One of the things holding you back from starting a business from home is probably because you feel like this is too complicated or expensive for you to accomplish. While it may take some investment for you, this can be a rewarding journey to financial independence that can allow you to follow your dreams. If you have come up with an idea that can be profitable and you have carefully considered starting a business from home, you may need some advice as to what comes next. Having an idea is only half the battle; you still need to start your business. By reading on, you can learn more about this process to give you the best chance of success.
Starting from the Basics
Before you can get started on anything else, you should create a business plan. The more detailed your business plan is, the better this will be for your business. This is not only for your purposes, but also to help you get investors or loans for your business. When you create a business plan, this will allow you to take a close look at your plans for the future to see the viability of your business. This can help you to look at your business to see if there are any weaknesses in your plan, such as lack of experience in some areas needed for the business.
What should this business plan include? For one thing, this plan should discuss how you plan to run your business. If you have no idea where to begin, the business plan can be your guide. As you create your business plan, you can research every element that needs to be in your plan, and you can learn a lot about running a business as you go. If you still don’t know where to start, the Small Business Association has plenty of resources for you to use that will teach you about business plans and how to create one for your business.
Choosing the Legal Structure
Another major decision that you need to make is choosing the legal structure of your business. This can be an incredibly important decision that can have a huge impact on the financials of your business. Your business structure can determine the paperwork that you are required to file, your personal liability, and your business’s ability to raise money. This is something that you need to carefully consider. You can usually change this later on, but there may be restrictions on this depending on where your home business is located. In this section, you can learn all about the most common choices for business structures. It can be a good idea to consult with a lawyer to decide on the best structure for your business.
This is one of the easiest types of structures to form. With a sole proprietorship, you get complete control over your business. If you don’t file any actual paperwork, your business is automatically considered a sole proprietorship. A sole proprietorship doesn’t produce its own business entity. What this means is that your business assets and liabilities are not separated from your personal ones. This is important to know because that means you can personally be held liable for debts and other obligations of your business.
You do have the ability to get a trade name, but it can be difficult for you to raise money since you are unable to sell stock. Banks will also be very hesitant to loan money to businesses that are sole proprietorships. A sole proprietorship can be an excellent low-risk choice for home business owners and other business owners that want to try out their business before they turn it into something more formal.
Partnerships can either be a limited partnership (LP) or a limited liability partnership (LLP). With a limited partnership, this means that there is one partner with unlimited liability and the other partners have limited liability. The partners that have limited liability will also have limited control within your business.
Limited liability partnerships are very similar, except all the owners have limited liability. This can protect all the owners from debts against the partnerships and they won’t have to be held responsible for another partner’s actions. If you have multiple owners, this could be your best option.
Limited Liability Company (LLC)
The good thing about a limited liability company is that you can receive the benefits of a corporation and a partnership business structure. With an LLC, your personal assets (items including your car or home) won’t be at risk in case there is a lawsuit or bankruptcy case. The profit and losses can go through your personal income without having to face corporate taxes. However, the members of an LLC are considered to be self-employed so they will need to pay self-employment tax contributions toward programs such as Social Security and Medicare.
If you have a medium risk or higher risk business or have significant assets that you want to be protected from business liabilities, this can be a great choice for you. This gives you a lower tax rate than you would get with a corporation, which can be good for you financially. However, there are some issues here. For one thing, if someone leaves the LLC, most places require you to dissolve the LLC and reform it. This is unless you have an agreement in place for transferring, buying, and selling ownership.
There are 2 main types of corporations: C corporations and S corporations. These two types of business structures are very similar. C corporations can offer some of the best protections for owners when it comes to personal liability. However, this is also one of the most expensive structure to form. Corporations pay income taxes on their profits, though sometimes in C corporations you must pay taxes twice on your profits. If shareholders leave the corporation, you don’t have to worry about things like dissolving your company. An advantage with corporations is that they raise money easier since they can sell stocks.
S corporations are specifically made to avoid the double taxation that you have to deal with when you have a C corporation. There are some downsides to this option. Not all states will tax an S corporation equally, but for the most part, they will recognize them as the federal government does and tax them accordingly. There are also limits on S corporations, such as not being able to have more than 100 shareholders or that all shareholders must be U.S. citizens. There are strict rules and filing standards that must be met to set up this type of structure for your business.
Setting Up Financials
A major mistake that home businesses often make is not separating their business and personal funds. This could very easily mess up your accounting and can lead to troubles when it comes to paying your taxes. By using a business-specific bank account, you can more easily track your business transactions and eliminate the possibility of intermingling your personal and business accounts.
Use a separate business account
The bank account for your business should be in the name of your business and you need to use your EIN. This account should only be used for any business-related banking needs, such as withdrawals, transactions, and deposits. You want to pick a bank that is convenient enough to get to when you need to. You should compare the local banks or credit unions, but often you will get better deals if you choose a credit union for your business banking needs.
Track transactions by a system
Once you have separated your personal and business finances, you need to use a system to track everything that you need to. You could get an accounting software program like QuickBooks for this purpose if you have the funds to do so, but you can easily just use a simple spreadsheet for your accounting needs. This can easily track anything that you make and spend so that you can get a better look at how your business is performing. By starting with this simple approach now, you can make it easier to transfer this data to a more complex program.
Choose the right bank
How do you choose the right bank for your business? The first thing that you should do is decide on what type of account you are getting first. There is the standard business checking account, which gives you checks and debit cards, but you don’t get interest on the account. There is a business savings account, which can be linked to a checking account and earns you interest. However, this option comes with a transaction limit. Then, there are the business certificates of deposit, which offers you higher interest than you’d receive with your checking account. You should know that this option comes with terms, which can reduce your liquidity since you aren’t able to withdraw money until after the term has ended.
Every business is different, which is why not one financial institution is better than the other. You want to take a closer look at the services offered at the bank, including credit lines and small business loans. It can be good to develop a relationship with your bank; in case you do need these services down the line. You also want to pay attention to fees that the bank charges, such as monthly service fees and ATM fees. Lastly, look at any online features they have such as mobile check deposits and online bill-paying services.
Set aside money for taxes
As you start to make a profit, it can be a good idea to set aside money as you go for your taxes. It can be incredibly tempting and easy to spend this money as you go, but it’s a better idea to have some cushion for you when tax time comes around. When you save up money for taxes now, you won’t have to scrounge around later when you inevitably owe the government money on your earnings. It is also very important to save your receipts so that you have proof of your expenses when it comes to doing your taxes. You should save these receipts for a long time, just in case you end up audited in the future.
Marketing is essential if you are going to make it in the business world. There are a few ways that you can market your business. This is how potential customers will learn about you so that you can bring in some business.
Building an online presence
One of the most important parts of this is your online presence. By creating a website and social media pages, you are already starting to build your online presence. This is essential when it comes to Search Engine Optimizations (SEO) for your business, meaning how easily customers can find you by using a search engine. This can be very easy to set up on your own if you use a service that has templates for you to use.
Spreading by word of mouth
You also want to start a word of mouth program. Even though the internet is going to be where you get most of your customers, you will still get a lot through traditional approaches like word of mouth. People will trust their friends and family for advice when looking for specific services. A word of mouth program can be as simple as offering incentives for referrals, like discounts on future services. As much as people love to talk about a company that went above and beyond for them, adding in incentives will increase the chances that they tell everyone about your business.
Starting a business from home is only half the battle. You need more than an idea and passion. You need a plan. You need to get your finances in order. You need to make sure that your business becomes a legal business by filing the right business structure. There are a lot of things that go into starting a business from home, so it can be helpful to seek out the advice of an expert in this area.
This article was written on behalf of The Brand Perceptionist by Alexander Ffrost. Alex is a serial entrepreneur with a passion for small business, and the creation of new stuff that no-one else has made or that beats the heck out of anything previously created. He loves starting and growing new companies in challenging sectors. Preferably with zero prior experience of the market or industry. In his spare time, Alex starts new brands and dreams of one day being Sir Alex. Or, alternatively, just designing another shirt with a “touch of Ffrost”. To learn more about Alex and his awesome inventions, visit his website at www.alexffrost.com.