How to Start a Home Business

How to Start a Home Business

by Belle Wong, J.D., March 2015

You’ve got a great idea for a business, and it’s one you think you’ll be able to run out of your home. The path of the home business owner is definitely an exciting one, but before you rush into hanging out your shingle, there are some important things about starting a home business, which you should consider in order to give your new business the best chance of success.

Home Business Ideas

Common home based businesses today include services such as web design, freelance writing and consulting, but a home based business doesn’t have to be service-based. There are many home business opportunities arising across a wide range of industries. Perhaps you make amazing jewelry or bake cakes that people marvel over. Many product-based businesses can also be run out of your home if you have the space, at least initially until you build up a large enough customer base to enable you to move to a place with larger production capability.

Regardless of the type of business you’re contemplating, however, you should always check local zoning laws to make sure you can run your business out of your home.

Is There a Market for Your Business?

Your goal with your home business is to make a profit, and you won’t be able to do that unless you have a market for your business. Spend some time researching local businesses in your area to see if there is a demand for the type of service or product you want to provide. If you intend to sell your services or products over the Internet, research is still essential.

If no one is offering the service or product you’re thinking of providing, whether online or offline, it could be because there’s no demand for it. On the other hand, your business idea may be so innovative you might actually be the first business to provide such a service or product. If you think this might be the case, a good question to ask is whether your innovative service or product solves a common problem people may have, one that they would pay to have solved for them.

Marketing Your Home-Based Business

Unfortunately, the saying “build it and they will come” doesn’t apply to businesses. Once you’ve determined there is a market for your business, you will need to put together a marketing plan. Whether your customers are local or online, a solid marketing plan will help you bring your services or products to their attention.

There are a vast number of marketing and advertising options for small businesses; when putting together your marketing plan, keep in mind that some of them will be more effective than others, depending on the circumstances of your particular business, and they will also range from relatively inexpensive to relatively costly.

Licenses and Permits for Home Businesses

Most states require businesses to obtain a general business license, and there may also be other licenses or permits you’ll need to obtain, depending on the nature of your business. These requirements vary from jurisdiction to jurisdiction, so you’ll need to investigate the specific licensing and permit requirements for your area.

As well, you will need to check into zoning regulations and other restrictions on what type of business can be operated from your home. It’s very important that your business complies with any applicable zoning rules and any other restrictions. While you may be tempted to risk operating your business “under the radar,” all it takes is one complaint from a neighbor to cause major problems for both you and your business.

Choosing an Appropriate Business Structure

Got a viable business idea? Check. There’s a market for your services or products? Check. You’ve developed a solid marketing plan? Check. All required licenses and permits have been obtained? Check. You’re in compliance with local zoning rules? Check. With all these checkmarks in place, you may feel ready to set out that shingle now, but there’s one more decision you’ll need to make: what business structure should you use to operate your business?

As a home business owner, it’s easy enough to begin working as a sole proprietor; however, you may want to consider operating as an LLC or S corporation for a number of reasons:

  • in some cases, there can be tax advantages to forming an LLC or an S corporation; a tax advisor should be able to explain all the tax-related ins and outs that pertain to your situation.
  • with a corporation, you would not be held personally liable for the debts of the company.
  • depending on your industry, your clients may prefer dealing with a corporation rather than an individual.

How should you decide between an LLC and an S corporation? While one of the advantages of an S corporation is that self-employment taxes are applied only to the owner’s salary and not to dividends, an S corporation is not as flexible as an LLC and there are more formal requirements, such as annual meetings and corporate minutes. An LLC is more flexible, offering you similar legal protection but with less restrictions, less formal requirements and ultimately, less paperwork.

Running a home business can be a very satisfying endeavor. Many home business owners enjoy the flexibility, as well as the opportunity to grow their businesses as they see fit. Getting your home-based business off to a good start helps to build a solid foundation for future success.

Get help marketing your home-based business online or obtaining the business licenses and permits you need to run your business. If you need help deciding whether an LLC or S corporation is right for you, you can get advice from a tax professional or attorney through the LegalZoom business legal plan.