Current figures available indicate that during
1998 the percentage of self-employed working from
home jumped by almost 6% to approximately 15 million. While working at home has an almost
irresistible appeal to many, and many have some big misconceptions of what it is like, here is
some very useful information that can help you get started successfully.
Legalities of Working at Home
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 which 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 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 more easy. Laws and regulations change from
community to community, but the following 5 factors will generally be regulated items:
1.Separate business and private entrances.
2.Square footage of the home which is taken up by commercial space.
3.Employees working in the home.
4.Certain occupations such as jewlry or clothing
5.Storage of commercial goods, especially any hazardous materials.
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,
and yes, unfortunately zoning authorities will generall become aware of home office zoning
infractions through a "friendly neighbor".
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
Clerks Office to obtain regulations for your locality.
If you are using your own name as your business
name it will notneed 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 fictitiousname registration or D.B.A. "Doing Business As" registration. If
your name is:
Randy M Jones and youu name your business Randy
Jones or Randy M Jones Enterprise you will
not have to register it, but if you call it: RMJ Enterprises you will generally have to register the
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 which is
already registered to anoher company, the other company may demand, and even take legal
action to make sure you comply, that you cease to use the name.
Your Company as a Legal Entity
Businesses are most commonly set-up as one of the following entities:
The Sole Proprietorship
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 net profit from your business. You add the income of the business to other income, or deduct
the business loss from other income. Your tax adviser can give you specific information.
The disadavantage of the Sole Proprietorship is
that as the owner you can be held fully liable in a
lawsuit. An 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. A partnership
should be set up by an attorney, or all kinds of problems can develop later.
Designing Your Work-space
First, you must determine how much space you need.
Chances are what you may initially think is
quite large may be crowed or not enough space. While many businesses are started from a corner
of the bedroom or kitchen, if the space is available it wouldbe far better idea to take a spare area
of the house and convert it it into your office. There may be space in the basement, garage, or a
spare bedroom. Having a separate space is more efficient and will make for maximum efficiency.
It 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
firmly that business hours mean business and
dropping in, or calling to chit chat is 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.
It is said and also my own personal experience
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. n your financial planning carefully review all required start-up expenses as
well as on-going 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 their estimate of the financial performance of a business taken what is necessarily realistic.
There are always unforseen expenses.
It is a good idea to only invest in absolutely
necessary expenses. This applies to furnishings,
supplies and all equipment. Computer equipment in recent years has become outdated within a
short period of time. So, if what you acquire will serve you well for 2-3 years will be able to
upgrade your equipment later on. Your empasis should be on conserving capital. As your
business develops, unexpected hurdles will come along and periods of low revenue. 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 coporations, its 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 thought will become
more formal and concrete and this will tremendously assist you in the development of your
business. If you are considering to obtain financing for your new business either through a bank or
the SBA, 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 Proprietorship." 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 ddeclare at the end of the year. Careful record-keeping
of all business revenue and expenses is a must. Keep a separate business checking amount for
your business. Do not intermingle business and personal expenses. Other special tax benefits and
regulations apply to home-operated businesses. You should obtain professional advise from your
Free Publications available:
"Record-Keeping For A Small Business" IRS publication 583. Call the IRS 1-800-829-3676.
"Business Use Of Your Home" can also be obtained free from the IRS.
"Tax Guide For Small Business" is an annual IRS publication #334. It is also free.
One disadvantage of being self-employed is not
having health and disabilty insurance. You may
also need liability insurance. Your homeowners insurance covers your belongings in your home,
but itmay not cover all business inventory and equipment. Check with your insurance agent to
make sure you have the right coverage.
Factors that will Determine Your Success
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.
Planning is Key to Your Success
You and your family's future and livelihood is
at stake. So your decision and planning to start a
business are 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 nay long range or major financial transactions. Agreements with suppliers or
customers shoulld be put into writing.
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 abbreviatedmarketing check list:
Advertising (Don't forge the Yellow Pages) Stationery
Membership in Organizations
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
Apple Computer, Domino's Pizza, and Walt Disney all started as home-based businesses.
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 avilable, both 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. 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.
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
1441 L Street NW
Washington, DC 20416
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
1615 H Street NW
Washington, DC 20062
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
1111 Constitution Ave.,NW
Washington, DC 20274
Better Business Bureau (BBB) The BBB can be an
important ally in checking on potential
suppliers and other businesses. Check for telephone listing in the city where the company you are
checking on is located.
Note: The above article is basic business info every business person should know. If you need more of this kind of info, in greater depth, read the Small Business Book by Reynold Jay mentioned below.