Ultimate guide on starting a home-based business in 2021
If you are about to start a home-based business, then you should know that is a great way for you to launch a new venture as an entrepreneur. In fact, about 50% of the US businesses are home-based ones. So, regardless of if you want to sell homemade goods or craft, invent a new product, launch a professional services business, or start an eCommerce business, there are many ways to use your home as a business headquarters.
However, although you are working from home, it does not mean that you should ignore or avoid the legal process of making your business “official”. It is quite important to register a home-based business as well. You would be able to benefit a lot from it too. This blog would help you understand all that you need to know about starting a small business at home.
Home Based Business
Before we can talk about how to register a home-based business, let us talk about why a home-based business. It is clear that the way things work is changing all over the world. Everything has moved online and people have started to commute less. But is this enough to make you start a home-based business?
Why should you start a home based business?
Well, starting a small business at home is a great idea, but why? Why not have a proper traditional company? Here is why you should work on your home-based business idea and start a business at home:
- Enjoy flexibility: That is right! With running a small business at home, you can easily enjoy flexibility as your home office would just be a few steps away. Moreover, you can control the timings that you work in. Also, having a home office without a set office space and cost, you can easily scale up or down as needed. For instance, if you want to grow by hiring someone, you would not have to worry about office space. And if you want to let go of people, you can easily do that without any loss.
- Take advantage of tax breaks: Those who start a home-based business have the ability to benefit from a tax break available only to them, which is the home office deduction.
- Get more work done in one day: One more advantage to own a small business at home is that you can add more hours to your work and complete more work in one day.
- Reduce the cost of overhead: It is costly to rent a traditional office space and set up the internet, phone system and other services. With a home-based business, you would already have a space and even the internet. The overall cost would be much more less for your home office as compared to the traditional office.
What businesses are great to run from home?
Although there are many home-based business ideas that you can choose from, here are some of the most approachable paths that you can use to start a home based business for yourself:
- Buy an existing ecommerce business
- Grow an audience you can monetize
- Productize your expertise or service
- Sell your service or expertise
- Start a print-on-demand store
- Start a dropshipping store
- Sell homemade products you make yourself
- Buy products in bulk to sell
These are just a few ideas. You can start with anything that you feel confident about.
Pros and cons of home based business
Another thing that you need to be sure of is the pros and cons of starting a small business at home since you do not want to end up as a failure. To help you out with it, here are the pros and cons of starting a business at your home using your perfect home based business idea:
- You can create a family business where your spouse or relations can chip in as needed.
- Enjoy flexible work-life balance, which is important for many.
- You have the option to sell services or products internationally or locally.
- A low investment business idea would have fewer overhead costs and would have potential tax deductions that you can claim.
- Working from home can make you feel lonely after some time.
- Your business can grow bigger than your home and you might need to rent additional space as you get more employees. This is mostly if your employees cannot work from their own home and need to be in the same space.
- All the regulations are still the same if you want to start your home based business, just like it would be for a normal traditional business.
- You might have to convert some part of your home for your business where you will have all the equipment and an office. This can be challenging for some.
- Renters insurance doesn’t cover your home-based businesses, so you need to find appropriate insurance package.
Regardless of the cons, if you feel you can hit it off and these points do not bother you, then it is time for you to open your small business at home.
Steps to Start a Home Based Business
As mentioned above as well, if you are about to start a home-based business, you will need to follow the same steps as you would for any other business. This means that you will also have to register your home based business. Getting confused? Well, we have gathered the steps to help you understand all that you need to take care of.
So, this is what you will need to do.
Step 1: Choose a perfect business idea
One of the first steps to start a home based business is to figure out the business you want to run. You need a home based business idea for having a business. So, think hard about what you can offer and how much you have got to put into the idea. If you already have a plan ready, ensure that it can be run from your home. Once you have your idea all ready, you can move to the next step.
Step 2: Prepare business plan
As soon as you have your small home based business idea ready, you will need to create a business plan. By creating a business plan, you will be able to create a map of how the business would run. Although this process is a time-consuming one, it is crucial for your company’s growth and progression. With a business plan, you will have all the details that you need to run your business from home. And yes, there are many different formats of a business plan, and it all depends on you.
But to help you out, here is what the business plan should include:
- An executive summary
- An overview of your business
- A market analysis
- A description of your product or service
- A marketing and sales plan
- A financial plan and projections
By creating this plan and going through this process, you would get the chance to work more on improving the things in your company. The business plan would be a roadmap allowing you to see how you will grow and how much profit you will make. This plan would also help you in getting a loan from the bank or if you are about to obtain funding from investors. You will need to show them this plan before they invest in your company. So, it is always a good idea to prepare the plan first.
Step 3: Choose name for your business
The next step is to figure out the name of the business. You will need to name your business something that is unique and that depicts your business. Also, you will have to ensure that the name is not being used by any other company. In case another company has the same name or a similar name as the one you choose, you would not be able to register your home based business. This would just cause delays for your business. Additionally, the other company can also start a lawsuit against you for taking their brand name or infringing on a trademark.
The name you choose should not just make it clear what your business does but should also be memorable. Once you have a name in mind, check from the Secretary of State’s website to see if the name is used by any other company. You can also check from places like the U.S. Patent and Trademark Office, business bureau website, and just by doing a simple Google search. This would help you see if the name has been used or not.
Moreover, if you plan to take your company international, you will have to check the name online to see that no other company has it. You will also have to see that the potential domain name exists and no one owns it. All this is quite important for your business name.
Step 4: Select the business entity type
With your company name ready, you now need to select the business entity you want to form. And just because you have a home based business doesn’t mean you can’t have the limited liability protections. You, too, can enjoy the tax advantages of making your business official in the eyes of the law. There are many different kinds of business entities that you can choose from, including:
Sole Proprietorship is a one man company where you do not need to get it incorporated and it has the fewest paperworks. But it does not come with any liability protection. And you will pay for the tax via your personal income tax return. The company name is usually your name in this case, unless you want another name for it. Then, you will have to register it as a DBA. Here are the things you need for this business entity as you start your home based business:
- Social Security number
- Two pieces of personal ID (driver’s license, passport, or Social Security card)
- Doing Business As certificate
LLC or Limited Liability Company is the most popular kind of entity as it offers both freedom to choose how the profits earned are taxed and has limited liability protection. Almost all entrepreneurs register their home based business as an LLC. This will protect the business owner’s personal financial assets if any suit comes up against the company. Here is what you need for this business entity:
- Federal Employee Identification Number
- Signed operating agreement
- Business license, if available
C Corporation is like the LLC where it has the limited liability protection but it also comes with a drawback. This business entity is taxed twice on the profits, one through the corporate tax return and then when the profits are given out at dividends, then the shareholders are taxed through their personal tax returns. But this entity is the one that can help your company go public and even get investors easily. Here are the things you need for this business entity:
- Federal Employee Identification Number
- Certified Articles of Incorporation
- Corporate Charter
- Business license, if available
S Corporation is a sub-section of the corporation where it has a few limitations, including the number of shareholders it can have (which is limited to 100). Moreover, it is not taxed like the corporation but like a partnership through the owners’ personal tax return. Rest all is the same as the corporation where the S corporation does enjoy the liability protection. Here is what you need for this business entity:
- Federal Employee Identification Number
- Certified Articles of Incorporation or Corporate Charter
- Signed corporate resolution and signature card by account signers
- Business license, if available
Whatever choice you make, IncParadise can help you with it. We can help you register your home based business in the USA.
Step 5: Register your business
Now that you have made your mind about the business entity and the business name, it is time to register your home based business. Let us assume you selected to make your business an LLC; in this case, you will need to register your company with the state as an LLC using your unique business name. Other than that, you will also have to register your company with the federal government as well. This is done by applying for the employer identification number, also called the EIN.
Although you might not need this number initially, it is always a good idea to get it. This is because the number would be useful for hiring employees, filing the business taxes, opening a business bank account, and many more things. You can easily get the EIN online. If you need help with this, you can contact our team at IncParadise to know more!
Step 6: Get a registered agent
It is required by law that every incorporated business have a Registered Agent. In fact, you would not be able to incorporate your business without a registered agent. However, being a business owner, you can act as your own registered agent, provided that you have a local address in the state (which would obviously be your home address for your home office).
But if you want your business to have a professional physical appearance, you can easily choose to get an outside registered agent. These services would also offer you a separate mailing address where official government documents and notices are sent. IncParadise offers registered agent services along with incorporation services. Find out more here!
Step 7: Obtain necessary business licenses and permits
As soon as you have completed the process to register your home based business with the state and federal government, the next step is to get the business license. Since your business is a home based one, your business license requirements might be different from the other kinds of companies. Nonetheless, the permits and licenses that you need also vary from state to state and are essential to obtain before you can commence your business.
Usually, when you are about to start your home based business, these are some of the business licenses that you will need to look into (and might need):
- Property use and zoning permits: Since you are starting your business at home, you will have to check into local zoning ordinances for all the home based businesses in your area. Some of the residential areas have limits or even do not allow home businesses to operate. So, it is a good idea to check for this and if needed, get the applicable license for running your small business at home.
- Home occupation permit: A lot of the home based businesses need the home occupation permit to operate legally. This permit just shows that by running your business from your home, you are not adding to the noise, significant traffic, or harmful environmental conditions to your area.
- General business licenses and permits: Other than those two mentioned above, you will also have to consider any general business licenses you need to operate legally. Along these lines, you might need a professional or trade license, sales tax permit, business operating license, and more.
Just to be clear, even if you are about to start an online freelance or consulting business from your home, you should not assume that you do not need a business license. So, find out what you need with the help of your lawyer and always stay on the safe side.
Step 8: Secure funding
Another benefit of opening a small business at home is that you can easily reduce the costs of running a business, including the rented or owned office space. There are some cases where you might not have any startup costs at all, which happens mostly with service-based businesses. Nonetheless, it all depends on the kind of business you are about to run. If you need an inventory, you will need funding for it.
Luckily, 44% of the home-based business owners can easily start their business with less than $5000. But if you need more options, you might need to look for financing options. And there are chances that you will also need a professional office space as it is difficult for home businesses to get outside funding. So, the best way out is to get a credit card or a loan from the bank. You can also start a crowdfunding campaign or take help from family/friends.
Step 9: Open business bank account
Once you have reached this far, you have to open a business bank account. Just ensure that you have your Employer ID Number. With this, you can go to your chosen bank and open your business bank account. Setting the business bank account is an important part of setting up your business and making it official in the financial system. The benefits of having a business account include:
- Paying business expenses and writing checks in your business name (looks very professional and helps in taxation as well)
- Receiving payments from customers in your business name
- Separating your business finances and personal finances (this is very important to keep the limited liability protection if you have a corporation or an LLC)
- Helps you in building your business credit and even get qualified for small business loans
- Increasing your tax-deductible business expenses and saving money at tax time
Even if you have just started your business and it is small, you do not have to wait and dream small. Get your account now and run your business professionally. Trust us, this helps a lot.
Step 10: Set up your home office
Now with all ready, it is time to start running your business. You have taken care of all the legal matters. So, with a small business at home now, you will have to set up your home office that would help you move towards success. Even though there are a lot of benefits for a home office, there are many drawbacks too. So, it is important to make a designated area for your office to help promote productivity and keep it different from your home life. If need you can choose a mail forwarding service, where they can provide you with a physical business address for your home business so you can receive all your important mail or letters. It helps in creating and maintaining a professional appearance for your home business.
Here are some things that you should do to set up your home office:
- Choose a designated space
- Invest in the right furniture, tools, and technology
- Decorate your office that would help motivate you and increase productivity
- Take steps to minimize distractions
As soon as you have the proper space in your small business at home, you can start running the business. Things would become much easier for you from here. Just ensure that you take all the steps as mentioned here so that you do not get into trouble or lose all time and money you put into your business. Be serious and work hard – that is all you need to make your home based business idea a success.
Ready to Start Home Based Business?
If you have your big idea ready and want to move ahead to make it work, then IncParadise can help you in setting up your small business at home. Our team will help you in registering and incorporating your company. We would also help you in all the other legal requirements like annual reporting, opening a bank account and so on. To understand more about our process and what we can help you with, contact us today!
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