NASE Blogs

The Home Office Entrepreneur

Thursday, February 03, 2011
If you are planning to ... or already are in the ranks of ... being a home based entrepreneur don't think that just because you run a business out of your home there is no risk. You have to be just as serious about a home based business as if you were going to rent office space in one of the most prestigious addresses in your city. There are hundreds of challenges facing a new business, and a few extra if you plan to operate out of your home.

If you haven’t done so already be sure you have done a little due diligence and make sure you aren’t’ going to have the wrong people come knocking on your door ... or putting nasty notes in your mail box!


Zoning Regulations

You may think a man's (or woman’s ... let's not get sexist about this) home is his castle, not so say many town governments. Most towns have ordinances about what kinds of businesses can and can not be run out of a home. For most home based "quiet" businesses it's a simply matter of going to your town hall and registering as a home business. But for some businesses there may be tougher restrictions. Such as how many employees can work out of the home. Or the amount of traffic, especially large vehicles, that your business entices like delivery trucks. Before you get too entrenched in your business check with your town office and find out how your local community feels about running a business out of your home and what regulations govern you. If you live in a community that has a Home Owners Association be sure to check the rules for any restrictions about operating a business out of your home. And, if you rent be sure to find out what your landlord thinks about your great American dream.


Insurance


Liability is another important issue. Standard homeowners (and renters) insurance usually will not cover you if a customer trips while visiting you. And if you have a computer, furniture, and other business property and a bugler finds their way into your home and relieves you of these brand new possessions? Well that's what insurance is for ... NOT! Again, most home policies do not cover business related furnishings and equipment. You will need to check with your insurance agent and get special riders to cover your business activities and equipment. You also need to check out a home business policy for liability if you have employees that work in your home or have customers that visit you. Again, a standard home owner’s policy does not cover this type of liability coverage. But, thanks to the growth or home based businesses over the past years, these types of policies are readily available. And don't forget to check with your auto insurance carrier about being sure your vehicle is covered for business use of your car if you drive for business. If you are involved in an accident while using your car for business you might not be covered without business coverage.


Home Office Tax Deduction


So you have to spend a few dollars to run your business out of your home. You'll just make up the difference by taking a home office tax deduction on your income taxes. Maybe, maybe not. Our illustrious government tells us that small businesses are the backbone of the economy and the salt of the earth. But that doesn't mean there are incentives to earn a living out of your home, or create jobs, or collect sales taxes, or ... well you get the message. There are restrictions on being able to deduct part of your home for business use. In order for you to meet the general requirements for a deduction the home office must create revenues and the area must be exclusive to the use and necessary to the business. Visit the IRS online at www.irs.gov and download IRS publication 587 "Business Use of Your Home" to make sure that you follow all the guidelines.


Business Opportunities


People starting home based businesses are growing like a feeding frenzy ... especially in the downturn economy ... and you can be sure that the sharks are coming out of the woodwork. One of the quickest ways to lighten your wallet is with business opportunities that are more a nightmare than reality. They show up in the classified ads of newspapers, in the mail, on radio and television, and especially over the Internet. They promote how you can make thousands of dollars a month from your kitchen table or invite you to a "free" seminar or trade show. All would have you believe the way to wealth and security is to start your own home based business ... at a price of course. These opportunities cost anywhere from a few hundred dollars to thousands of dollars and often separate a fool from his money.

If you go to a seminar or trade show don't take your credit cards or checkbook. If a business opportunity is as great as the sales people would like you to believe it can wait until you investigate it. And if a "special deal" is only good that day, it probably is only a good deal for the person selling you their bill of goods. If any opportunity requires you to put money up front or sign an agreement before you can investigate it out ... keep on looking. This is especially true on the Internet. They give you 10 pages of promises and ask you to send $20 to get more information ... but they never tell you what kind of business opportunity they are offering!

If you do take the bait ... carefully check out the company offering the opportunity. Contact the Better Business Bureau in their home city and the Attorney Generals office in their state. And most important ask for at least 15 names of people who have been involved in the business for at least six months. More than likely they will only want to give you 1 or 2 names, something about keeping the security of their customers. If they can't give you at least 15 people who have been successful in their business that in itself should tell you a lot about the opportunity.

And last but not least, if it sounds too good to be true, it probably is.


Finances - Getting Started


The government has millions of dollars in grants and loans for people who want to start their own home based business ... and I have an invention that will turn lead into gold that I want to sell you. Not to say there are not government monies available, but you must be in a unique situation to get it. The vast majority of home based businesses get their money form savings, home equity loans, friends, family, and eating beans and macaroni for the first year of a start-up.

It's important for any budding entrepreneur to figure out exactly what it costs them to live (putting a roof over your head and food on the table). You may have the greatest business opportunity since the personal computer but it is going to take time to build the business where it can support your day-to-day expenses.

Some of the most successful home based businesses are started part time while the owners still have a day job. When the business reaches the point it can pay the bills you can have that conversation with your boss you have been thinking about for so long.


Getting Into the Right Business


Re-read Business Opportunities above. Experience pays off, and although you might think running a travel agency out of your home would be exciting and profitable, if you don't have any first hand experience you might find yourself thousands of dollars in debt and hating every day. If you are thinking about starting a business which you don't have any experience in get a job in that business for six months. Find out if it is really something you want to do. Working for someone else will also give you more experience at how to run a successful business than you can get in the couple of years trying to figure it out yourself.


Finding Customers


Starting a business is simple. Finding customers is where the work really starts. Before starting determine if there really are customers who will buy your product or services. What you, or friends and family, think is a great idea might not be so well received by the people you are asking to lay out cold hard cash. If you can lay your hands on a printed Yellow Page directory look for businesses similar to yours and call every number listed. If most are still in business it's an indication there is a viable market for customers. If the only answer you get for 20 or 30 percent of them is a recording; "I'm sorry that number is no longer in service" you will know other people thought the idea was great but couldn't find customers.

Talk to the competition. They might hang up on you, but if you get a just couple people to talk you can get some great information. And work smart; don't say, "Hey I'm a competitor. Have you got a few minutes to tell me how you got to be successful?"

Talk to potential customers and ask if they are happy with the businesses who are currently providing them products or services. What do they like? What do they dislike? What would they like to see different? What could a business provide them with that would make them want to do business with them?

Also get yourself a little education on operating a business. The library and bookstores are filled with good books on starting a small business. Take the time to find out what others have done and don’t try to reinvent the wheel. Also check out local colleges for courses on starting a business. A little time invested upfront ... before you open your doors ... could pay off huge over time.


Market research and doing your homework before you actually start is will give a big boost to your potential success. Without this kind of “information investment” you will likely be without customers, without income, and a big nightmare instead of the great American dream.

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