What Do You Need to Know Before Starting a Home-based Business?
Having a home-based business is a dream for many entrepreneurs.
Instead of fighting traffic just to punch the clock and make money for somebody else, you can earn a living in the comfort of your own home. The idea can be so appealing that you might try to rush in before you’re actually ready to get your business off the ground.
- Have a Plan
You may have an idea for your home-based business, but do you have a plan?
A formal business plan is best for many, and at the very least you need to have a solid idea of what you plan to do and how you’re going to do it. The more work you put into it the better, covering everything from competition you’ll face to where you reasonably might be in a few years. A solid plan can mean the difference between success and failure.
- Registration and Licensing
You also need to figure out whether you’ll work under your name or if you want to create an actual business with its own identity.
Anything not under your own name and Social Security number will need to be registered with your state and possibly the city you live in as well, and you’ll need a federal tax ID from the IRS. Keep in mind that there may be registration fees for some of this.
- Tax Considerations
If you’re going to operate a business, you’ll need to pay taxes on that income regardless of whether it’s a brick-and-mortar store or something you’re running from home.
This means more paperwork to set up payment accounts with the IRS and your state, plus quarterly tax payments. On the plus side, you should be able to deduct expenses for your home office and any storage space you use when you file your personal taxes in the spring.
- Employees and Outsourcing
Just because you’re running a home-based business doesn’t mean that you have to work alone. You can have employees or independent contractors working for you, though that might add some more paperwork in the form of W2s or 1099s when tax time rolls around. Of course, you can outsource some of the work to an accountant or other professional who can keep your finances and other business in order without actually being in your office.
- Products and Storage
Will your home-based business sell a product? If so, you’ll need a place to store it. You might have part of your home set aside to keep your inventory, or you might have a shed or other outdoor building that you can use. If you don’t, you’ll need to rent a place. Wherever you put it, make sure that the area is set aside clearly for that purpose. This is important if you’re going to try to claim the space on your taxes.
- Paperwork, Paperwork, Paperwork
Unless you hire someone to take care of it for you, there’s going to be a lot of paperwork to handle. In addition to what’s already been mentioned, you’ll have to keep track of invoices, orders and expenses. Everything needs to be filed away and organized so you’ll be able to reference them when making tax filings. It might sound like a lot of work, but once you get started and get your filing system down it’s actually pretty easy.
- Challenges of Working from Home
The biggest issue when it comes to starting a home-based business is that it’s not that easy to work from home.
It sounds great, but you have to consider that when you’re at home you don’t have someone enforcing your work time and you have dozens of unique distractions to deal with. This isn’t meant to dissuade you from working from home, quite the contrary; it’s just letting you know that there are some big differences between working from home and working on a jobsite.
Knowing that things will be different may make all the difference and help you succeed. Do your research on the difficulties of working from home and you’ll be able to tackle them head on from the very first day.