Home-based businesses are growing in popularity as the economy embraces remote work and people seek more flexibility in their careers. However, starting a home-based business involves more than quitting your job and going freelance. To avoid legal problems and lost money, it's important to follow the proper steps when establishing a home-based business.
Steps to Establish a Home-Based Business
Before investing money in your home-based business, check zoning and homeowners association restrictions to ensure you can legally run a business from your home. In some cases, home-based businesses can get zoning variances or conditional permits to operate.
Once you've confirmed your home-based business is allowed in your neighborhood, take these steps to establish your business as a legal entity:
- Choose a business structure: Most home-based businesses operate as a sole proprietorship, LLC, or S-corporation. LLCs and S-corporations must file Articles of Incorporation, whereas sole proprietors doing business under another name must file a Doing Business As (DBA).
- Apply for an Employee Identification Number: An EIN is necessary if you plan to open a bank account or apply for loans under your business name.
- Apply for licenses and permits: Some industries require a license before working in the field. If you're selling something subject to state sales tax, you must also apply for a sales tax permit.
Designing an Office for a Home-Based Business
Self-employed persons can deduct the cost of a home office from federal taxes. However, home offices must meet be used regularly and exclusively for business in order to qualify for the home office deduction. And as long as your home office meets this standard, you can deduct mortgage, utility, and furnishing expenses from your taxes. However, even with these savings, it's important to take a frugal approach to your home office. The office is likely among your largest start-up expenses, but you can minimize costs by buying only what you need and upgrading after your business becomes profitable.
- Furniture: Ergonomic office desks and chairs are costly but important. Rather than buying new, shop from a used office furniture or university surplus store.
- Computing: Laptops are convenient while on the go, but desktop computers are more ergonomic for an office setting and also offer higher quality for the price. Invest in the necessary network security measures to protect business and client data, such as firewalls, antivirus, and backup storage.
- Payment systems: Rather than leasing credit card machines and POS systems, opt for an affordable all-in-one system such as Square. While the cost is slightly higher up-front, you'll spend less over time and benefit from the flexibility to accept all types of payment and print receipts whether at your office or an off-site location.
Marketing and Branding a Home-Based Business
Your expertise may be in a field far removed from marketing, but marketing is nonetheless essential to attract customers and scale your business. Unfortunately, many small business owners miss the mark when attempting to do their own branding and marketing.
Hiring a marketing professional may not be an option at this point in your business's development. However, there are other resources to help small business owners develop high-quality branding and marketing materials.
- Logo makers: A good logo makes your business recognizable at a glance, but unless you have a background in graphic design, designing your own logo is challenging. Online logo generators simplify the process of creating simple, attractive logos that are adaptable to a variety of marketing materials.
- Website builders: While more expensive than a DIY website, website builders let non-tech experts create functional, problem-free websites. If the website generates sales, it more than pays for itself.
- Graphic design and photo editing tools: Eye-catching photos and graphics are the keys to successful social media advertising. With graphics tools like Canva and photo editing apps, anyone can create professional-quality photos and graphics.
These are the first steps to establish your home-based business, but the work's not over. As a business owner, you're responsible for filing business taxes, making estimated tax payments, and filing annual reports with your state. If you need help navigating the requirements, reach out to your local small business development center or chamber of commerce for guidance.