If you’re one of the many people who transitioned to remote work during the COVID-19 pandemic, you may find yourself enjoying the convenience and flexibility of working from home. And, if you’re an aspiring entrepreneur, starting a home-based business gives you the same convenience with the added benefit of being your own boss.
Your business can be classified as a home-based business as long as your home is your main place of operation. You may start small, but there’s plenty of potential for success, as major companies, like Apple and HP, started as home-based businesses.
If you’re interested in creating a home-based business, now is an opportune time to get started. Here are the steps you should follow to start a home-based business:
1. Come up with a promising home-based business idea
Your business idea is the foundation of the business, so it’s critical to select an idea that will set you up for success. As you brainstorm ideas, consider factors such as your strengths and passions, potential markets, what problems you can solve, and if there is a niche you can specialize in.
When vetting ideas, make sure to evaluate if your business idea will work from home. Check your local business ordinances to make sure your type of business is not banned in your location. And, make sure your home is a logical base of operations for your business and has enough space to get started.
Some common home business ideas include:
- Graphic design services
- Social media management
- Private tutoring
- Cybersecurity services
- Event or travel planning
- Beauty services
2. Assess the profitability of your idea
Before launching your business, do some market research to make sure there is demand for your product or service. Consider market size and saturation, economic demographics, and what prices potential customers will be willing to pay for your product or service.
3. Create a business plan
Once you’re confident your business will be profitable, create a comprehensive business plan to guide you as you start and maintain your business. A traditional business plan typically includes the following sections:
- Executive summary
- Company description
- Market analysis
- Organization structure
- Product or service line
- Marketing and sales strategy
- Financial plan
As you create your business plan, choose your business structure and devise an effective name for your business. Make sure your business name is consistent with your brand, intuitive for your product or service, and user-friendly.
4. Register your business
Once you have a business plan, structure, and name, it’s time to register your business. You may not need to register your business, but depending on the nature and location of your business, registration can benefit you.
You should file for federal registration if you create an S corporation, if you have a nonprofit corporation and want to be tax exempt, or if you want trademark protection for your brand.
If you are a corporation, partnership, limited liability company, or nonprofit corporation, you should file for state registration.
And if your local regulations require you to register a trade name or obtain a permit or license from your city or county, you must file for local registration.
5. Acquire a tax ID and business license
When your business is registered, you can apply for an Employer Identification Number (EIN), which is a free federal tax ID necessary for paying federal taxes and employing other workers. An EIN also allows you to acquire a business license if necessary. You can apply for an EIN with the IRS online.
6. Create a business account
Once you have an EIN, you can open a bank account for your business. A business account enables customers to pay with a credit card or check and allows you to make purchases with credit. Separating your business and personal accounts also provides you with personal liability protection.
7. Fund your business
In order to get your business off the ground, you need to have a plan for obtaining funding. First, calculate your startup costs, and then choose a financing option that’s right for your business. Three common funding options are small business loans, self-funding, and venture capital.
8. Insure your business
If you have home insurance, your policy may cover a certain amount of business equipment, but not accidents or injuries related to your business. To ensure your business is fully protected, consider adding on home-based business insurance, which will cover your business equipment, home office space, and any liabilities from business-related activities.
9. Designate office space
As you prepare to start your home-based business, don’t neglect to set up a designated home office space, as it can actually qualify for a tax deduction. When choosing your office space, make sure it can accommodate an ergonomic desk and chair, secure modem or router, printer, surge protector, and natural lighting.
10. Research your tax deductions
Lastly, be aware of how your business will be taxed and what deductions you qualify for. If you have employees or collect sales tax, you will need to set up tax accounts for those purposes. Knowing how to file your taxes correctly is an important factor in your home business’s success.
Starting a home-based business might sound daunting at first, but by following these steps you’ll be able to set yourself up for success. For more information and tips on starting a home-based business, check out this infographic from The Zebra below: