What Is a Home-Based Business?

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According to a survey by Guidant Financial, 75 percent of all business owners rate their happiness level as eight or higher on a scale of one to 10. If you’re thinking about starting a business, one of the best ways to build a new enterprise is to start from your own home. A home-based business gives many entrepreneurs the freedom to pursue their passion while handling their personal needs.

When it comes to starting a home-based business, there are numerous options. As you decide on the right opportunity, you should consider the start-up costs and the structure for your new business. You’ll also want to make sure you have your legal bases covered and the appropriate type and amount of insurance. Marketing and branding are also vital to ensuring your business gets started on the right foot.

TL;DR (Too Long; Didn't Read)

A home-based business is any business that is run primarily out of your home.

What Is a Home-Based Business?

The home-based business definition is a business that is based in your home. Home-based businesses typically have no brick-and-mortar storefront or formal office space. They are often sole proprietorships, which means that a single person owns the business and is responsible for its debts. Many home-based businesses operate virtually, which means their business exists primarily online.

Many successful businesses started out as a home-based business. Apple may be the most famous example, with Steve Jobs and Steve Wozniak running aspects of their business from a garage in Los Altos, California. The internet has made working from home much simpler, but there are some complications you should consider before starting a home-based business.

Home-Based Business Complications

If you’re contemplating home-based business opportunities, one of the first things to consider is zoning in your area. Some zoning laws are very strict when it comes to running a business from home. Other zoning laws allow some types of business, such as a law practice or counseling practice, that don’t interrupt traffic or create a lot of noise. If all business is restricted, you may be able to appeal to local authorities for an exception.

Another consideration is setting and keeping appropriate boundaries. One of the perks of starting a home-based business is that it’s much simpler to take care of your family. It can also make it difficult to separate your work and personal life, though. If there are errands or appointments you need to take care of during the day, you may end up putting off work until the evening.

Many home-based entrepreneurs set up a designated workspace within the home to make this easier. A spare room can be converted into an office. If you have a shed or garage space that’s comfortable for working, it can make it even easier to keep your work separate from your personal life.

Working from home can also make it challenging to maintain a professional image. If your address gives away that it’s residential, you may want to consider renting a post office box for your business mail. This can also help protect your privacy. You may want a separate phone number for business calls or at least a separate ringtone so you can answer business calls professionally.

Common Home-Based Business Ideas

The number of home-based business ideas is almost limitless. The main consideration should be what you enjoy and what you’re passionate about. Many home-based businesses offer a service. A home- or office-cleaning business can be run out of your home. Many accountants work from home as well. Dog walking and babysitting are also common home-based businesses.

You may also want to consider selling items you enjoy or use regularly. You can contract with a multi-level marketing company or source your own items to sell through a virtual store. You can also sell items through eBay and other online platforms that are already established.

Ultimately, your home-based business should be something in which you excel. If you’re a people person and highly organized, you may want to consider event planning, for example. If you’re a gifted writer, you may want to consider writing content for business websites. If you have a technical background, you may want to design websites.

Legal Considerations for Home-Based Businesses

When you’re thinking about the question, “How do I start my own business?” you may feel overwhelmed. There are several regulations to consider to ensure your business is legally compliant. There are laws at the local, state and federal level to consider. You can find out the legal specifics for your area by doing online research or by contacting your local small business administration office.

Your first legal consideration is to decide on a business structure. The structure of your business impacts how you file your taxes as well as your liability if you’re sued. A sole proprietorship is a common structure for many home-based businesses, but it does leave you personally liable if you’re ever sued. Other structures include a limited liability company, a partnership and a corporation. Each business structure has pros and cons, so you may want to consult an attorney to decide on the best structure for your business.

Another issue you may need to tackle is registering your business. Most small businesses don’t have to register at the federal level. If you want to trademark your business or product, though, you will want to file with the United States Patent and Trademark office. Depending on your business structure, you may need to register with your state. The exact requirements vary by state, and you may need to file with your Secretary of State or a business agency. Depending on the structure of your business, you may need a registered agent. You can hire a business to represent you as a registered agent.

The exact documents you need to file are based on the business structure you chose. If you decided on an LLC, for example, you may need to file articles of organization and your LLC operating agreement. If you have a limited partnership, you may need your certificate of limited partnership and your partnership agreement. You may also need to register with your city or county. You can check with your local Small Business Administration for the exact requirements.

You may also want to file with the IRS to get an employer identification number. This is a requirement if you plan to employ others. Even if you’re a sole proprietor, getting an EIN can be useful, as it allows you to complete business tax forms with your EIN instead of your Social Security number, which protects your privacy. You can apply for an EIN online.

You may also need a license. If you’re planning to run a bakery or a catering business from your home, for example, you may need a food handling license. If you’re planning to do nails or style hair in your home, you may need a cosmetology license. You can do research online or talk to your local Small Business Administration office for more information that is specific to your business.

Insuring Your Home-Based Business

There are risks involved in running any type of business. Insurance can help you deal with those risks. With a home-based business, you may be able to get a rider on your current homeowners' or renters' insurance policy. You may want to get more comprehensive coverage, though.

For example, you may want to obtain a general liability insurance policy. This type of policy can help protect your business if you’re sued because someone was injured on your property or hurt by using your product. Another option is a business owner’s policy. This type of policy includes general liability and also covers home office equipment if there is theft or a fire.

If you employ others, you may also need workers’ compensation insurance. This protects you if your employees are injured while working. Workers’ compensation insurance will cover their medical bills and lost wages. If you’re not sure what kind of insurance you need, consult an experienced business insurance professional to get recommendations and quotes.

Tax Considerations for Your Home-Based Business

Your taxes become more complex when you run a home-based business. You can receive a tax deduction for your dedicated business space as long as it’s used exclusively for your business. You can do your taxes yourself using a business tax program. Many entrepreneurs use accountants, though. Accountants are familiar with the tax code and can help you find deductions you may have missed on your own. They can advise you about financial decisions. You can consult an accountant for all of your bookkeeping or just for tax advice.

Whether or not you consult an accountant, it’s essential to keep good records. You need to track your business income and expenses and keep receipts of any cash transactions. If you drive to conduct your business, you should keep track of your mileage. Your taxes will also be impacted by hiring employees. If you hire someone directly, you will be responsible for payroll taxes. If you hire someone as an independent contractor, you don’t need to worry about payroll taxes.

Branding and Marketing Your Business

If you’re starting a business from scratch, you may be wondering, “How do you create a brand?” Before you decide on a brand, you should have a sense of who your target customer is. If you are doing event planning for weddings, for example, your brand will have a different look and feel than if you’re doing event planning for corporations. If you’re doing home care for seniors, you will want a brand that appeals to seniors and their families.

Once you know your target audience, you will want to develop a logo and look for your brand. A graphic designer can help you design a professional logo that reflects your business. If you’re not tech-savvy, you may also want to hire a website designer who incorporates your logo and brand into a professional website. Your website will need to clearly explain your business and product. If you’re doing online sales, you will also need an online store.

To bring customers to your website, you may want to utilize search engine optimization strategies. These strategies will help your website and business rank more highly when potential customers do a web search. You should also consider using social media to market your business. Instagram is a popular choice if you want to reach out to millenials. You’ll find a slightly older audience on Facebook. You may want to do targeted ads on Facebook as well. If you’re planning to market to other businesses, Twitter or LinkedIn may be a better choice.

In addition to advertising to your target audience, you’ll want to create appealing content. This may include relevant videos or blog posts that address the needs of your target audience. Make sure your content reflects your brand. A funny video may appeal to a younger audience, while a data-driven blog post may appeal to a business audience.

References

About the Author

Melinda Hill Sineriz is a freelance writer with over a decade of experience. She specializes in business, personal finance, and career content. She has worked in sales and has managed her own business for more than a decade. She has also written content for businesses in various industries, including restaurants, law firms, dental offices, and e-commerce companies. Learn more about her and her work at thatmelinda.com.