(BPT) - About 16 million Americans work from home – a number that Global Workplace Analytics expects will increase by 63 percent over the next five years. In fact, every 12 seconds someone starts a new home-based business in the United States, according to Business for Home. Access to new technology, increased job flexibility and a higher earning potential are just some of the reasons many entrepreneurs consider a home-based business more rewarding than the typical corporate cubical.
Home-based business owners can easily engage with customers in real-time through social media channels. They can even take advantage of technological advances, such as cloud computing, video conferencing services, apps and mobile payment devices to connect with business partners and conduct business from virtually anywhere in the world.
Millennials especially enjoy the idea of not worrying about the dress codes, arrival times and rush-hour traffic that come with traditional jobs. Global Workplace Analytics found that 81 percent of them expect to have a flexible work schedule, and home-based business models allow just that. Perhaps most attractively, self-employed business owners also have the potential to earn more money instead of being confined to a pre-determined salary, since higher risks sometimes yield higher rewards.
But while owning your own business and working from home offer many advantages, there are some important things to consider before taking the plunge. Here are three things you need to know before starting your own home-based business:
Having the initial courage to get started is often the hardest part of setting up your new business at home. Proper financing can make or break your success. While federal agencies do not provide grants for starting a home-based business, many low-interest loan programs will give you startup financing.
It's also important to decide what type of ownership is best for your business. You have many options: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, nonprofit and cooperative. The U.S. Small Business Administration notes that you must establish your business identity, as it determines which income tax return forms you have to file – income tax, self-employment tax, taxes for employers or excise taxes.
Once you've decided how to finance your business, most states require you to register your "Doing Business As" (DBA) name, according to the U.S. Small Business Administration. For sole proprietors and partnerships, you need to register a DBA if your business is called anything other than your real name. You can register a DBA at your county clerk's or state government office.
Get in the zone
Depending on where you live, zoning laws can prohibit some home-based businesses. Restrictions may limit how much of your home can be used for business, your ability to advertise with signage, parking and the number of employees. If you're not approved to have a home-based business due to zoning ordinances, you can apply for a variance. You can familiarize yourself with these local rules and ordinances by checking with the public library and local government websites in your area.
Depending on your business, you may need to obtain additional licensing, according to BizFilings.com. For example, if you're a caterer, you not only need to obtain a business license, but you may need to meet Food and Drug Administration requirements. You can consult your local and state government websites to find specific requirements in your business region.
You probably already have homeowners insurance, but it may not cover your home-based business. "The three most common coverage options for a home-based business are a Homeowners Policy Endorsement, an In-Home Business Policy and a Business Owners Policy (BOP)," says Erie Insurance Vice President and Product Manager Joe Vahey. "You might even want to consider extra coverages like workers' compensation if you have employees; disability insurance to protect your income if you're ever injured and can't work; and business auto insurance if you use vehicles to conduct business." Most of the time, business insurance provides more coverage than personal insurance. An Erie Insurance agent can help assess where your coverage gaps lie, and which coverages will best protect your business.
By taking the proper steps to establish a strong home-based business up front, you may reap the rewards in the end by having a secure, stable and profitable business with the flexibility and earning potential you're looking for.