As businesses shift to a work-from-home office culture, you may be wondering if now is a good time to start the small business you had always thought about opening from home. With fewer overhead costs than a brick and mortar store, the opportunity for a more flexible work-life balance, and the potential for certain tax deductions, starting a home-based small business can be a lucrative option for many business owners. Be sure to keep these considerations in mind when starting your new business from home:
Start with a home-based business idea
Chances are, if you don’t need to physically be somewhere to perform a job, you may be able to start that business at home. If you are unsure about the possibility, or about what the day-to-day operations may look like, you may want to begin your endeavors first as a side business, just to get the ball rolling.
Some common work-from-home business ideas could be:
- Freelance writing
- Graphic design
- Social media manager
- Affiliate marketing
- Selling homemade crafts or products
- Personal training/online fitness classes
- Video editing
- Pet sitting
- Vacation hosting
Determine your business structure
Before you set up anything, the big question you need to ask yourself is ‘What should my business structure be?’ The business structure you decide on will have a direct impact on taxes, personal risks for you as the business owner, and how your business functions on a daily basis. There are two basic business structures to choose from:
Limited liability company (LLC)
An LLC can be a good structure for your home-based business because it protects the business owner from losing their personal assets in the event that the business accrues debt or is faced with a lawsuit. As noted by Forbes, with an LLC, you won’t be subjected to corporate taxes; however, as the business owner you are considered self-employed and will be required to pay the self-employment tax contributions for Social Security and Medicare, as opposed to having the business do so. LLCs must be renewed annually or bi-annually depending on your state, and you must pay an associated fee.
With a sole proprietorship, a business is considered the same entity as whoever owns and operates it. Sole proprietorships are often easier to set up than an LLC, with smaller setup costs involved. If you choose this type of structure, you have more decision making authority – and ultimately less government interference. But be careful when choosing this option – unlike with an LLC, your assets are on the line for any business debts or obligations. It may also be difficult to secure funding, as you cannot sell any company stock.
Obtain the proper business licenses
It’s important to make sure that you are in accordance with state, federal, and local laws. When setting your business up, you will need to obtain an Employer Identification Number (EIN) for tax purposes. This should be the first step before seeking additional required business licenses.
Once you have an EIN, research to determine what business licenses you will need to move forward with operations. The type of licensing you must obtain will vary depending on your industry and state, but generally speaking you will still need the following even for a home-based business:
- Property and zoning permits
- Home Occupation Permits
- General business license
- Sales tax permits
- Signage permits
- Safety permits
Create a marketing plan
Having a marketing plan is crucial for any business, especially for one starting out. Writing one can help you get a more concrete idea of your short and long-term business goals, who your audience is, your financial budget, the current market condition, and how to execute your marketing and sales strategies.
Your home-based business marketing plan may look a little different than one for a business in a commercial building or a brick-and-mortar location. You’ll want to make sure that in a marketing plan, you address any challenges or obstacles that may arise from working from home, and what you plan to do to overcome them. For example, one positive aspect of working from home may be that you don’t have to pay for office space – but what happens if you need to meet with a client?
Utilize work-from-home tax deductions
One advantage of operating a home-based business is that there are plenty of opportunities to deduct certain expenses from your taxes. For example, if you have a workspace within your office that is used exclusively for business, you may be able to deduct mortgage interest from what you owe in taxes that year. Because home office deductions can be complicated, but a worthwhile endeavor, it’s important to make sure you maintain all of your business documents and seek help from a tax professional. The IRS website can be a good resource to understand how these kinds of deductions work and if you can qualify.
Set up your home office space
It's essential to have a space in your home dedicated to your business. It’s also important that this workspace will allow you to be as productive as possible. You’ll want to make sure that you’re able to have privacy so that when you’re working, you are able to focus and not be distracted by chores or other people who live with you. You also want to make sure that your workspace is well-lit and in an area of your home where the Wi-Fi is fast and readily accessible.
Comfort is another important consideration when arranging a home office. Your chair and desk should be comfortable, as you will be spending a substantial amount of time here.
Lastly, think about who will be using this office besides you. Will you have other employees coming to work from time-to-time? When you meet with clients, is this where you will meet face to face? You’ll want to make sure this space is organized, clean, and welcoming to those who will be visiting or sharing the space.
Buy home-based business insurance
You may choose to add a rider to your renters or homeowners insurance policy when starting a business from home, but you may find later on that this coverage isn’t sufficient enough for your needs. Most businesses are required to carry general liability insurance, which can help protect your business cover expenses related to lawsuits and medical damages, regardless of who is at fault. A businessowners policy (BOP) can help protect you against property damage that would render you unable to work, for instance if your equipment is stolen from your residence or if your home is damaged in a fire or a storm.