Running a home-based business is not as easy as it may sound. Stay-at-home entrepreneurs need to always strive to maintain a balance between keeping the operating costs low and implementing an effective business strategy.
In the United States and abroad, the concept of home-based businesses has gained credibility and recognition only in the recent years. In legal terminology, a home-based business is any enterprise for which the principal administrative and managerial activities take place within an individual’s personal residence.
Regulations under the Federal, State and Local Laws in the United States ensure that no small business owners, employees or customers are exploited in this process. Every entrepreneur needs to abide by these regulations when starting a home-based business.
When it comes to deciding on the businesses you can start from home, the mere execution of business objectives isn’t going to help make it a success. While a great product or service is required, discovering your target market and determining your financial needs is what will define your business.
Here are a few steps that you can follow to establish a new business venture based on the latest business insights:
1.Identify Your Talent and Cultivate Attitude towards Work
Today, home-based businesses provide a gamut of products/services, starting from consultation, advertising and interior decoration to photography and freelance writing services. Regardless of whether it’s a product or a service, you need to ensure that there is demand for what your business is offering.
Starting a business is not for everyone. If you have never been self-employed before, you need to do some self-assessment to determine whether or not you have the right personality to be an entrepreneur.
Running a business from home can be more interesting if you choose to incorporate tasks that you are good at and enjoy doing them. Draft a list of your talents and skills that can be capitalized upon and turned into a profitable business. Analyze each of them and finalize one or a combination of these attributes to determine your business idea.
Along with great decision-making skills, home-based entrepreneurs also need to be independent, self-sufficient and adaptable in nature. Often, people find it difficult to associate being at home with working, and hence, it becomes imperative to establish clear lines between personal and professional lives.
You will require a great deal of self-discipline to overcome isolation, distractions, and the lack of motivation and concentration that commonly affect those working from home.
2.Consolidate Your Financial Standing and Needs
While running a business from home can be more affordable than taking the traditional route, you will still need substantial amount of funds to establish one. Along with developing your business idea, try to estimate or minimize the initial costs (also called the start-up costs) and operational costs.
As promising as they may seem, home-based businesses also involve certain financial drawbacks that include uncertain income, reduced benefits and delayed payments. Like other self-employed individuals, you must know how to handle all sorts of business-related tasks like bookkeeping, marketing and sales, and tax compliance.
The Internal Revenue Service have introduced simpler calculation methods for home office space deductions. Make sure you are using these methods and are ready for an IRS Audit of your home business.
In the United States, a host of low-interest loan programs, angel investors and venture capitalists are keen to help individuals obtain startup financing. Research on the different kinds of funding that you may receive for your home-based business and reach out to these financing entities.
Remember that federal agencies are not the bodies that provide grants for starting a home-based business. Go through the Loans and Grants Search tool of the U.S. Small Business Administration to know about the grant, loan and venture capital programs for which you may qualify.
3.Conduct SWOT Analysis
SWOT Analysis is a frequently used and implemented business study that refers to analyzing Strengths, Weaknesses, Opportunities and Threats associated with a (business) situation. Just like for any other business, conducting SWOT analysis for yours can help you determine potential opportunities and areas of concern. Analyzing all situations enables entrepreneurs to devise a business plan that can be implemented successfully. The four different factors in SWOT analysis include:
- Strengths: Attributes of the organization that are advantageous in achieving the objective
- Weaknesses: Those aspects of a situation that are harmful to achieving the company’s objective
- Opportunities: External conditions that can be leveraged upon to achieve the objective
- Threats: Conditions that are likely to damage the business’s performance
Along with the inference from SWOT analysis, be aware of your local market landscape. For instance, if you plan on working from home locally, make sure you have an in-depth understanding of other local businesses offering the same services or products as you do. This will help you know if there is enough scope for operating a business in your area.
4.Create a Business Plan
In the simplest words, a business plan is essentially the roadmap for your business. It can help you break down your business idea into achievable and measurable goals. Several entrepreneurs write their plans only when they feel the need to.
Typically, a business plan projects 3-5 years ahead and outlines the route an enterprise intends to take to achieve its business goals. It also includes revenue projections.
When creating an exhaustive business plan for your home-based business, make sure you have a thorough understanding of each section of the plan. You should primarily focus on preparing an executive summary, business idea, SWOT analysis, products/services, operations and management plan, marketing and sales strategy, financial projections, and appendix.
Once you have the traditional business plan in place, you can create various versions, including a working plan and a presentation plan.
5.Fulfill Incorporating Legalities
Forming a limited liability company (LLC) or corporation for your home-based business is one of the initial legal procedures that you should look after. Completing this procedure will protect your personal assets from any liabilities that you, as a business owner, may encounter.
Various options of incorporation are available and you need to weigh the advantages and disadvantages of each one of them. Decide on the one that suits best for your specific circumstances. You can go for LLC, which is great for small businesses looking for legal protection with minimum paperwork and legal red tape. Remember, the business structure you choose will also impact the amount of taxes you pay, so it’s wise to consult a tax advisor or accountant before finalizing it.
Once you have incorporated or formed an LLC for your home-based business, the state will require that a representative from the business be available during business hours. You also need to provide a physical address in order to receive important mail sent by the state.
Several home-based business owners feel that they aren’t quite ready to opt for incorporation. If you’ve established a business and aren’t planning on incorporating or forming an LLC, you should register your business’s name with the state law body. You need to file a form called Doing Business As (DBA), which will legally allow you to use a business name.
Depending on your business type and your state’s ordinances, you may have to obtain one or more business licenses and permits from the state, local or federal law bodies. Some of the key licenses to operate a home-based business include a general business operation license, zoning and land use permits, sales tax license, health department permits, and occupational or professional licenses. Running businesses with the proper licenses from the start can help you avoid back payments and penalties in the future.
6.Set Future Goals
Goal setting for a small business is essential for success. Identifying goals and creating strategies to implement them will help your establishment have clear benchmarks to measure your progress.
Experts in business strategy recommend to identify business goals that are specific, measurable, achievable, relevant and time-bound in nature. Called the SMART method of goal setting, this approach also requires periodic performance reviewing.
Don’t generalize your goals. Make sure you demarcate what will be considered as the fruition of the goals. The more specific your goals are, the easier it will be to measure their effectiveness in driving profits.
There is no set method for determining future goals for a home-based business and hence, don’t be disheartened if one of the tools don’t fit your requirements. Explore various business goal setting approaches like the one introduced by Zig Ziglar or the backward goal setting approach to find the one that is best for your business.
To Sum Up
Setting up a business venture at home can be an exciting, yet challenging task. You may come across various obstacles right at the beginning of your entrepreneurial stint. It is better to delve into a new business once you have covered all bases.
The above tips will help you understand what it takes to start a home-based business and how to increase its chances of success from the very beginning.