Home-Based Business

The number one thing that will kill any business is overhead.  High overhead costs often pile stress onto new business owners. It can be costly to rent commercial office space and set up a phone system, internet, and other services in the space. In contrast, with a home-based business, you make use of space for which you were already paying rent or a mortgage, and you can piggyback off some services that are already in your household budget, such as home internet, he says.

One big pro of running a home-based business is that your home office is just a few steps away. So if you’re a night owl whose prime work hours are from 10 to midnight, you can take advantage of that without having to drive to a commercial office and let yourself in after everyone else is gone for the day. Working from home, without set office space size and costs, also gives you the flexibility to scale up or down as needed. For example, if you grow quickly and need to contract or hire more help, you don’t have to worry about whether more workers will fit in the office space you lease. On the other hand, if business slows and you need to streamline temporarily, you’re not stuck with more space than you need.

Another plus is that you cut commuting time out of your workday, allowing you to trade minutes or hours of stress and traffic jams for focused, productive work time. 

Take advantage of tax breaks. Home-based business owners also have the ability to benefit from a tax break available only to them — the home office deduction. 

On the minus side, working from home can pose challenges, too — for example, having limited space in the home, difficulty separating work from family life, and issues with neighbors. So think about whether your business idea, work style, and family life are a good match for a home-based business. Some businesses and homes are a perfect fit, while others might pose too many challenges.

Here are two questions to ask, keeping in mind that there are workarounds for less-than-ideal situations:

Your business structure will have a big impact on your startup, including taxes, liability, and other facets of your business. Possible business structures include: sole proprietorship, limited liability company (LLC), partnership, and corporation. Business structure decisions can be complicated, so consult with a tax professional, attorney, or other qualified expert to explore the pros and cons of each structure. For whichever structure you choose, you will have to meet your state’s filing and registration requirements.

Unless you are a sole proprietor, you will need to get a federal Employer Identification Number (EIN), which is issued for tax filing and reporting purposes. If you’re a sole proprietor, you can choose to get an EIN or use your Social Security number instead. You may also be required to get a state tax ID number.

It’s important to get the proper business licenses or permits. Check to see if the federal, state, county, or city government requires a license for your type of business. If you run a home-based business, you might be required by your state, city, or town to get a home occupation permit.

Cities zone areas for different activities to ensure that residents and businesses can coexist harmoniously. Make sure you’re allowed to set up and operate a business out of your home. If you live in an area with a homeowner’s association, verify that the HOA allows you to run a home-based business. Investigate any other city, town, or county laws that could affect your home business.

For example, many local governments place limits on the amount of traffic at a home-based business, as well as restrictions on the type and size of signage permitted or changes to the outside of the property. If your business would violate zoning laws, you may be able to apply for a special exception, known as a variance. You may have to attend a hearing with the city zoning board to present your case. If you can show your business will not negatively impact the neighborhood with traffic or noise, you might win.

Obtaining proper insurance coverage is key for home-based business owners, and your homeowners or renters insurance probably isn’t enough. In fact, it’s likely that you’ll need small business insurance to protect your investment in your business.

That’s because you face an array of home-based business risks, including lawsuits, property damage, business interruption, illness and injuries, and data breaches. Fortunately, getting the right insurance will help you weather glitches or disasters and stay in business.

What kind of insurance is right for your home-based business?

Some entrepreneurs who are starting a business at home choose to get a rider, which is add-on coverage, on their homeowners or renters insurance policy. But even with a rider, your home insurance coverage might not be adequate.

Consider consulting with an experienced insurance agent to determine whether you need more comprehensive coverage. If you do, your home-based business insurance options include:

General liability insurance. A general liability policy can protect you from lawsuits — for example, if a client trips and falls while visiting your office or a customer claims they were injured by your product.

Business owner’s policy. A business owner’s policy, also known as a BOP, usually includes general liability coverage that protects you against lawsuits and also property damage insurance that covers you if, for example, equipment in your home office is destroyed by a fire or stolen in a burglary.

Also find out whether it would benefit you to get additional coverage for certain circumstances. It’s possible to add riders to a business owner’s policy — for example, to add coverage for data breaches or business interruption due to a problem with your utility services.

If you have employees, your state probably requires you to carry workers’ compensation insurance, which covers your employees in the case of a work-related injury or illness. Workers’ compensation insurance provides affected employees with benefits such as medical care and wages for lost work.

Figure out from the beginning exactly which types of insurance your business needs, so you don’t get an unpleasant surprise or even lose your business to a disaster for which you could have been covered.

Our entire Team has created a home-based business and would love to help you!