Step 1: Decide Which Products or Services Your Small Business Will Offer
Before you can start a home business, you have to know what products or services you want to offer. To decide what business will be best for you, consider these questions:
- What do you have to offer?
- What makes you an expert?
- Do you have all of the education and skills you’ll need to compete successfully in the marketplace or will you need to get training?
- Does the product or service you’re thinking about meet a need?
- Is this a seasonal product or service, or can you market it all year long?
- Is it a fad or something that will last over time?
- How sensitive is marketing this product or service to general economic conditions? When the economy is weak, how do you think your business will be affected?
- Do you have a passion for or enjoy this business idea? While money is, good, it’s not enough to propel you to success. You need to be enthusiastic about your offer as well.
The saying, “Do what you love, love what you do” should not be taken lightly. Your business is going to be your livelihood, so it should be something you believe in and/or enjoy. One advantage of that is that you can turn a hobby into a business. If you choose an idea you’re not excited about, it will be difficult to get motivated at times.
Step 2: Know Your Market and Your Competition
While having a great product or service is required, without buyers, you still don’t have a business. Knowing your market, what it wants and needs, and what inspires it to buy, are crucial to your success. This means discovering your target market and determining your unique selling proposition, the thing about your product or service that sets you apart from others that are similar. Here are a few things to consider:
Who Is Going to Buy Your Product or Service?
- What characteristics or traits does your “typical” customer or client have? “Everyone,” is the wrong answer. What type of person needs what you have to offer?Middle-income moms? Baby boomer men?
- Will you market to businesses, to consumers, or to both?
What Is Special About What You Offer?
- Is the need for your product or service not currently being met or are there other businesses offering it? If there are others, how many others?
- What is about your product or service that is different from the competition? Are you faster, cheaper, more service oriented, etc.?
- How does your product or service meet the need of your target market? What benefits do they get by using it.
- What is your value proposition? What is your competitive advantage?
Step 3: Make Sure You Can Do the Tasks That Need to Be Done
There is a lot that goes into starting a home business. Along with the tasks, is the ability to deal with hassles and frustration, fatigue, and slow results. If you can’t do the tasks, or stay the course when things get hard, then a home business may not be for you. To make sure you have the stamina to succeed, answer this question honestly: Can you handle the day-to-day general tasks that starting a small business requires, like:
- supplying product/service
- distribution of product
- setting appointments
- ordering supplies
- answering the phone
- checking and replying to e-mail
- manage energy levels
- deal with disappointment
- manage overwhelm
Some of these tasks you can delegate to a virtual assistant, but many home business owners are solopreneurs, starting on a shoestring budget and having to wear all business hats. If you plan to start on your own, make sure you have the stamina to carry you through until you can hire help. It helps to learn how to prioritize and manage time.
Step 4: Make a List of What Needs to Be Done to Start
It’s much easier to complete any task or project if you have all your supplies and a place to work. Here are some things you need to consider putting in place before you launch your business:
- Home office: In order to work without distraction, a separate space with a door is recommended. Also, if you plan to take the home office deduction, this space will need to be used regularly and exclusively to run your business.
- Converting space: If your home office will be in a room, garage or attic that requires building or altering the space, how and when will that be done.
- Space for inventory, supplies, records and/or equipment. Consider if climate control is needed.
- Power needs such as extra outlets, power strips and more.
- Second phone line: While many today use a cell phone, a second business phone line creates a separation from personal and business, and allows you to have other business-only connectivity such as fax and Internet.
As you determine what you’ll need, keep track of your estimated costs because you’ll need them later in this exercise.
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Step 5: Learn the Risks and Benefits of the Legal Forms of Business Organization
Before you start a small or home business is time to understand the various legal forms of business organization. Will you operate your business as a sole proprietorship, a limited liability company (LLC), an S corporation, a partnership, or a full-blown C corporation?
The easiest and cheapest option is the sole proprietorship, but to best protect your business, while still being affordable is the limited liability company. You’ll want to research issues surrounding all forms of the business structure now because your decision will affect your startup costs, as well as your tax situation and your personal liability for the actions and debts of the business. Take advantage of the IRS’s website for free tax information on the various legal forms of business organization.
Finally, your decision on which legal form of business organization you will use will largely determine what steps you need to take in order to set up your business when you’re ready to do so.
Step 6: Find Out the Legal Requirements to Run Your Home Business
While it’s tempting to set up shop and start selling right away, most areas have rules about running a home business. Failure to comply with these rules can result in fines and being forced to close up shop. Here are some legal issues to consider:
- Check your zoning laws before starting a small business. If you won’t have a sign, work with toxic materials, or see clients in your home, you can usually get a waiver. Also check your homeowners association’s covenants and restrictions, as well as your lease agreement if you rent, for any restrictions on home business.
- Contact your city or county regarding a business license. Most areas have a business license requirement. Usually, it’s affordable.
- Contact your state’s occupational regulatory agency to see if your business is regulated and requires additional permits or licenses. For example, most businesses involving grooming (people or pets), financial help, child care and food are regulated by the state and you may need to get a permit.
- Get a sales tax license from your state’s taxation or comptroller’s office if you sell tangible goods. This allows you o collect and pay sales tax.
- Get a business bank account. The IRS doesn’t like to see your personal and business funds mixed together.
- Consider getting an employer identification number. While not required in a sole proprietorship, it is necessary if you employ people. It’s free and the advantage is that you can use it, instead of your social security number on business-related paperwork.
- Protect your intellectual property. If you’ve invented or created something, you can protect it with a patent, trademark or copyright.
Step 7: Review Your Home Business Insurance Needs
When you go into business, you’ll potentially be exposing yourself, your home, and your family to a variety of risks. You need to think about how you’ll manage those risks and find out if you need small business insurance to help handle them before it’s too late.
Consider these insurance needs:
- Health insurance: There are many options for health care for self-employed persons. The key is to find the option that works best for you and your family.
- Additional home coverage for business: Your regular homeowners insurance may not cover costs related to a home business. Check your policy and/or contact your insurer for information on making sure you can recover losses from a business if your home burns down, is flooded or robbed.
- Liability insurance: If someone falls in your office or is otherwise “hurt” by your business, are you covered? Also, learn if you should get errors and omissions coverage.
- Auto insurance: If you use your car in business, you may need additional coverage.
Remember, your homeowners’ and auto insurance policies weren’t designed to cover your home business. Small business insurance can be a major expense, but less expensive than a lawsuit or recovering from a loss of due to a fire or other catastrophic event.
Record any small business insurance cost estimates for this step — you’ll need them to determine your startup and operating costs.
Step 8: Determine Your Startup Costs and Funding Sources
While you can start a home business on a budget, it’s not likely you’ll build a profitable one without incurring some expense. Calculate your startup costs — the amount of money you need to open up shop. It’s okay if you don’t know specific costs, but you want to get as close as possible, perhaps even over-estimate expenses. Here are common start-up expenses:
- Professional services such as a lawyer or an accountant.
- Office furniture or equipment.
- Supplies and materials required for your product or service.
- Business licenses and other fees (i.e. franchise fees, permits, etc).
- Construction costs if you need to build or alter a room to create a home office.
- Website fees; domain name, hosting, website design (if you hire a professional designer).
- Business cards and other printed marketing materials.
- Other items specific to your business idea.
Once you have your list, look for ways you might be able to cut costs and fund your business without going in debt. For example, can you make do with the computer and printer you currently have? Can you barter for website design?
You need to also consider:
- How much will you need to pay your bills until the money starts coming in from your home business?
- Will you be keeping your full-time job or is there another breadwinner in the family that can help you until you develop an income stream?
As you move closer to starting your business, keep a tally of expenses you didn’t anticipate and add them to your list.
Finally, since it takes money to make money, look for funding sources for your business that ideally won’t put you in debt.
- Where will the initial investment come from? Savings? Selling assets?
- Will you need a silent partner to help provide working capital, especially until you reach your break even point and being making a profit?
- Are you willing to use your home equity to finance your business?
- Is it possible you qualify for a loan? Check your city and state’s websites on business resources as many localities have programs to help small business. You can also check into SBA loans from the U.S. Small Business Administration?
Step 9: Calculate Ongoing Income and Expenes
Not only do you need money to start, but you’ll need money to stay open. The goal is to earn enough to cover your operating expenses and make a profit. Here are some additional money issues to consider:
- What will your continuing outlays be for items like equipment, services, salaries and/or inventory?
- How many products must you sell or hours of service do you need to provide to reach the break even point (your income is equal to your expenses)?
- What is your goal profit and how do you earn it?
- Have you run the numbers to determine the ideal pricing for your product/service?
- Look at ways you can continue to run your business on a budget, allowing you earn more in profits.
Step 10: Gauge Your Family’s Support for Your Home Business
Your family’s support will be more important than you think, so don’t leave this step undone.
Running a home business isn’t done in a vacuum. Members of your family may need to make sacrifices or lifestyle changes in order to accommodate your business. As a result, they need to know what you’re up to and how it might affect them. If you have a spouse or significant other or children living with you, your home business will be a big part of their lives too.
Communication is key to helping them understand what you’re doing. Explain to them your intention and goals. Allow them to be a part of the process if they’re interested. Ask for their support as opposed to expecting or demanding it. If they have concerns, try to understand where they’re coming from. Respond to their questions, issues, or objections, discussing them openly and calmly. There is a lot you can do to get your family members on board with your home business goal if they’re resistant.
Couples who plan to operate a business together need to have a good idea in advance if they can work together. It’s a good idea to discuss who will be responsible for specific tasks. If you can’t agree on this now, there’s a very strong likelihood you won’t agree on it later.
Don’t let your business damage your family relationships. A strained family situation is bound to show in your business activities, so strive to work with your family to develop a routine and systems to make your home business and home life successful.
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