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Patrick Walters
HOME-BASED BUSINESS START-UP
INTRODUCTION
America is coming home to work. Home-based offices are becoming
the wave of the future. Tens of thousands of workers are opting
for this way of life, a life in which they can make their own
hours, commute to work in seconds, make their own choices and
become their own boss.
For many the home office is becoming the location for a
full-time job and the primary source of income. For others, it
is a part-time venture. Many start on a part-time basis and grow
their business into a full-time operation.
Current figures available indicate that during 1999, the
percentage of self-employed people working from home jumped by
almost 16% to approximately 37 million. While working at home
has an almost irresistible appeal to many, there are some big
misconceptions of what it is like. This article will provide
some very useful information that can help you get started
successfully.
LEGALITIES OF WORKING AT HOME
1) ZONING
Before setting up your new business it would be advisable to
check on the legal status of your business. You need to check
zoning laws for your community since they may dictate if you can
legally operate a business from home. We realize that many
businesses never check on zoning for their home-based business
and the chances that they ever get into difficulties with the
law are probably pretty slim. If there are no changes in
structure and you do not have customers and/or employees enter
your home, regulations will tend to be far easier. Laws and
regulations change from community to community, but the
following 6 factors will generally be regulated items:
1. Separation of business and private entrances
2. Square footage of the home taken up by commercial space
3. Employees working in the home
4. Certain occupations such as manufacturing and food
sales/service
5. Storage of commercial goods, especially any hazardous
materials
6. Use of business signage anywhere on your property
Here is an important suggestion: keep relations with your
neighbors on a friendly basis. Your neighbors will soon become
aware that you are working at home. Some may even be envious.
Unfortunately zoning authorities will generally become aware of
home office zoning infractions through a "friendly neighbor".
2) BUSINESS LICENSE
Most cities or counties require businesses to be licensed. Some
home-operated businesses, however, are not required to have a
business license. Check with your local City or County Clerk's
Office to obtain regulations for your locality.
3) D.B.A. REGISTRATION
If you are using your own name as your business name, it will
normally not need to be registered, but if you use any other
name, or even your abbreviated name, almost all localities
require that you register the name. This is called a "fictitious
name" registration or D.B.A. (Doing Business As) registration.
If your name is Randy M Jones and you name your business Randy
Jones or Randy M Jones Enterprises, you will probably not have
to register it, but if you call it RMJ Enterprises, you will
generally have to register the name.
Most states have a name search bureau, which is a part of the
state government. You will generally be able to call this office
to see if a given name has already been registered to someone
else in the state. This is important to do, or it could be
costly later. If you give your business a name that is already
registered to another company, the other company may demand -
and even take legal action - to make sure cease to use the name.
4) YOUR COMPANY AS A LEGAL ENTITY
Businesses are most commonly set up as one of the following
entities:
The Sole Proprietorship
Incorporation
Partnership
Most new businesses choose the Sole Proprietorship. It is the
least complicated. It requires no paperwork. The proprietor -
you, or you and your spouse as the owner, or owners - are taxed
for all the net profit from your business. You add the income of
the business to other personal income, or deduct the business
loss from other personal income. Your tax adviser can give you
specific information.
The disadvantage of the Sole Proprietorship is that as the owner
you can be held fully liable in a lawsuit. Incorporation, on the
other hand, will give you some protection. In this case the
"INC" - rather than you - is the legal business entity. If you
are starting a business that tends to have liability exposure,
the corporation may be the way to go. In this and other legal
questions, only your attorney can give you competent legal
advice.
Partnerships are generally chosen when unrelated individuals own
a business. An attorney should set up a partnership to avoid all
kinds of problems that can develop later.
For more information and resources about the legalities of
working from home and other small business issues, go to:
Nolo Com
DESIGNING YOUR WORK-SPACE
First, you must determine how much space you need. The chances
are that what you may initially think is quite large may soon
seem crowded. While many businesses are started from a corner of
the bedroom or kitchen, if the space is available it would be a
far better idea to take a spare area of the house and convert it
into your office. There may be space in the basement, garage, or
a spare bedroom. Having a separate space is more efficient and
is also psychologically important. You do not want home
activities to interfere with your business, or vice versa.
Friends and family will need to be told politely but firmly that
business hours mean business and that dropping in, or calling to
chitchat, are not acceptable. Psychologists suggest that you
work "from" home not just in your home. There is a danger of
becoming isolated. Inasmuch as time allows, participate in
seminars and local business activities and organizations.
FINANCIAL PLANNING
It is said - and my own personal experience confirms it - that
owners of new businesses never have enough time or money. The
majority of small businesses which do not succeed will fail
because they are not properly financed. Do your financial
planning. Carefully review all required start-up expenses as
well as expected operating expenses before revenue will be
generated. Estimate your profit margins and all fixed and
controlled expenses. Almost all entrepreneurs will tend to be
much more optimistic about the anticipated financial performance
of a business than what is necessarily realistic. There are
always unforeseen expenses.
It is a good idea to invest only in absolutely necessary
expenses. This applies to furnishings, supplies and all
equipment. Computer equipment becomes outdated within a short
period of time, so just purchase something that will serve you
well for 2-3 years. You can upgrade your equipment later on when
you have a better cash flow. Your emphasis should be on
conserving capital. As your business develops, unexpected
hurdles and periods of low revenue will come along. Your capital
will make it possible to keep your business operating during
these times.
WHY SHOULD YOU HAVE A BUSINESS PLAN?
While writing a business plan can be made into a highly
sophisticated undertaking, especially by large corporations,
it's easy to do when done for a new or small owner
operated-business. Essentially, you will be committing your plan
to paper. As you do so, your thoughts will become more formal
and concrete and this will tremendously assist you in the
development of your business. If you are considering obtaining
financing for your new business, either through a bank or the
SBA (Small Business Administration), a formal business plan will
be a necessity. Home-operated businesses will have a much more
difficult time in obtaining financing.
DON'T FORGET UNCLE SAM
As in all undertakings of life from birth to death and beyond,
the IRS will be there to watch over you. Almost all small,
home-based businesses will start out as Sole Proprietorships.
This legal status is best for ease of handling and for tax
benefits. Your net business income or loss becomes an addition
or deduction to other income declares at the end of the year.
Careful record-keeping of all business revenue and expenses is a
must! Keep a separate business-checking account for your
business and use a separate credit card. Do not intermingle
business and personal expenses. Other special tax benefits and
regulations apply to home-operated businesses. You should obtain
professional advice from your tax adviser.
FREE PUBLICATIONS AVAILABLE FROM THE IRS:
IRS FORMS
Or call the IRS 1-800-829-3676
"Record-Keeping For A Small Business" IRS publication 583
"Business Use Of Your Home" IRS publication 587
"Expenses for Business Use of Your Home" IRS publication 8829
"Tax Guide For Small Business" is an annual IRS publication #334
INSURANCE
One disadvantage of being self-employed is not having health and
disability insurance. This is often available through trade
organizations that serve small businesses or the industry most
closely related to your product or service. Just remember,
though, that if you get insurance this way, you have to maintain
your membership in that organization to keep your insurance
valid. The following URL gives you a list of some of these
organizations:
Biz Country
If you are older than 50, you can belong to AARP (American
Association of Retired Persons - AARP,and they offer a wide
range of insurances.
You may also need liability insurance. Your homeowner's
insurance covers your belongings in your home, but it may not
cover all business inventory and equipment. Check with you're
the insurance agent who handles your homeowner's insurance to
make sure you have the right coverage.
FACTORS THAT WILL DETERMINE YOUR SUCCESS
1) DO YOUR HOMEWORK
The more you know about your business, the better your chances
of success. Attend seminars and join trade associations. Read
books and trade publications. If you do not have a business
background, a business introductory class at a local college
would be advisable.
2) PLANNING IS KEY TO YOUR SUCCESS
You and your family's future and livelihood are at stake. So
your decision and planning to start a business are a very
serious matter. Establish a long-range plan which encompasses
your business and financial plans. You should obtain legal or
financial advice from an attorney or accountant before
committing to any long-range or major financial transactions.
Agreements with suppliers or customers should be put into
writing.
3) YOU MUST WEAR MANY HATS
Small business owners over time can become experts on a variety
of subjects. At the start, the most important aspect is the
mind-set. Your communication to the rest of the world through
all available means will determine your success. Here is an
abbreviated marketing checklist:
a. Telephone equipment
b. Promotional Material
c. Advertising (Don't forget the Yellow Pages)
d. Stationery
e. Direct Mail
f. Membership in Organizations
g. Networking
h. Direct Sales
4) INVEST IN GOOD EQUIPMENT
The right equipment will make your work easier and your business
more efficient. To conserve cash used equipment should also be
considered.
SO WHAT ARE YOUR CHANCES?
The better you think they are the better they generally are, and
don't forget that among thousands of others, Apple Computer,
Domino's Pizza, and Walt Disney all started as home-based
businesses.
RESOURCES/ASSOCIATIONS
There is a great deal of expert advice and resource material
available to you. Much of it is free of charge. A variety of
literature is available - excellent books on all business
subjects and various magazines. Your local Chamber of Commerce
often sponsors classes. Banks can give you advice or can be used
as a sounding board and your banker doesn't charge by the hour.
Local schools offer a variety of classes of interest to business
owners. Don't forget the Public Library. Last, but not least,
don't forget the U.S. Government.
The SBA (Small Business Administration) offers a range of
services such as loans, financial consulting, computer and
technical consulting services and a variety of publications.
Check your local telephone pages, or contact:
Small Business Administration
SBA
1441 L Street NW
Washington, DC 20416
(202) 659-6000
United States Chamber of Commerce provides literature, telephone
referrals and other services to small businesses. Contact your
local Chamber of Commerce or:
United States Chambers of Commerce
United States Chamber
1615 H Street NW
Washington, DC 20062
(202) 659-6000
Internal Revenue Service offers a variety of services, which
includes workshops, films and publications to clarify tax
matters for small businesses. Contact your local IRS office or:
Education Branch, Taxpayer Service Division
IRS, Department of the Treasury
IRS-U.S. Treasury
1111 Constitution Ave., NW
Washington, DC 20274
1-800-424-1040
Better Business Bureau (BBB) The BBB can be an important ally in
checking on potential suppliers and other businesses. Check for
a telephone listing in the city where the company you are
checking on is located or go online to B B B ORG.
Patrick A. Walters, President &CEO
Walters Associates
http:www.walters-nc.com Walters-Associates@Writeme.com
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