The Home-Based Business: Some Basics You Should Consider

Is a home-based business right for you

Choosing a home business is a bit like choosing a partner: think carefully before you start. Rather than plunging in, take the time to genuinely learn the market for your product or service. Before investing time, effort, and money, work through a few questions. Can you describe the business in detail? What's your product or service? Is there real demand for it? Can you identify your target market? Do you have the talent and expertise to compete successfully?

Beyond the business itself, be honest about the personal side. Are you a self starter? Can you actually stick to business while working at home? Do you have the self discipline to maintain a schedule without the structure of an office? Can you handle the isolation that can come with working alone? Working under the same roof your family lives under isn't always as easy as it sounds, so setting up a genuinely separate, professional workspace, if your home allows for it, matters more than it might seem at first.

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Compliance with laws and regulations

A home-based business is subject to many of the same laws and regulations as any other business, and you're responsible for complying with them. An attorney and your state department of labor can confirm exactly which rules apply to your specific business, but a few general areas are worth watching.

Zoning. Check your city's zoning regulations before you start. Operating in violation of them can lead to fines or being shut down entirely.

Restrictions on certain goods. Some products can't legally be produced in a home setting. Most states prohibit home production of fireworks, drugs, poisons, and sanitary or medical products, and some states also restrict home-based food, drink, or clothing production.

Registration and accounting requirements. Depending on your state and business type, you may need a work certificate or state license, possible registration of your business name, a sales tax number, a separate business phone line, and a separate business bank account. If you have employees, you're also responsible for withholding income, Social Security, and Medicare taxes, and for complying with minimum wage and workplace safety laws.

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Planning techniques

Money fuels every business, and a little planning goes a long way toward avoiding financial trouble later. It's fine to work with estimates at this stage. The value is in thinking the questions through, which sharpens your business judgment and leads to a more solid financial plan.

Estimating start-up costs. Include every initial expense: fees, licenses, permits, telephone deposits, tools, office equipment, and promotional costs. Most business experts suggest not expecting a profit for the first eight to ten months, so build in enough of a cushion to get there.

Projecting operating expenses. Account for salaries, utilities, office supplies, loan payments, taxes, legal services, and insurance premiums, and don't forget your own normal living expenses. The business has to cover its own needs and yours.

Projecting income. Estimate sales on a daily and monthly basis, and use that to build projected income statements, a break-even point, and cash flow statements. Lean on your market research rather than guesswork for your initial sales volume.

Determining cash flow. Working capital, not profit on paper, is what actually pays your bills. If your cash is tied up in receivables or equipment, the business can look solvent on a balance sheet while actually struggling to cover its obligations. List anticipated expenses and projected income by week and month, and if a cash flow crisis starts to take shape, cut back to necessities early rather than late.

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