Starting a business from home? You'll want to read this first. By Larry Alton Updated June 03, 2016 When star...
Starting a business from home? You'll want to read this first.
By Larry
Alton
Updated
June 03, 2016
When
starting a home-based business, you have to be careful that you
don’t take an isolated approach that leaves you exposed to
unnecessary risks and potential for failure.
Sure,
a home business differs from a traditional business in many ways,
but it’s still a small business and you still need to take it just
as seriously, even if it's beginning as a hobby. You have to treat
it like a professional endeavor.
If
you're still looking for the right home-based business idea, check
out these 15
Real Businesses You Can Start While Working Full-Time.
Even
though there are inherently less risks and capital on the line when
starting a home-based business as opposed to going out and securing
more expensive office space and all the additional services that
come with it, there are still a number of practical steps that you
need to consider early on in the planning process if you want to be
successful with your home business.
Here
are six of my most essential considerations when starting a
home-based business.
1. How to Fund Your Home-Based Business
Unless
you have the financial ability to self-fund your home-based
business, you’ll need to consider alternative financing options
that'll be realistic for your personal situation and business goals.
Will
you take on investors, seek out a loan, incur credit card debt, look
for joint venture partners, or pursue another funding strategy?
There
are a variety of funding
options available to home businesses,
and the key is identifying the one that works best for your unique
situation and longterm business objectives.
While
small business lines of credit and equity investors are
traditionally thought of as your best options, don’t overlook
non-traditional funding mechanisms like secured loans.
Also
known as homeowner loans, these loans are secured
using your home’s equityas
collateral against the debt. In other words, if you have $100,000 of
equity in your home, you could potentially borrow against that
equity to fund your home business.
Other
options include raisin money from friends and family, crowdfunding,
and even product pre-sales if you already have a list of potential
clients who are willing to purchase your upcoming products or
services. If you're starting more of a lifestyle business that you
don't plan on selling in the future, I recommend staying away from
equity investment, since your investors will eventually expect a
return on their capital, which will only come from either going
public or being acquired down the line. Your funding strategy will
depend on a number of unique factors, so go ahead, and start
brainstorming.
2. Dedicated Workspace in Your Home
Because
of the many potential
downsides of working from home,
you’re going to need a dedicated workspace for your business
within your home.
The
type of space that you need will vary depending on your business,
but regardless of what your home business is, make sure that your
dedicated workspace is not in your bedroom. If you’re starting
a freelance business,
then you likely only need a small office since almost all of your
work will be done from a computer, and should require very little
space. However, if you’ll be producing physical products, then a
much larger space will be needed to accommodate your operation.
Where
you do your work needs to be an exclusive work zone. There should be
no televisions, couches, beds, or other potential distractions
that'll psychologically detract from your productivity. Not only
will this allow you to stay focused on your work, but it also has
immense tax benefits.
3. Local Rules and Compliance on Home Businesses
Have
you considered compliance? States, counties, and cities all have
laws that govern how home-based businesses are structured and
operated, especially from a tax standpoint. Depending on what you’re
doing, you may need permits to run the business out of your home,
and it could be subject to strict requirements.
It’s
better to figure these aspects out beforehand, rather than risk
fines and fees after the business has launched. For example, if
you're using your home as a retail location for customer
transactions, you'll need to apply for certain permits that wouldn't
be necessary if you're simply running an online business from your
home office.
Zoning
laws will probably be your biggest concern as you get up and
running. Most
zoning codes will restrict changes
to the exterior of your home, outside storage and display, and
parking of commercial vehicles. There may also be traffic
restrictions and rules related to noise, odors, and hazardous
materials that you'll need to take into consideration depending upon
the type of business you're starting.
4. Bank Account and Financial Management for Home Businesses
Have
you thought about how you’ll handle the finances related to your
home-based business?
“It's
much easier – especially when it comes to working out your tax –
to keep your personal and business finances completely
separate,” entrepreneur
Hannah Martin says.
“You could opt for a second personal bank account for your
business if you wish, but if you’re planning to expand your
company at any point, or borrow money for it in the future, it’s
worth starting out with a completely separate business account.”
Opening
a second set of bank accounts for your home-based business is the
way to go, for many crucial reasons. Aside from the psychological
benefits of segmenting your business from your personal accounts,
doing this will help you immensely when it comes to tax season.
Check out these essential home
business tax deductions
and
make sure you're taking advantage of every opportunity to save.
5. Optimizing Your Daily Routine
Finally,
you need to think about your daily routine, and strategically plan
out your work schedule to achieve maximum effectiveness. There's
something magical about physically going to an office that places
you in the work mindset, so be sure you treat your workspace with
this type of integrity.
Do
you have kids? Are you married? Do your pets demand lots of time and
attention? Are nosy neighbors constantly stopping by? Consider how
realistic it is that you’ll be productive working from home, as
it’s certainly not for everyone.
A
lack of focus will
inevitably lead to failure with a home-based business.
If
your business involves any form of creative work, be sure to set
aside blocks of time to get your best creative work done when you
have the most clarity of mind. If that's early in the morning, then
adjust your schedule accordingly so you can get your best work done
in this time period. If you're a night owl, then shift your schedule
to start work later and do the more monotonous tasks at the
beginning of your day.
6. Developing a Plan of Attack
A
home-based business may differ from most traditional businesses that
are managed and operated out of a commercial office space, but you
have to approach it in a similar way if you want to stand any real
chance of success.
There
needs to be a strategic plan of attack in order for the business to
be efficient and profitable. For more on how to plan the growth of
your business for maximum success, check out these business
planning resources and
keep these tips in mind as you consider starting your own home
business.
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