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Starting a Home-Based Business

By: Financial Hotline
Winter 2020 (Vol. 37, No. 4)

More than half of all businesses today are home-based. Garages, basements, and attics are being transformed into the corporate headquarters of the newest entrepreneurs - home-based business people. And, with technological advances in smartphones, tablets, and iPads as well as rising demand for “service-oriented” businesses, the opportunities seem to be endless.

IS A HOME-BASED BUSINESS RIGHT FOR YOU? Take the time to learn as much about the market for your product or service as you can. Before you invest any resources, answer the following questions:

  • What will be your product or service?

  • Can you describe your business in detail?

  • Is there a current supply and demand?

  • Who is your target market?

  • Do you have the skill and expertise to compete successfully?

Your business must be based on something greater than a desire to be your own boss and involves an honest assessment of your personality, knowledge of what’s involved, and a lot of hard work.

  • Are you a self-starter?

  • Can you stick to business if you’re working at home?

  • Do you have the necessary self-discipline to maintain schedules?

  • Can you deal with the isolation of working from home?

Working in the same space with family life isn’t always easy. Here are some obstacles to consider:

COMPLIANCE WITH LAWS, REGULATIONS AND ZONING. A home-based business is subject to many of the same laws and regulations affecting other businesses. Start with your state department of labor, your local zoning department and business permitting to find out if your home business will be in compliance. Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.

REGISTRATION AND ACCOUNTING REQUIREMENTS. You may need a work certificate or a license from your city, county and/or state. A sales tax number from your state and a federal tax EIN. It’s also good to have a separate business telephone and set up a separate business bank account.

ACCOUNTING. If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.

MAKING YOUR FINANCIAL PLAN. Money fuels all businesses and the lack of it can cause a quick fail. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.

ESTIMATE YOUR START-UP COSTS. Include initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment, and promotional expenses. Most businesses don’t expect a profit for at least the first eight to ten months, so be sure to allow for that cushion.

ESTIMATE OPERATING EXPENSES. This may include salaries, utilities, office supplies, loan payments, taxes, legal services, and insurance premiums. Don’t forget to include your normal living expenses.

PROJECTING INCOME. Use your market research to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points, and cash-flow statements.

DETERMINING CASH FLOW. Working capital - not profits - pays your bills. If your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you’re broke. Make a list of all anticipated expenses and projected income for each week and month.

HAVE A CASH CRUNCH PLAN ALREADY IN PLACE. For example, if you see a cash-flow crisis developing, outline your strategies now so you can quickly switch to survival mode if that time comes. For examples, list which expenses to cut back on so you spend only on the necessities. Note which creditors will let you make payments or give you extended payment terms. List your go to cash sources such as a “for emergencies only” credit card or those that give cash advance.

When you are ready to give it a go - contact the Financial Hotline or visit the Members section at! We are here to help!