If the COVID-19 pandemic could be credited with a positive outcome, it would be igniting the entrepreneurial spirit in America. Launching a startup in a healthy economy comes with enough challenges, but building a home-based business in uncertain times takes the type of courage and ingenuity that can only come from small business owners.
Whether you’ve been inspired by the money-making opportunities that stemmed from spending a lot of time at home, or you’ve created a unique product or service people crave — understanding how to start a small business at home lays the foundation for your success.
What is a home-based business?
A home-based business is any venture whose principal office is in the owner’s home. While there are no set rules regarding the size of a home business, most have a small number of employees — if any.
Contrary to the business thought of yesteryear, home businesses are a driving force in our economy. More than half (52%1) of small businesses are operated out of a home. Let’s not forget, some of today’s biggest brands, like Apple, Amazon, and Hershey’s, got their start in a basement, garage, or home kitchen.
How much does it cost to start a business at home?
The cost to start a small business at home depends on various factors, such as the type of business, industry, and scale of operations. For some ventures, particularly service-based businesses or freelance work, the initial investment may be relatively low, requiring only basic equipment, supplies, and marketing expenses, totaling a few hundred dollars. On the other hand, businesses that involve inventory or specialized equipment may require a much more substantial investment.
Other factors that can influence startup costs include licensing and permits, website development, professional services (such as legal or accounting fees), and initial marketing efforts.
How to start a small business at home
Laying the financial foundation for your small business is just one step to getting a startup off the ground. As you discover how to start a small business at home, use these seven steps to get started.
1. Decide on your business idea
Naturally, some small business ideas are a better fit for launching in your living room than others. To determine the type of business you want to launch, ask yourself these questions:
- What talent or skill do I possess that others regularly need?
- How do I turn that skill into a business idea? (e.g., online course, product, freelance service, etc.)
- Can this business idea start and grow from my home?
Once you finalize your business idea, research the potential market. Consider your target audience and the businesses they rely on now for the product or service. How will you differentiate yourself enough to win their business?
2. Create a business plan
A business plan is a detailed document that explains what a business wants to achieve and how it plans to do it. It covers things like what the business does, who its customers are, how it will sell its products or services, how it will operate, how much money it expects to make, and any risks it might face. It also gives you the opportunity to question your assumptions and research what you don’t yet know.
3. Choose a business entity type
Consider which structure best fits your business idea: sole proprietorship, general partnership, limited liability corporation (LLC), S-corporation, or C-corporation. While most home business types2 fall under an LLC or S-corporation, it’s important to do your due diligence.
4. Register your business
Businesses established as a C-corporation or LLC must be registered with the state where they’ll operate. The registration process varies by state, so you’ll want to look to your Secretary of State or business bureau for the proper steps to ensure you’re operating your home business legally.
5. Obtain a business license
Again, the type of license or certification you need will vary based on your state and business type. Generally, there are three types of licenses to consider, but it’s best to work with a business origination lawyer in your area familiar with local regulations. Types of business licenses:
- Home occupation permit: This permit confirms that your home-based business does not cause significant noise, traffic, or harm to the environment or area.
- Property use and zoning permits: Review your local zoning ordinances to ensure your home is within an area zoned for the type of work you’ll do. Be aware of any regulations related to home-based businesses in your community.
- General business licenses and permits: Obtain any general business licenses you need to operate legally. Consider local and state guidelines that may mandate the need for a professional or trade certification or license, sales tax permit, or business operating license
6. Open a business bank account
It’s important to open a business checking account to separate your personal finances from your business finances. Not only will the clear delineation support you during tax season, but it also works in your favor to protect your personal assets if anything goes awry with your business.
7. Understand your tax obligations
As a small business owner, your tax obligations can vary based on factors such as your business structure, income level, location, industry, and if you have employees. Sole proprietors, for instance, report business income and expenses on their personal tax returns, whereas owners of partnerships, S-corporations, and C-corporations have different tax filing requirements.
How to manage startup costs
Underestimating your startup costs is a quick way to get in over your head financially. In fact, one of the top reasons small businesses fail is cash flow problems. Money challenges can come in many forms — lack of funding, underpricing product or service, initial overinvestment — which speaks to why 20%3 of small businesses fail within their first year. Your business plan should include key financial components that can help manage your startup costs, including:
Know the costs
Your business plan should outline the projected costs for starting and maintaining your business. For example, your one-time costs may include a website design fee paid to a marketing agency. Ongoing costs are those you pay regularly, like salaries or small business insurance. Be thorough and transparent with yourself when determining how much cash you need upfront and each month thereafter so you’re not surprised by your home-based business operating costs.
Determine your funding
Not for lack of effort, but money still doesn’t grow on trees, so determine how you’ll secure funding (if needed) for your business. Popular methods of funding a home business include Small Business Administration (SBA) loans, small business grants, and business lines of credit.
Forecast your revenue
Game plan how you will maintain the success of your home business after launch. How much will your company bank in its first quarter? First year? Include a growth chart in your business plan that details how you’ll continue to bring in and grow revenue. This may call for hiring more staff, new product development, or designing a subscription-based service that creates recurring income.
Best home-based business ideas
Ready to be your own boss but need some inspiration? Check out our list of some of the best home-based business ideas to ignite your creativity and kickstart your entrepreneurial journey!
- Virtual assistant: Support larger businesses with their day-to-day needs, like scheduling, public relations, and managing travel arrangements.
- Dog walking/sitting: Provide loving pet care for neighbors in your area with leash walking, bathing, or overnight sitting.
- Print-on-demand service: Create custom prints to be placed on t-shirts, bags, hats, and more. You don’t even have to maintain inventory because the design is printed when the item is purchased.
- Online classes: Do you have a skill others desire? Perhaps you’re bilingual, are a wiz at DIY home decor, or create chef-inspired meals. Whatever your skill, create online courses and pull in the revenue.
- Handcrafted artwork: In a world of stock images, people are willing to pay high dollar for one-of-a-kind artwork. Place your paintings, photography, or pottery in an online store.
- Business consulting service: If helping other business owners optimize their services is your jam, an online business consultation service is a great place to start.
- Subscription service: Lock in recurring revenue with a monthly subscription service you provide to customers. You could opt for a food service plan, book club, or coffee of the month. Because it’s subscription-based, you’ll be able to more accurately calculate inventory needs compared to single-product sales.
- Content creator: From ghostwriting to custom logo creation, you can meet the needs of other businesses by creating their branded content.
- Life coach: For those who have certification or are interested in getting it, life coaching is a business you can easily run from home. Invest in a patient portal and scheduling software and promote your good vibes.
Make money from home
With determination and creativity, you can make money from home by transforming your skills and ideas into a home-based venture that offers flexibility and autonomy.
- https://www.forbes.com/sites/jasonnazar/2013/09/09/16-surprising-statistics-about-small-businesses/?sh=4f6ed21b5ec8
- https://www.nolo.com/legal-encyclopedia/starting-a-home-based-business.html#:~:text=
- https://www.forbes.com/sites/ellevate/2019/10/24/eight-common-reasons-small-businesses-fail/?sh=2bc62fcc4fbb