20 Tips on Starting a Lucrative Home-based Business
Starting a business at home requires willpower and nimble-minded attitude. It may seem like a Herculean task, but with the right amount of planning and execution, you can establish a lucrative business from home.
In fact, plenty of globally-successful businesses were started as simple home-based enterprises. For instance, in 1994, Jeff Bezos founded Amazon and worked from his garage in Washington. Statistics show that 69 percent of U.S. entrepreneurs start their businesses from home.
Before you establish a new business, you need to decide if you’re up for a long-term challenge. Each process involves various tasks, and without an organized plan, setting up a home business can be overwhelming.
Reduce the chances of setbacks by determining the right field for you. Additionally, do thorough research of your idea and plan all possible details relevant to your new business venture in advance.
Starting a Lucrative Home-based Business
For a successful home-based or a traditional business setup, as an entrepreneur, you should develop a business strategy that you will look forward to implementing, and one which will help you turn your idea into a profitable venture.
Not establishing a physical presence in a corporate scenario can sometimes lead to more challenges as you are likely to miss out on competitive assessment. At the same time, a bricks-and-mortar presence can be avoided for certain businesses at least in the initial stage of their establishment. Determining this depends primarily on the caliber of the entrepreneur; and if done right, it can save the firm from investing a large amount.
Read on to know the key tips on working towards establishing a flourishing home-based enterprise.
Finalize an Idea for Your Business
The idea options for starting a home business are extensive for stay-at-home entrepreneurs. In most cases, this can seem like a pool of opportunities, but at the same time, it can get overwhelming. Further, it can be easy to get distracted by promises of minting quick money.
Business ventures should be viewed as marathons and not sprints, and hence, you need to pick an idea that you can commit to. Having a list of ideas will help prioritize your preferences. Remember to merge the ideas with your expertise. It will be easier to steer a business when you have the relevant skills, experience and interests.
In several cases, people who have a successful home business have tapped into their passion or existing skills. Even you can start by listing your expertise from all areas of your life such as your jobs, qualification, hobbies and interests.
For instance, if you are already well-versed in business management, you can establish your own consultancy that focuses on helping other entrepreneurs launch and maintain their businesses. You can do so by offering advisory services as a business plan consultant or a strategist. Help your clients identify relevant business ideas, goals and sources of finance for their firms, and incorporate them in an all-inclusive organized roadmap for their businesses.
People with excellent research skills can help clients conduct market research for their businesses and provide relevant insights to determine how successful their businesses can really be or if they need to include another direction in their business plans.
Handcrafted products have also become quite popular today, and most small businesses start at home first. If you have some cooking skills, crafting, or are just a fan of making something with your hands, why not turn your passion into your business? Most artists start with creating their pages on social media and taking orders online.
Creating the profile will help you show your portfolio of works and gradually gain your client’s base. You can start with your friends and gain more followers that will be able to become your future clients. Instagram is of great help to introduce your visual works to the audience. If not sure about the prospective audience, one of the tips is to ask for assistance from professional sites like diamond-views.com that are usually useful to gain first IG views.
To implement these ideas, you don’t need to have your studio. That’s the benefit of starting your business at home. You can analyze how well the company started, how quickly your audience grows, and other ideas you need to implement to match the audience’s expectations. The benefit of our globalized world and the digital possibilities we have today is that you can turn practically anything into a business.
So, in reality, the business idea is the key. It should be exciting and popular, a bit unique, but at the same time, long waited for or needed in the market.
Choosing the right idea for your home business is merely the first step in your entrepreneurial career. Your venture’s success will depend on how well you execute your idea. Bear in mind these tips when finalizing a business idea:
1. Consider Your Business Skills
You need basic business acumen to make your home business successful. Not everyone needs a formal qualification in business management, but having an in-depth understanding of the categories of various business skills will help you in the long term.
If you are a complete novice, you need to read on topics including finance, marketing, communication, manufacturing/production, operations management and technology. You need to develop these skills in order to be seen as a competent business owner.
When deciding on your business idea, be sure if you want your enterprise to be an extension of your previous career. If yes, you may be in a position to build your home business using your skills and business contacts. However, it is quite common to find people who want to change careers and enter a completely new terrain.
2. Identify the Pros and Cons
Managing a home-based business comes with its own share of positives and negatives.
You may often face situations wherein taking business risks is imperative. Evaluate whether or not the risks are worth taking. At the same time, examine the impact of this lifestyle change on your family and home life. The decision to go ahead with establishing a home business can work out well only if the advantages outweigh the disadvantages.
To bring pros and cons into perspective, the advantages of setting up a home business can include flexible working hours, no commuting, free child care, creative independence, and the liberty of being your own boss.
The disadvantages, on the other hand, can include stress from trying to establish a work-life balance, the possibility of sacrificing certain family needs, limited work space, disruptions to your family’s schedule, and loss of competitive edge due to the absence of a physical corporate space.
3. Assess Your Business Idea
Analyze how your business idea can match up to your skills. Ask yourself if you possess the required technical, social, personal and manual skills to do the job. More than procuring hefty funding, a successful small business owner needs to think big, and at the same time set achievable goals.
All successful businesses have unique selling points that are used as the cornerstones of the business’s ideologies and can be helpful in expansion plans. When determining the potential of your new product/service, ask yourself the following questions:
- Is the business proposition going to satisfy a market need?
- Who are the potential customers and where to find them?
- What is the product/service differentiator? What makes it different from the existing options available in the market?
- Will it survive the changing marketing trends?
- What does the law of the land say about such businesses?
- What prices are consumers willing to pay and what can be predicted as the profit margin?
4. Research on Market Demands
As part of the initial research, conducting thorough market analysis is necessary to understanding the competitive landscape.
Learn as much as you can about your competitors’ businesses and offerings, and their target customers and market share. Browse through their company websites, visit the stores that are likely to sell competitors’ products, communicate with industry trade associations and identify your strengths in these situations.
5. Evaluate the Availability of Resources
Adequate resources are the key to establishing and sustaining a business. As an entrepreneur, you need to pay close attention to the availability of critical resources, including finance and capital, human resources and raw materials.
Not all businesses start off as financially secure enterprises, and require start-up funds and working capital to support their operations. Calculate if you have enough resources to make your ideas work.
To run a business smoothly, you need to pay attention to your financial resources including purchasing equipment, funds to build a workforce and fuel start-up expenses. Several small business owners prefer to bootstrap or seek crowdfunding in the initial years of establishing a firm. Even you can start by paying for start-up expenses from your savings or seek a small-business loan from a reliable financial institution.
Assess whether or not you will need additional manpower to get the job done. Find out the current remuneration required to hire the right talent. If you need someone with specific skills, you may want to get in touch with a recruitment consultancy to avoid having a hard time finding someone. Also, determine if you will have the financial resources to pay that person.
Devise a Home Business Plan
When it comes to creating a business plan from scratch, you can either do it in the traditional manner by hiring an external consultant to do it for you or opt for an online business planning tool like Liveplan, Enloop or Stratpad to assist you.
There are two types of business plans, formal and informal. If you are planning to seek funding from banks or investors, then you should prepare a formal business plan with detailed projections and estimates.
- Formal Business Plan: A formal business plan entails elements of a traditional business plan outline and typically requires a convincing and well-researched financial section. Banks and investors will be looking for measurable business objectives to be convinced of the potential in your business idea.
- Informal Business Plan: An informal business plan is usually meant for internal purposes and need not follow the traditional business outline. For home-based business, it is recommended to mention details on all the sections in a default business plan template, with major focus on marketing analysis, SWOT analysis and financial sections.
Most business analysts will strongly suggest that entrepreneurs should try to write the first draft of the business plan on their own. Outsourcing this process can leave you with limited knowledge and insight of your own business. Devising your own business plan will be a great opportunity to gain industry knowledge during the research and compilation phases.
If you’re seeking outside funding, you may want to seek professional help when drafting your business plan. This can ensure each section is covered properly, which in turn, can further increase your chances of receiving the desired funding. Whether you decide to write the business plan in its entirety or outsource it, make sure you consult a business strategist to review and proofread your final document.
In both approaches, certain sections are vital for conceptualizing a business. Make sure you have thought through each of these when devising your business plan:
- Executive Summary: This section provides a birds-eye view of your business plan, highlighting the inspiration behind the business idea and the entrepreneur’s vision.
- Market Analysis: When writing this section, illustrate your knowledge in three specific areas: your industry, target market and competitive environment. Highlight the insights from the market analysis report.
- Industry Overview: Discuss the latest market trends, threats, major players, growth rates, and sales data about the industry you will enter.
- Target Audience Profile: Categorize your target audience on the basis of demographics, geographic location, psychographics, customer behavior, preferences and need-gap analysis.
- Competitive Analysis: This section highlights profiles of direct and indirect competitors including their market share, profitability and scope of improvement.
- Company Description: This is the section where you introduce your business proposition and the primary product/service and goals. Answers to questions like who you are, what you do and why you will do it should be included in detail. Describe your basic operations, including physical location (home-based) and product manufacturing/service providing process.
- SWOT Analysis: This is one of the most important sections. It should be concise and outline the strengths, weaknesses, opportunities and threats facing your business.
- Marketing Plan: Your marketing plan should lay out all aspects of promotions, including your sales plan, pricing model, advertising strategies and communication plan.
- Organization Plan: This should be a summary of your business structure (i.e. LLC, sole-proprietor), required management/employees and anticipated payroll expenses.
- Financial Data: Entrepreneurs often find this to be one of the most stressful sections to draft. Thorough financial plans are helpful in quantifying the business proposition, without overshooting or underplaying the potential of the enterprise. Important details to include in your financial data should be balance sheet, income statement, breakeven analysis and statement of cash flows. When seeking loans or pitching to an investor, don’t miss out on your formal request for funding.
- Appendix: This section is often ignored by entrepreneurs, but you should treat this with equal importance. You need to include relevant and supporting documentation for your business plan, like your market research findings, case studies, physical property agreements, and legal sanctions.
Establish a Budgeted Business Plan
Why do you need to include an estimated budget in your business plan? Just like a business plan is required to help you strategize actions for your business idea, you need a budget estimate to add financial details to the action plan.
These details are extremely helpful even in a situation where you seek outside funding from investors or financial institutions. Investors appreciate an entrepreneur’s efforts in putting up a tangible business plan.
Additionally, a budgeted business plan will definitely help you stay focused on your home-based business. In moments of doubt, you can always refer to your business plan to realign or reevaluate the plans you have developed. A well-thought-out financial plan is useful in recruiting key talent as well. It even helps you analyze whether or not your business is feasible.
The following tips can help you incorporate a budget in your business plan:
6. Gather Basic Financial Knowledge and Know Why Budgeting Is Important
In any business, it is important to estimate expenses to anticipate revenue. This is because it helps small business owners determine whether or not they have enough money to continue operations, expand the business, and generate income for paying the workforce.
Without a budget or a plan, a business runs the risk of overspending on various functions, without generating sufficient revenue to compensate it. Conversely, not spending enough money to grow the business can also hamper future prospect.
For your business to grow, you need to have basic financial knowledge. This will enable you to determine the amount of money you can borrow. You can plan your business expansion, launch new products and contribute funds to joint ventures if you understand how lending and borrowing works.
7. Create Financial Data Statements
If you’re not savvy with financial terms, it is always helpful to hire an accountant who can prepare your financial data statements. In case you want to save yourself from spending on hiring an expert, use business financial software. These tools can take your imputed bank data (income and expenses) and other financial information to prepare your financial statements.
When preparing your financial statements, gather past financial details as it will help you make projections on future income. This, in turn, will help you plan your business-building strategies, like marketing, product differentiation, and small-scale acquisitions (if any).
8. Check Industry Standards
Not all home-based businesses are alike, but you will always find similarities in them. In order to stay relevant in the market, make sure you are well aware of all industry-specific information. Speak with local business owners and gather information from the IRS website to get an idea of what percentage of revenue is likely to be allocated towards your industry.
Even the best home-based businesses can be extremely volatile as they are more susceptible to industry downturns. With greater diversification among your competitors, you will have to focus more on your niche market.
9. Make Room for Financial Change
Remember that even a budgeted business plan is an estimated one. So, the business will be able to fulfill only certain aspects of the estimation. The rate of revenue growth going forward cannot be controlled entirely and is not set in stone.
Because of this, you need to be open to changes in your financial situation. Make sure that you have more than enough finance to support your business, in case of variations in your plan.
10. Using Financial Data
Several home-based business owners create their business plans and then forget about them. You should keep referring to your plan frequently, especially the financial section, which is essential for your business. Without the detailed knowledge of your income and expenses, you can easily run out of money and not even realize it.
Your financial data will highlight if your projections are achievable and give you a snapshot of the current situation of your business. Even when seeking funding, this data will help determine the viability of your business. You will also need a set of ongoing financial reports to share with your potential investors.
11. Plan What You Want to Do with Revenue
For running a well-established business from home, you can make assumptions of future revenue based on the current performance. During the initial years, you’ll have to make assumptions based on several factors including your geographic area, hours of operation and performance of other local businesses.
Make sure you allocate sufficient funds to all verticals of your business and not single out any one of them. Not knowing what to do with the revenue can cause more harm to your business than bad performance.
Scout for Investors
To promote small businesses and home-based enterprises, a multitude of investor firms have launched specific platforms that provide information, research, and assistance to these units.
They advise businesses on all aspects, starting from launching a business to connecting with investors. These firms are also great at providing a convenient channel to small businesses for locating investors in an efficient manner.
The following tips will help you know how to scout for investors:
12. Ask for Advice
Instead of cold calling investors and pleading them to invest in your business, consider preparing a convincing business pitch. Cold calls or emails asking investors to consider your startup can be interpreted as desperation and may work against you.
Instead, you should initiate a conversation with them to seek advice for your business plan. By strategically reaching out to an investor for advice, you are likely to establish a mentor-mentee relationship with them.
This, in turn, can result in greater willingness to invest in your business in the future. Further, it gives them an opportunity to highlight potential flaws in your business plan and get involved in your venture.
13. Pitch Return on Investment
Even when you think an investor believes in your business, you may find that he hasn’t granted you hefty funding amount. Avoid such situations by highlighting how they will personally gain from investing in your business.
It’s imperative to show how you’re going to make this deal to be a profitable one for them, because ultimately, all investors want to know what’s in it for them. You can get them interested by clearly illustrating how and when you will get them a return on their investment.
14. Find an Investor That Is Also a Partner
Receiving a good amount of money from an investor is always great news, but it is advisable to look out for investors who can add tangible value to your business. An investor who can act as an advisory will definitely be helpful in making your business stronger. This person will serve you better than an investor who has only money to offer.
15. Share User Engagement and Metrics
Investors are likely to be impressed by business owners who can demonstrate that their customers actually like their products and are currently using them. This can be one of your biggest assets when it comes to attracting investors.
Not only will this help you share relevant information, it will also prove that people are genuinely interested in your product or service. Further, it also demonstrates your commitment to the growth of your startup.
Before you start searching for investors, go through the points below to know the different types of investors you can consider:
- Crowdfunding Sites: Crowdfunding sites can help you access several different types of investors, right from the general public with an interest to participate in future business leaders like Kickstarter, Pererbackers, and Indiegogo to philanthropists who believe in helping others realize their dreams. You can even find accredited investors seeking new ideas to fund promising ventures such as OurCrowd. Make sure you read about each crowdfunding site as all of them have their own focus and ways of incentivizing investors. Select the ones that closely align with your strategic goals.
- Incubators and Accelerators: All entrepreneurs want to grow their businesses, and working with an incubator or accelerator will give a host of resources to help your business grow and succeed. These investors are primarily interested in assuming strategic roles in your business and help turn your idea into a viable business model. Some of these incubators even offer a physical space to set up your office, making it easy to work with you directly.
- Small Business Administration: Traditional sources like the Small Business Administration have programs that have been developed in the recent years to promote small-scale businesses. They primarily offer small business loans and grants to home-based businesses, and are available with fair terms without interference or expectations of getting a stake in your business.
- Private Equity Firms: Private equity firms can give you access to everything – from a few thousands to millions in investment. These are primarily helpful to those start-ups that are in the early stages of development and show great growth potential.
- Online Lending Platforms: With the incredible restrictions in getting a bank loan for a small business, new ways to seek funding are being used with the advent of online lending platforms. These can be in the form of peer-to-peer platforms, non-traditional lending sources, or large investors who are looking to help out small businesses and profiting from them.
Set up a Legal Structure for Your Business
Starting a home business may seem simple, but you need to have a good idea about making money. Start-up costs for home businesses can be modest because you don’t need to pay for office space as you may already have a place in your home. But before you open for business, take the time to consider the important legal matters that are mentioned below:
16. Check Zoning Laws
Not all businesses are lawfully acceptable in the United States. Several municipal zoning laws limit the type of activities that can be run from home. For certain businesses, like those of a consultant or freelance writer, these laws don’t pose a problem.
However, if you plan to hire employees, engage with customers, and other stakeholders at your home, then you may have to be careful of certain limitations. Else, you may be barred from operating from home. It is advisable to consult your local zoning board for details related to establishing a home-based business.
17. Choose an Entity for Legal Protection
When starting a home-based business, you need to first decide if you will operate as the sole proprietor. You need to file a form called a DBA (Doing Business As) with your city or county and then wait for approval.
Depending upon the nature of your business, you may have to adopt a business entity that gives you personal liability protection. You can either sign up for a limited liability company (LLC) or a corporation as both of these are formed under the laws in your state and protect your home, car and other personal assets from creditors’ claims.
18. Get Necessary Licenses and Permits
Operating from home does not mean that you are relieved of any federal, state, or local licensing and permit requirements related to your business. Make sure that you submit all documents mentioned by these law bodies and that you abide by the rules mentioned on Business.gov.
19. Protect Your Intellectual Property
Businesses that have a name, a product or a service that are planned to be marketed can receive special legal protection in the form of a trademark, patent or copyright. The federal government of the United States grants special protection for these items of intellectual property.
So, in case you fall into this category, make sure that you follow the steps to secure this protection. Without protection, someone else can use the same name, invention or song without compensating you for it. Before you invest time and money in your business, protect your vital assets.
20. Determine Sign Limitations
If you’re allowed to run a business from home, you need to know what type of sign are you permitted to display. This is because most localities have limits on the size of the sign and the place of display. It is better to speak to your city or town authorities before putting up any hoardings.
Your home-based business should be unique in nature. It should make you want to explore new possibilities of growth and expansion every day.
So, before you venture into anything new, take the time to thoroughly think through the tips mentioned above as a well-thought-out decision is always helpful in starting a new business.