Your Home-Based Business Guide & 4 Tips on Succeeding
The U.S. Small Business Administration reports that 50% of small businesses are home-based. So, if you are ready to be an entrepreneur, you may consider launching your business from the comfort of your home.
Not sure where to start in developing your small business? We’ve created an extensive home-based business guide, which outlines registering your business, loans and financial planning, things to include in your small at-home business plan, and tips for your success.
Registering Your Home-Based Small Business
When you’re starting out, you need to research your local government guidelines for running a small business from your home. Regulations like zoning ordinances, permits, and licenses are all essential to obtain before you start conducting business.
The type of business you own determines the steps taken as you are registering your home-based small business. With everything listed below, you want to check with your local municipality for specific applications and requirements.
Zoning ordinances help draw the line between residential and commercial property. They may be put in place to help preserve the architecture of a building, keep neighborhoods safe and quieter, or protect a historical structure.
The zoning requirements and restrictions vary depending on your business’s location, so all home-based business owners should check with their local municipality to see what codes and standards apply to them.
The four main zoning types are industrial, commercial, residential, and agricultural. Zoning codes may restrict signs, parking, or selling to the public. You should also be conscious of the percentage of space used for business activities in comparison to residential purposes.
License and Permit Options
Similar to zoning ordinances, the necessary licenses and permits needed to start your home-based small business vary by location. Typically, licenses are more permanent, whereas permits may require more frequent renewal.
- General Business License. All businesses are required to obtain a general business license that allows them to conduct business activities.
- Professional License. A professional license may not be necessary for you to succeed with your small business. However, a good rule of thumb is if you need a license to practice your profession, you will need a professional license to run your business. Some examples include dentistry, law, and public accounting.
- Health and Safety Permits. If you are planning to have customers come to your home to purchase goods or obtain a service, you may be required to obtain a health and safety inspection and permit from your local fire department. Health and safety permits also encompass limited food establishments. Foods like maple syrup, canned goods, honey, and kombucha fall under this legislation. You will have to license your kitchen to ensure everything is up to standard to produce a safe product.
- Sign Permit. As stated above, local zoning ordinances may determine whether you can advertise your at-home business with signs outside. The ordinance may restrict the size and location of any signs.
Once you obtain the needed zoning ordinances (if necessary), homeowners can check their deed or Homeowner Association (HOA). If you are renting, it’s best practice to check with your landlord before placing any signs on the property.
- Sales Tax License. In some cases, your sales tax license may go hand in hand with your general business license. To apply for your license, you’ll need your business’s Employer Identification Number (EIN).
Insurance for Your Home-Based Small Business
Below are the most common types of insurance that may apply to your home-based small business. Many other types of insurance could be applicable, and we encourage you to continue your research as you begin your entrepreneurial journey.
- General Liability Insurance. Also known as professional liability insurance, this helps cover any financial fees if/when a third party, like a customer or competitor, sues your company.
- Home-Based Business Insurance. Unfortunately, your home-based business does not fall under homeowner insurance policies. Home-based business insurance typically encompasses liability and property insurance.
- Commercial Property Insurance. This type of insurance covers any equipment you use to run your small business.
- Business Income Insurance. For various reasons, you may not be able to participate in day-to-day business operations, and this may result in a loss of income. This type of insurance for your home-based small business will cover those losses.
- Commercial Vehicle Insurance. If you plan to use your car to deliver or transfer products, it is beneficial to be covered by commercial vehicle insurance.
Loans for Small Home Businesses
When deciding what loan to use for your small business, it’s essential to pay attention to the interest rates, fees, loan limits, and terms. All these aspects fluctuate depending on the type of loan and lender.
The Small Business Administration offers multiple types of loans that can help you start or recover your company. You are then matched with a lender based on your needs and have the ability to talk with multiple lenders to compare terms, rates, and fees before making your decision.
Setting up online loan payments can help you stay ahead of your finances, and automatic payments give you one less thing to worry about.
3 Reasons Why Home Businesses Fail
There are a lot of reasons why a small business could fail, especially when first starting out. However, we hope this home-based business guide prepares you for success. Below are the top reasons why home businesses fail, but don’t worry, tips for success are later in the blog.
1. Not Enough Capital
Initially, you may not have a concrete idea of how much capital you will need to start your business. It’s important to overestimate when you are deciding how much money you need. Implementing your required capital into your small at-home business plan is crucial to your business’s success, especially if you are requesting capital from an outside source.
Too many times, business owners underestimate their finances or overestimate their income, so they are not prepared for the unexpected. As you are thinking about your costs, remember that initially, you will not be making enough to fully cover all of your expenses.
2. No Market or Too Little of a Market
Your product or service should be unique and find a niche, but it shouldn’t be so unique that only a select few will want to purchase it. Identify a market that is sustainable and you can reach with your resources.
3. Lack of Planning & Poor Management
Whether you’re working with a team or starting a business on your own, be honest with yourself and analyze your strengths and weaknesses, as well as your team’s. Once you can determine where your business may fall short, you can effectively plan and strengthen these areas.
The best way to be proactive about your planning and management is to create a small at-home business plan. This plan is an opportunity to work out possible avenues and shortfalls your business could go through.
5 Must-Haves in Your Small At Home Business Plan
The aspects of your business plan should vary depending on the industry you are going into, but we want to outline the fundamentals.
1. Product or Service Summary. Thoroughly explain what your product or service is, and how it will be unique. This could be an elevator pitch or the section of your business plan that truly sells your product or service to the reader/consumer.
2. Market Research and Marketing Strategy. This section gives detailed demographics of your target audience. Answer the questions, who are you selling to, why will they buy your product or service, and how will you reach them?
3. Your Brand’s Messaging. You want consistent messaging throughout your business, so consumers eventually recognize your brand through various channels. This section highlights any logo, slogan, motto, or style guide attached to your brand.
4. Your Projected Financials. This is where you can meticulously plan out projected cash flows for the first 3 to 5 years of your business. You can look back on your projections to get a better idea of whether you are staying on track financially. The following documents should be included:
- Cash flow statements
- Income projections
- Break-even analysis
- List of assets and liabilities
5. Funding Request. If part of your small at-home business plan is to acquire funding from an outside source, include a section stating the loan amount you require to start your business. Remember to overestimate your request, so you can be prepared for the unexpected in the first few years of business.
Proper financial planning makes or breaks your small business. As stated previously, one of the top reasons why home businesses fail is from lack of capital. If you effectively write out the projected financials in your business plan, you are well on your way to preparing for financial success.
To be proactive about your finances, you can first evaluate your business investment risk. Even if you believe your business’s income will skyrocket in the first year, you still need to consider things like inflation and interest rates.
4 Tips to Succeeding
There’s a lot that goes into achieving your small business goals, a lot of which we have outlined above. To round out our home-based business guide, we’ve provided 4 of our best tips for your success.
1. Fill a Market Need. If you are looking into what your small business product or service should be, make sure whatever it is, is unique and filling a market need. A viable business opportunity is a driving force of how to run a successful home-based business.
2. Build an Emergency Fund. The more planning, the better. Be proactive in your decision-making and be prepared for the unexpected. Your emergency fund helps carry you through until you have enough income coming in to cover any unforeseen expenses.
3. Do Your Research. As you are writing your small at-home business plan, research the market, any competitors, and your audience. Your research allows you to gain a better understanding of potential outcomes when you start your business.
4. Create a Balance. This is especially important when you start a home-based business. Your personal life and professional life collide into one space. Ensure you are taking time to separate the two and create a healthy balance.
Our Business Service Team is ready to help you achieve your entrepreneurial goals through flexible loan options and business account benefits. Send us an information request to discuss your business financial needs.