According to the U.S. Small Business Administration, more than half of all businesses throughout the nation are based out of a private residence. With that said, you are probably wondering what you should know about starting a home business and what types of resources are available to entrepreneurs. Here are five of the most common questions asked by aspiring home business owners that will shed some light on the technical aspects of operation.
1. Question: Do I have to develop a business plan?
Although a business plan is not necessarily a requirement, it can be useful when it comes to obtaining funds for a new startup. This is true for both private investors and traditional lenders who prefer to see a detailed projection of annual sales and expenses. Fortunately, free seminars and one-on-one counseling is available to small business owners who need extra guidance and support.
2. Question: What kind of financing can I qualify for?
You cannot obtain a grant from a federal agency to start a homebased business, but you might qualify for one of several other financing options instead. It all depends on how much money you need to get started. Popular financing solutions for home businesses include
- SBA microloans
- Small business factoring
- Equipment leasing
- Peer to peer lending
- Home equity loans
3. Question: How will a homebased business affect the way I file my taxes
Starting a homebased business means extra forms at tax time to report your income and deductions. However, working from home allows you to deduct a portion of your household expenses to account for your office space and energy use. You can also write off expenses for advertising, equipment and postage to reduce the amount of taxable income on your return. You will have to keep a record of your purchases as well and provide any other documentation requested by the IRS.
4. Question: What is the difference between a homebased business and a work-at-home franchise?
By definition, a franchise is an authorization that allows an individual to perform specific commercial activities for a company. If you have never owned a business before, a work-at-home franchise provides you with a foundation for operational success combined with ongoing support and profits. On the other hand, if you prefer to pursue your own ideas for products and services, a homebased business providers greater flexibility than running a small extension of a much larger corporate arm.
5. Question: Will I need insurance coverage to operate a business out of my home?
No matter what type of business you are interested in, insurance is a necessity to protect your assets and your home. Just because you work in your pajamas does not mean you will never be held liable for an accident or lose your equipment to theft. As a result, there are three types of coverage that homebased business owners typically rely on as a safety net.
- Homeowner’s or renter’s insurance is designed for residential purposes, but additional coverage can be purchased to secure a low-risk business from your home.
- An in-house business policy provides slightly higher limitations and covers a wider range of circumstances for your operation.
- For a comprehensive policy with more than $10,000 in coverage, consider business owner’s insurance instead. This also encompasses activities that you perform outside the home.
Whether you are running a solo operation or working with one or two other people, even a homebased business needs some form of insurance. By preparing for unexpected circumstances, you are adding an extra layer of security that will prevent future setbacks and financial loss.
In the end, homebased businesses can be adapted according to your skills and your goals. With a little creativity and commitment, you’ll be on your way to collecting money from the comfort of your own couch.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.