Basic Required Business Knowledge
For those who are considering becoming entrepreneurs, may not know the best steps to home business success. Entrepreneurs who are considering starting their businesses from home may be thinking small but some home business ventures can turn into very lucrative large companies. This pioneering spirit is not uncommon, in fact Apple, Hershey’s chocolate, Mary Kay Cosmetics, and the Ford Motor Company all were home based business ventures. If nothing else, this demonstrates that not all home businesses remain in the home or remain small business ventures.
One of the best resources for those who are interested in starting a home based business is the Small Business Administration where entrepreneurs can obtain information and advice at no cost. There are many home based business offers that are less than legitimate, commonly known as work at home scams. This can mean those who are looking for legitimate opportunities may run into difficulty. Each entrepreneur should have a plan for getting started, with sensible steps to home business success.
Getting a Business Started
1. Evaluate skills and ability - One fact often overlooked is that entrepreneurship is not for everyone. Before someone starts evaluating the financial and legal realities of working from home, they should do a self-evaluation to makes sure they are capable of working from home.
2. Know the local regulations - Before an entrepreneur starts their home based business they should verify that there are no local regulations that prohibit this type of venture. Some cities and towns may have specific regulations that limit what types of home based businesses are allowed. Some municipalities may require special licensing as well.
3. Consider mail and phones - In some instances, home business owners may feel more comfortable setting up a post office box for receiving their business mail. This can help avoid the stigma that sometimes is associated with home businesses. Home business owners should also have a separate telephone number for their business. Skype is a service that allows small business owners to have a number that rings on their computer and has answering service capability.
4. Decide on work space - One of the many challenges of working from home is that you are sharing your “living” space with your “working” space. Prepare a suitable location for your working hours that allows you privacy, sufficient space for your needs and if needed, filing space. Working from home means that your home office must be set up for maximum productivity.
5. Discussions with friends and family - Barriers to working from home include interruptions by friends and family members who simply do not understand that you are working even if you are at home. You can help avoid this issue by having a discussion with friends and family before you begin working from home.
Preparing for the Legalities and Financial Issues
Now that you have the basic steps to home business success completed, you will need to be fully prepared for the legal and financial responsibilities that accompany a home businesses. According to the Small Business Administration, the Internal Revenue Service “tends to audit home businesses more frequently.” This may be a bit nerve wracking to consider, but the fact is that you can make sure that you are not subjected to audit by keeping sufficient records. The final five steps to home business success include:
6. Establishing a name - Home business owners may prefer to have their own company name that helps customers identify them. In most cases most home business owners prefer to have a “DBA” or “doing business as” name for their home based business. Establishing a DBA is not difficult and for most home businesses is more convenient than establishing an S Corporation.
7. Applying for Tax ID - While many home business owners can do business in their own name and also use their personal social security number, some prefer to apply for a Tax ID number or EIN (employer identification number). While this is not required, some home business owners find it useful. Work at home business owners who establish KEOGH plans are required to have an EIN. You should also check with your local Taxation & Revenue Department and ask if you will be required to charge and pay sales taxes for any items or services sold within your state; this is not necessary for sales outside of your state.
8. Record-keeping is critical - When you run a work at home business, record-keeping is critical to success. Home business owners should keep very accurate records of all expenses incurred in the course of doing business. The Internal Revenue Service Publication 334 can help work at home business owners determine what allowable deductions are, but records must be kept year round.
9. Establish a savings account - Those who are considering a home based business should establish a savings account for the “lean” times. Most home based businesses go through spurts of time where they are not generating income sufficient to maintain their living standards. Having a savings account set up for the purpose of having a “rainy day fund” can help ease the financial issues that can occur in slower times.
10. Quarterly tax filings - The final thing to be aware of is that home based business owners must file a quarterly tax return. This form must accompany any payments that are due on earnings during that time. It is also important that those who are self-employed will likely receive annual 1099 forms from companies that have paid them more than $600 for the year. These 1099s are to be filed with your annual tax return.
Work at home success can be achieved for those who have a solid plan for success. Understanding the legalities and preparing thoroughly before starting a work at home business can mean the difference between success and failure. Even those who are not in need of financing would be wise to create a solid business plan. Business plans are not only for financial purposes, they can help a work at home professional gauge what needs to be changed in their business model.
- Kauffman Foundation: Entrepreneurship Remains Strong in 2008
- Business.gov: Home Based Businesses
- Internal Revenue Service Do I need an EIN