowner’s
insurance. However, you may need to get separate
policies. You will need to obtain worker’s
compensation insurance if you have any employees.
You will also need special liability insurance if
you plan to invite clients to your home. Other
types of business insurance to consider are
business interruption, business property,
disability, health, and partnership insurance.
Jumpstart Your Telecommunications
Home-based entrepreneurs rely heavily on the
telephone to conduct a major portion of their
business communications. Because of this, it’s
worth investing in a professional phone system
right from the start. Select a multi-line phone
which offers useful features, such as call
forwarding, caller I.D., conference calling, call
pick-up, call return, and voice mail. A cordless
telephone and separate fax line will also keep
your communications running smoothly. If you
choose not to invest in a professional phone
system, consider hiring a virtual assistant to
manage your phone calls and give your business a
more professional image. Virtual assistants, who
perform a wide variety of administrative tasks
beyond answering phones, have become increasingly
popular among home businesses in recent years.
Know Your Niche
Finding a “niche” for your product or service will
enable you to concentrate your marketing efforts
on reaching a specific market segment. Niches are
determined by evaluating the unique needs of your
prospective customers, where they live, what
appeals to them, and which marketing methods work
best on them. Since a niche attracts fewer
competitors, it’s in a home business owner’s best
interest to clearly identify one before attempting
to compete with the already established companies
for a tiny share of a broader market."
Legal Issues
There’s no time like the start-up phase of your
home business to enlist the help of an attorney.
By spending money upfront to obtain the legal
support you need, you will avoid encountering
potentially devastating problems in the future.
Once you are in business, it’s also wise to seek
legal help before entering into any type of a
business relationship. Your attorney can help you
create a Memorandum of Understanding (MOU) that
will clarify such ambiguities as how people will
be paid, what level of investment is required, who
is responsible for what, how key decisions will be
executed, and how one party can exit the
partnership. Getting everything in writing will
help you avoid lawsuits and other difficulties
that may arise from entering a business
partnership.
Money Sources
Don’t let a lack of financing deter you from
starting or expanding your home business. You have
many options for raising the funds you need to
reach your goals. Sources include: loans from
family, bank loans, withdrawals from your personal
savings or retirement savings account, SBA loan,
short-term credit card financing, and borrowing
against home equity. Other ways to improve your
cash flow situation are applying for supplier
credit and factoring your accounts receivable — a
strategy that entails selling off your accounts
receivable to a third party at a discount.
Naming Your Business
The name you select for your home business will
have a tremendous impact on how the market
perceives you. If your name does not adequately
describe the product or service you are selling,
potential customers may not take the time to learn
about your home-based company. Strive to create a
name that is both descriptive and memorable.
Consider registering your name, logo, or other
identifying mark with the U. S. Patent and
Trademark Office (www.uspto.gov).
Office Set-Up
Designing a high-efficiency home office will give
a heavy-duty boost to your productivity level.
First, concentrate on layout. Set up your home
office in a location of your home that is not
subjected to a lot of foot traffic or household
noise. A spare bedroom, basement, garage, and
attic are some good choices. Make sure there are
several storage options, good lighting, and proper
ventilation. Next, focus on equipping your home
office with appropriate furniture and equipment.
In addition to choosing an ergonomically designed
chair and desk, look into purchasing a computer,
monitor, printer, copier, fax machine, credit card
processing machine, and possibly computer
networking supplies. To conserve space, you might
consider investing in an all-in-one
printer/copier/fax machine. You should also sign
up for high-speed Internet access and purchase the
essential word processing, desktop publishing,
spreadsheet, database management, anti-virus, and
financial management software programs.
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