Wouldn't it be great to be able to quit your job, be your own boss and earn a paycheck from the comfort of your own home? The good news is that with a little planning and some startup money, it is possible.
Let's delve a little deeper into how to start a small business from home and help you decide how much planning and money you'll need to be your own boss.
Creating the Concept
Before quitting your job, you must first think of a concept, product or service to generate a steady income. And while that may sound easy, it's not. You need to conceive of a plan that puts your knowledge, experience and expertise to use in a way that allows you to make the most money.
As you're brainstorming ideas, start with industries or kinds of businesses you already have a strong interest in. Consider what equipment and materials you already have access to or can get access to inexpensively. This will help you cut down on startup costs and also let you hit the ground running when you do hang out your shingle. Next, take into consideration what businesses already populate your neighborhood. Are there businesses that are similar to yours? How can you distinguish yours? Is there a business area that is lacking? Does that absence represent an opportunity for you?
Next, you need to get an idea of the prospects for the potential business. What is the market for it? Can you make money at it? Is it a business that needs a physical location or can it function entirely online? All of this requires research as well as how other similar businesses have fared.
Doing Your Research
Some books on forming a small business suggest that after hatching an idea, an entrepreneur should just "go for it." A smarter approach is to ask family and friends what they think about your idea. Ask specific questions such as:
- Would you purchase this particular product and/or service?
- What do you think its worth?
- What is the best way to market the idea?
- Is this something that you think is a fad, or do you feel it could be a viable business for the long term?
- Is there anything you can think of to improve this idea?
- What other businesses in this field have you heard of or do you currently use for this product/service?
If you're married and/or have kids, you should also be asking your family how they feel about you quitting your job and working from home. This will affect them on a psychological and financial level and those concerns need to be addressed.
After obtaining all of this feedback, go back to the drawing board and see if the idea can be improved upon so that your product or service can be differentiated from the competition. Remember, you want to hit the ground running and turn as many heads as possible when first starting off!
Developing a Work Space
Your home's primary function is to serve as a dwelling for you and your family – not as a warehouse or meeting place for your business and its clients. Make certain that if you are considering entering the manufacturing business (for example) that your garage or shed is large enough to handle your work – without forcing your family and your vehicles into stormy weather.
Similarly, if your work will be computer-based, make sure that you have the technology necessary to give your idea a fighting chance. Also, designate a dedicated area or room in your home for your office. This is important for privacy and for tax purposes.
While it would be great to be the sole owner of your company and have complete control of every aspect, sometimes a lack of funds or experience makes it necessary to have a partner. In this case, consider someone that has expertise in the business you are developing and will represent the company well.
Define the tasks that you and your partner(s) will be responsible for before opening up shop so as to minimize conflicts later. Make sure that all partners are legally cared for by the company and that the proper forms are filed with the regulatory authorities; this may mean filing twice and paying for title changes if you need to find a new partner, but it will protect both of you in the long run.
Next, decide if you'll need employees and how soon you'll need them. Put some thought into how you will hire them and what you will pay them. Explore ways of doing payroll,. Also consider where you want them to work, whether it's in your home or elsewhere. Consider what having them work elsewhere would cost.
Once you have an idea and the approval of your family, you need to decide how you are going to finance the business. Most businesses will need at least a little startup income. The hope is to break even after a year, but keep in mind that even successful businesses can remain in deficit for the first few years. Because of this, you will want to tap into a few different sources of funding, including:
- A small-business loan
- Money generated from other investments
- Family/friends who will act as investors
- Personal loan from the bank
- Home equity loan
- Credit cards (as a last resort)
Source capital that won't hamper your longer-term security. In other words, try to avoid racking up credit card debt that could cost 20% or more in yearly interest fees. Also, try to avoid borrowing against your 401(k) or other similar plans as this may adversely affect your retirement.
Finally, one of the best things you can do before you take the entrepreneurial leap is to build an emergency fund to fall back on in the early months. Three months of living expenses is a minimum goal for a new business owner, but even more will help take the stress off of you and let you spend your energy on your company.
Covering Your Bases
All business owners should think about what would happen to the company if health or other issues were to prevent them from running the business. In other words, if the entrepreneur were to become disabled, who would take over? Could the business survive?
Consider these issues beforehand and determine whether disability income insurance makes sense, or if a partner could fill the void caused by your absence.
Foreseeing the Future
It's great to own a business, but ultimately the entrepreneur will probably want to retire or move on to other challenges. With that in mind, you should create a business plan that discusses how you will transfer, sell or close your company. If your business depends on your unique knowledge and contacts, it may not be able to be assumed by another party.
The Bottom Line
There are few things more satisfying and rewarding than launching and owning your own home-based business, but before diving in, be sure to do your homework. Making a business work is not an easy task, but proper planning will help to increase its chances of success.