America is coming home to
work. Home-based offices are becoming the wave of the future. Tens of
thousands of workers are opting for this way of life, a life in which
they can make their own hours, commute to work in seconds, make their
own choices and become their own boss.
For many the home office is
becoming the location for a full-time job and the primary source of
income. For others, it is a part-time venture. Many start on a part-time
basis and grow their business into a full-time operation.
Current figures available
indicate that during 1999, the percentage of self-employed people
working from home jumped by almost 16% to approximately 37 million.
While working at home has an almost irresistible appeal to many, there
are some big misconceptions of what it is like. This article will
provide some very useful information that can help you get started
successfully.
LEGALITIES OF WORKING AT
HOME
1) ZONING
Before setting up your new
business it would be advisable to check on the legal status of your
business. You need to check zoning laws for your community since they
may dictate if you can legally operate a business from home. We realize
that many businesses never check on zoning for their home-based business
and the chances that they ever get into difficulties with the law are
probably pretty slim. If there are no changes in structure and you do
not have customers and/or employees enter your home, regulations will
tend to be far easier. Laws and regulations change from community to
community, but the following 6 factors will generally be regulated
items:
1. Separation of business
and private entrances
2. Square footage of the
home taken up by commercial space
3. Employees working in the
home
4. Certain occupations such
as manufacturing and food sales/service
5. Storage of commercial
goods, especially any hazardous materials
6. Use of business signage
anywhere on your property
Here is an important
suggestion: keep relations with your neighbors on a friendly basis. Your
neighbors will soon become aware that you are working at home. Some may
even be envious. Unfortunately zoning authorities will generally become
aware of home office zoning infractions through a "friendly
neighbor".
2) BUSINESS LICENSE
Most cities or counties
require businesses to be licensed. Some home-operated businesses,
however, are not required to have a business license. Check with your
local City or County Clerk’s Office to obtain regulations for your
locality.
3) D.B.A. REGISTRATION
If you are using your own
name as your business name, it will normally not need to be registered,
but if you use any other name, or even your abbreviated name, almost all
localities require that you register the name. This is called a “fictitious
name” registration or D.B.A. (Doing Business As) registration. If your
name is Randy M Jones and you name your business Randy Jones or Randy M
Jones Enterprises, you will probably not have to register it, but if you
call it RMJ Enterprises, you will generally have to register the name.
Most states have a name
search bureau, which is a part of the state government. You will
generally be able to call this office to see if a given name has already
been registered to someone else in the state. This is important to do,
or it could be costly later. If you give your business a name that is
already registered to another company, the other company may demand –
and even take legal action – to make sure cease to use the name.
4) YOUR COMPANY AS A
LEGAL ENTITY
Businesses are most commonly
set up as one of the following entities:
The Sole Proprietorship
Incorporation
Partnership
Most new businesses choose
the Sole Proprietorship. It is the least complicated. It requires no
paperwork. The proprietor – you, or you and your spouse as the owner,
or owners – are taxed for all the net profit from your business. You
add the income of the business to other personal income, or deduct the
business loss from other personal income. Your tax adviser can give you
specific information.
The disadvantage of the Sole
Proprietorship is that as the owner you can be held fully liable in a
lawsuit. Incorporation, on the other hand, will give you some
protection. In this case the "INC" – rather than you – is
the legal business entity. If you are starting a business that tends to
have liability exposure, the corporation may be the way to go. In this
and other legal questions, only your attorney can give you competent
legal advice.
Partnerships are generally
chosen when unrelated individuals own a business. An attorney should set
up a partnership to avoid all kinds of problems that can develop later.
For more information and
resources about the legalities of working from home and other small
business issues, go to:
Nolo
Com
DESIGNING YOUR WORK-SPACE
First, you must determine
how much space you need. The chances are that what you may initially
think is quite large may soon seem crowded. While many businesses are
started from a corner of the bedroom or kitchen, if the space is
available it would be a far better idea to take a spare area of the
house and convert it into your office. There may be space in the
basement, garage, or a spare bedroom. Having a separate space is more
efficient and is also psychologically important. You do not want home
activities to interfere with your business, or vice versa.
Friends and family will need
to be told politely but firmly that business hours mean business and
that dropping in, or calling to chitchat, are not acceptable.
Psychologists suggest that you work "from" home not just in
your home. There is a danger of becoming isolated. Inasmuch as time
allows, participate in seminars and local business activities and
organizations.
FINANCIAL PLANNING
It is said – and my own
personal experience confirms it – that owners of new businesses never
have enough time or money. The majority of small businesses which do not
succeed will fail because they are not properly financed. Do your
financial planning. Carefully review all required start-up expenses as
well as expected operating expenses before revenue will be generated.
Estimate your profit margins and all fixed and controlled expenses.
Almost all entrepreneurs will tend to be much more optimistic about the
anticipated financial performance of a business than what is necessarily
realistic. There are always unforeseen expenses.
It is a good idea to invest
only in absolutely necessary expenses. This applies to furnishings,
supplies and all equipment. Computer equipment becomes outdated within a
short period of time, so just purchase something that will serve you
well for 2-3 years. You can upgrade your equipment later on when you
have a better cash flow. Your emphasis should be on conserving capital.
As your business develops, unexpected hurdles and periods of low revenue
will come along. Your capital will make it possible to keep your
business operating during these times.
WHY SHOULD YOU HAVE A
BUSINESS PLAN?
While writing a business
plan can be made into a highly sophisticated undertaking, especially by
large corporations, it’s easy to do when done for a new or small owner
operated-business. Essentially, you will be committing your plan to
paper. As you do so, your thoughts will become more formal and concrete
and this will tremendously assist you in the development of your
business. If you are considering obtaining financing for your new
business, either through a bank or the SBA (Small Business
Administration), a formal business plan will be a necessity.
Home-operated businesses will have a much more difficult time in
obtaining financing.
DON'T FORGET UNCLE SAM
As in all undertakings of
life from birth to death and beyond, the IRS will be there to watch over
you. Almost all small, home-based businesses will start out as Sole
Proprietorships. This legal status is best for ease of handling and for
tax benefits. Your net business income or loss becomes an addition or
deduction to other income declares at the end of the year. Careful
record-keeping of all business revenue and expenses is a must! Keep a
separate business-checking account for your business and use a separate
credit card. Do not intermingle business and personal expenses. Other
special tax benefits and regulations apply to home-operated businesses.
You should obtain professional advice from your tax adviser.
FREE PUBLICATIONS
AVAILABLE FROM THE IRS:
IRS
FORMS
Or call the IRS
1-800-829-3676
"Record-Keeping For A
Small Business" IRS publication 583
"Business Use Of Your
Home" IRS publication 587
“Expenses for Business Use
of Your Home” IRS publication 8829
"Tax Guide For Small
Business" is an annual IRS publication #334
INSURANCE
One disadvantage of being
self-employed is not having health and disability insurance. This is
often available through trade organizations that serve small businesses
or the industry most closely related to your product or service. Just
remember, though, that if you get insurance this way, you have to
maintain your membership in that organization to keep your insurance
valid.
If you are older than 50,
you can belong to AARP (American Association of Retired Persons -
AARP, and
they offer a wide range of insurances.
You may also need liability
insurance. Your homeowner’s insurance covers your belongings in your
home, but it may not cover all business inventory and equipment. Check
with you’re the insurance agent who handles your homeowner’s
insurance to make sure you have the right coverage.
FACTORS THAT WILL
DETERMINE YOUR SUCCESS
1) DO YOUR HOMEWORK
The more you know about your
business, the better your chances of success. Attend seminars and join
trade associations. Read books and trade publications. If you do not
have a business background, a business introductory class at a local
college would be advisable.
2) PLANNING IS KEY TO
YOUR SUCCESS
You and your family's future
and livelihood are at stake. So your decision and planning to start a
business are a very serious matter. Establish a long-range plan which
encompasses your business and financial plans. You should obtain legal
or financial advice from an attorney or accountant before committing to
any long-range or major financial transactions. Agreements with
suppliers or customers should be put into writing.
3) YOU MUST WEAR MANY
HATS
Small business owners over
time can become experts on a variety of subjects. At the start, the most
important aspect is the mind-set. Your communication to the rest of the
world through all available means will determine your success. Here is
an abbreviated marketing checklist:
a. Telephone equipment
b. Promotional Material
c. Advertising (Don't forget the Yellow Pages)
d. Stationery
e. Direct Mail
f. Membership in Organizations
g. Networking
h. Direct Sales
4) INVEST IN GOOD
EQUIPMENT
The right equipment will
make your work easier and your business more efficient. To conserve cash
used equipment should also be considered.
SO WHAT ARE YOUR CHANCES?
The better you think they
are the better they generally are, and don't forget that among thousands
of others, Apple Computer, Domino's Pizza, and Walt Disney all started
as home-based businesses.
RESOURCES/ASSOCIATIONS
There is a great deal of
expert advice and resource material available to you. Much of it is free
of charge. A variety of literature is available – excellent books on
all business subjects and various magazines. Your local Chamber of
Commerce often sponsors classes. Banks can give you advice or can be
used as a sounding board and your banker doesn’t charge by the hour.
Local schools offer a variety of classes of interest to business owners.
Don't forget the Public Library. Last, but not least, don't forget the
U.S. Government.
The SBA (Small Business
Administration) offers a range of services such as loans, financial
consulting, computer and technical consulting services and a variety of
publications.
Check your local telephone
pages, or contact:
Small Business
Administration
SBA
1441 L Street NW
Washington, DC 20416
(202) 659-6000
United States Chamber of
Commerce provides literature, telephone referrals and other services to
small businesses. Contact your local Chamber of Commerce or:
United States Chambers of
Commerce
United
States Chamber
1615 H Street NW
Washington, DC 20062
(202) 659-6000
Internal Revenue Service
offers a variety of services, which includes workshops, films and
publications to clarify tax matters for small businesses. Contact your
local IRS office or:
Education Branch, Taxpayer
Service Division
IRS, Department of the Treasury
IRS-U.S.
Treasury
1111 Constitution Ave., NW
Washington, DC 20274
1-800-424-1040
Better Business Bureau (BBB)
The BBB can be an important ally in checking on potential suppliers and
other businesses. Check for a telephone listing in the city where the
company you are checking on is located or go online to
B
B B ORG.