Starting A Home Business

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A home business is a good way to save on startup costs and overhead costs while you get a feel for how you like being your own boss.


Home businesses are very popular for first-time business owners and for those who plan on operating smaller businesses. Not only are costs lower, but you will save on expenses for travelling. Home businesses also offer greater flexibility in working hours.

Improvements in communications and computer technology have made it possible to run many types of businesses from home that once required a dedicated office or retail space. Operating a home business is not always easy, and it can take some serious effort. You will have to educate yourself as to the many issues, legal and otherwise, that come with starting your home-based business.

This guide will provide you with everything you need to know before you decide on whether a home business is for you. It will also walk you through some of the basics of starting a work from home business should you decide upon doing so.

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Becoming a business owner is a big step, but it can be made a little easier by choosing to start a home business. Virtually any business can be a home business as long as space requirements are not an issue. If your business requires only a small office or you spend most of your time at client locations, then a home business is the perfect option. The only considerations you will have are if the business will negatively affect your home life or if your lease prohibits you from using your home for business activities.

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In considering whether a home business is right for you, it is important to know the advantages and disadvantages. Some of the advantages include the following:

  • No need to spend money for renting or purchasing office space
  • No need to travel to and from the office
  • Flexible and convenient working hours

Disadvantages of owning a home business are as follows:

  • Difficulty is separating home and work life or too many distractions at home
  • Possible disconnect between keeping contact with other people or businesses
  • Working longer hours than expected
  • Possible changes in your homeowner’s insurance and property taxes

Of the disadvantages listed, most people find the first to be the most difficult in running a home a business, especially for those who have a family at home. However, you can take very specific steps in alleviating this problem by creating an effective work environment.

To solve the problem of being disconnected from the greater business community, it will help to take part in online networks or other organisations that will keep you abreast of networking events.

If you feel you need further time to consider your home business, you may want to think about starting it while you continue to work your current job. Many people start a home business by working before or after their regularly scheduled workday. This will give you the additional funds that may be required before your business takes hold, and it will give you something to fall back on should you finally decide against operating a home business.

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Before you start your home business, you will want to check on several legal and tax issues. These issues can greatly affect how your business can operate or if it is even possible to operate in your particular situation. Following are the most important entities to contact regarding legal and tax issues for your business:

  1. Mortgage Lender or Landlord – Your mortgage lender or landlord may have restrictions that prevent you from operating a business from your home. These restrictions are usually written in your mortgage or lease agreement.
  2. Insurance Provider – Your insurance provider may require you to purchase additional coverage for your home insurance if you run a home business.
  3. Valuation Office Agency (VOA) – The VOA will be able to tell you if you will be charged business rates for your property instead of domestic rates.
  4. HM Revenue & Customs – You will want to get information on how a home business will affect your income tax, capital gains tax and VAT.
  5. Health & Safety Executive – Your local Health and Safety office may require a risk assessment for your home business. They can also educate you as to any health issues regarding your business.
  6. Planning Department – Your local planning department will have to be contacted if you will be making any structural modifications to your home. You will often be required to obtain permission before making any such changes.

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Before starting your home business, you will want to have a concrete business idea and a business plan. This is especially important if you will be seeking financing from a bank or other investors. It is also an important step in documenting your business and guiding your business as it develops. A good business plan lets others know that you are serious about your business and you will be putting forth your best effort in making it a success.

Coming up with a business idea is often the most difficult part of starting any business. If you are having trouble with a business idea, you can answer a few simple questions:

  1. Do have a particular hobby or skill? If so, is your hobby or skill marketable?
  2. Do you know of a gap in the existing market? Is there a service or product that you would personally like but cannot find?
  3. Can you improve on an existing idea? Is there a product you could make better or a service you could perform better?

If you are still stumped on coming up with a business idea, you may want to consider some of the most popular home businesses:

  • Website design
  • Business consulting
  • Arts and crafts
  • Publishing
  • Catering
  • Operating as a professional assistant

Another idea that is very popular for new business owners is to buy a franchise. A franchise gives you the benefits of an existing business model, startup support and operational support. You will still own your business, but you will have a central office to help make it succeed.

After you have your business idea, it is time to write up your business plan. A formal business plan should include several key points:

  • A summary of the business
  • A vision for the future of the business
  • A marketing plan that identifies your customer-base, competition and selling points
  • An outline of how your business operates
  • Any support received from outside sources
  • Forecasts of the financial status of the business

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Once you have completed your business plan, including the financial forecast, you will know if you intend to borrow money to start your business. If you cannot cover the startup costs, you have several options, including taking out a bank loan, borrowing from friends and family or acquiring a startup grant. Several resources are available online to assist you with all of these options, so you can be assured you are making a wise decision, getting the best rates on a loan and finding all of the available grants.

Initial costs for your business will depend on your particular business requirements and what you already have available for use in your home. You will need to purchase or lease equipment, furniture and office supplies.

One of the biggest expenses for a home business is a new computer, computer software and computer accessories. This is the most important set of equipment for a home business because it will be your primary means of communication and record keeping. However, if you are running on a tight budget, you may be able to save money by using free software alternatives in place of expensive Microsoft or Apple products. Free business software that works well and has excellent features includes OpenOffice and Google Docs.

Besides a computer system, some other important considerations that affect startup cost include a desk and office chairs, business cards, a mobile phone, supplies and inventory.

In addition to startup costs, you will also have to consider taxes. You will be able to claim some tax relief for domestic bills that are paid for the parts of your home used for business. If your business is registered with VAT, you may also benefit from VAT claims on items purchased for business use.

The downside about your new tax situation is that the rooms or areas of your home used for your business may be charged the business rate for taxes rather than the domestic council tax. Whether you are charged the business rate depends on the exact extent of your business and the details on how you use your home for your business. You will have to contact your local Valuation Office Agency (VOA) and your local authority to discuss the situation further. You can also find more information about business rates, including a downloadable fact sheet, on the VOA website.

Another tax consideration is the Capital Gains Tax, which you may have to pay if you own your home and subsequently sell it. However, you may also be eligible for relief of the Capital Gains Tax, which can be confirmed on the official website of HM Revenue & Customs (HMRC). If you ever have questions concerning your taxes, it is recommended that you consult an accountant or consult directly with HMRC.

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Creating detailed documentation and keeping accurate records is very important for any business, and home businesses are no exception. Accurate and detailed record keeping makes good business sense, and in many instances, it is required by law. Before you begin your business, you should have a complete system for record keeping established, and it should be the first part of your business you implement after putting your business plan in writing.

Keeping accurate records and proper documentation has several benefits, including the following:

  • Accurate records make your tax returns easier to complete.
  • They ensure you are paying the proper taxes at the proper time.
  • They help you avoid paying penalties and interest because of tax payment mistakes.

Several types of records are necessary to maintain a healthy and successful business. Some examples include documentation for all of the following:

  • You will need receipts or invoices for everything purchased for the business or sold on behalf of the business.
  • If you hire employees, you will need records of their wages, any taxes you collected and the National Insurance deductions you have made and paid to the HMRC.
  • You will want to save all of your bank statements that include business activity. In addition, you will want to keep your building society book. Statements should clearly show and differentiate between personal activity and business activity. For cash transactions, you will need to keep a receipt book to track all expenditures and cash income.
  • It is important to retain all of the utility bills for your home when you operate a business from it. Utility bills are necessary to prove how much you spent for the portion of your home used for business.
  • If you do not keep accurate records, you may be imposed penalties. A new penalty system for faulty record keeping was put in place in April 2009.

If you require further information about tax penalties in regards to record keeping, you can visit the HMRC website.

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Now that you have your business plan, financing, supplies and record keeping system, you can focus your attention on how to secure your first customer. Building new customers can take a lot of work, but you can make this part of your business a little easier by following a few steps:

  1. Create a brand – Your business should have a well-designed logo and a tagline. Most successful businesses put a lot of effort into creating an image that people will find impressive and memorable. If design is not your strong point, you can hire a professional business designer.
  2. Use existing resources – Create a list of all your family, friends and acquaintances. Most people find that this list is a lot longer than they believe it will be, and many of the people who may require what your business offers will become readily apparent.
  3. Contact prospects – Begin to call or set up meetings with the friends, family and acquaintances on your list. It is not necessary to be too pushy, at first. Just let them know what you do and that you are available for them. After a few days, follow up with them and ask if they have thought about what you discussed.
  4. Meet with prospects – If any of the prospective customers you contacted express interest, set up a time for a face-to-face meeting. Make sure the meeting time and place is convenient for your potential customer. At the meeting, be professional but courteous. The meeting should be fairly swift and to-the-point. Make promises that are impressive, but be sure you can keep them.
  5. Promote the sale – Once you’ve closed your first deal, ask for your customer’s permission to promote it. Write a press release about the sale or include it in a blog or social network post to bring it to the attention of other potential customers.

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Technology is the backbone of any home business. Computers and smartphones are used to keep in touch with customers and vendors. They are used to meet new contacts and close deals with existing clients. Computer systems are very effective for communication, research and many other aspects of customer relations management.

You may also want to consider using technology for promoting your business. One of the best ways to promote a home business is to create a dedicated website for the business. Websites are now considered a must for any business. A website is as important as being listed in the phone book and has several benefits, including adding exposure to your business and brand, attracting new customers and providing a quick way for customers to communicate with you.

Many new home business owners have reservations about adapting to the latest technology, but obtaining a measure of confidence with new technology is a necessity. One way to build confidence with new computer systems is to take a local training course in computers or in using specific software packages.

Once you are comfortable with technology, you will be able to make full use of email, the Internet, social networking and cloud computing. All of these technological features work together to increase the competitiveness of your business.

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One of the problems faced by home business owners is failing to create a productive work environment. It is necessary to create a dedicated work space where your home life cannot intrude. Ideally, you should have a complete room with a door, so you can close out any potential distractions. A dedicated office will also help you deal with clients more effectively and provide you with a space for your office equipment.

A productive work environment requires more than just space. You can follow these tips to increase your productivity:

  • Make sure your desk is large enough to accommodate your work.
  • See to it that your chair, keyboard and monitor are adjusted to your height and reach.
  • Use effective storage and organising solutions to reduce clutter.

If you need to make modifications to your home to accommodate your home business, you may require planning permission. It is recommended that you contact your local authority should your home no longer be used primarily as a residence, will increase local traffic, promote activity unusual for a residential area or disturb neighbours.

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Proper management of your home business will foster continued success and help you grow your business. Proper management starts with effective communication. You need to communicate effectively with employees, vendors and customers. This will help you identify more business opportunities and discover solutions to any problems your business may be facing.

Another important aspect of managing your home business is staying on top of your cash flow. To succeed in business, your cash flow must be smooth and unhindered. Money must be continually coming in, and all of your bills and obligations should be paid in a timely manner.

Many business management tasks can be controlled through the effective use of technology. Making full use of your computer system and using the proper software systems will allow you to manage the key aspects of your business through a streamlined process.

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If you have successfully found a great business idea, implemented a proper business plan and manage your business well, you will soon be making a profit. When profits are stable, it is time to start thinking about growing your business.

Some businesses foster growth by focusing on personal strengths and outsourcing what cannot be done as effectively from the home office. This allows you to keep your home office while expanding the business. Some of the aspects of your business that can easily be outsourced include bookkeeping, marketing, public relations and billing.

Although outsourcing can be an effective tool in growing your business, hiring employees can also be very beneficial.

The first task in hiring employees is to decide if they will be proper employees or if they will be independent contractors. Both have benefits and detriments. Employees require more work to maintain but you have more control over the specifics of their work. Contractors are more independent but can be less expensive to maintain.

Hiring employees means creating additional responsibility. You will be responsible for the health and safety of your employees, and you will want to see that they are satisfied in their employment with you. You may want to start off slowly, and as you become more experienced in managing personnel, you can hire additional employees as they are needed.

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