Starting a business is an exciting venture. Without proper planning, however, it can be easy to get overwhelmed with the process. Launching a business out of your home is similar to starting any other business, with the one exception that you will not need to lease commercial space for your business. In this article, we guide you through the process by laying out the steps to starting a home business.
Develop and Fine-Tune Your Business Idea
If you’re considering how to start a small business at home, chances are you already have an idea of the type of business you plan to launch. If not, identifying your concept should be your first step. If you do have a business idea, you will want to fine-tune your idea before launching your home business.
Consider Your Expertise
You have valuable insights, knowledge and experience that can shape your business idea. Consider your expertise as you further develop your idea. You can also use this information in your business plan, which is explained more below.
What Problem Can You Solve?
As you hone your business idea, consider what problem you plan to solve. If you are in the early stages of business idea development, consider a problem you can solve and develop a business idea from there.
Look at the Competition
Research your competitors. Where is there overlap in business offerings? How can you differentiate yourself in these areas? And are there any areas in which the competition is lacking, or holes in the products or services they provide? If so, this might be a prime opportunity for your business.
Create a Business Plan
A business plan is critical for two reasons: it will help you articulate your business goals and objectives, and it can be used to pitch to lenders and investors to obtain funding for your new business.
Business plans can vary in the amount of detail provided and length of the plan, but in general, a business plan will include:
- Executive summary—the “elevator pitch” of your business
- Overview of the business—a more detailed description of your business
- Market/competitive analysis
- Description of key products/services provided
- Marketing and sales plan
- Proposed budget and financial projections
Determine Your Business Entity
You will need to determine the legal structure of your business, such as sole proprietorship, partnership, LLC or corporation—each of which has pros and cons.
Generate Business Name Options
Your business name is one of the most fun parts of the business formation process. It can also be one of the most overwhelming. You want a name that lets customers, clients, competitors and others in the marketplace know about who you are and what you do, and you also want the name to be memorable and creative so that it packs a punch.
The business name needs to be available in the state where you will do business. Our business name generator can relieve the burden and eliminate some of the guesswork from the process by generating business name ideas that are available in your state.
Register Your Business Name
After you’ve decided on a business name, you need to register the business name in the state in which you will do business. The specific requirements for registering your business name will vary depending on your business structure (i.e., whether it’s a corporation, partnership, LLC, etc.) and the location in which your business will be registered. For most small businesses, registering your business name is done by submitting a form to your state and/or local government.
Register Your Business
Unless your business is a sole proprietorship, you will need to register your business with the state agency, often the Secretary of State, in the state where you will conduct business. You will be considered to be “conducting business activities” based on the following:
- Having a physical presence in the state (i.e., where your home business is located)
- Meeting in person with clients in the state
- Receiving a significant portion of the company’s revenues within the state
- Employees work in the state
If you plan to do sales in other states outside of where your home business is located, you may also need to obtain foreign qualification in other states in which you do business. To obtain foreign qualification, most states require that a business file a Certificate of Authority with that state and a Certificate of Good Standing from the state of formation.
Get a Business License
After you’ve registered your business, you’ll need to get a business license. Depending on your business’s industry and the specific requirements of your state, county and municipality, you may need licenses for the following:
- Industry license
- Zoning permit
- Seller’s permit
- General business operating license
- Federal licenses
Don’t assume that your business doesn’t need a license because you are a consultant or a freelancer. It is best to review relevant codes and regulations. When in doubt, talk to a business lawyer in your area.
File IRS Form SS-4 To Obtain an EIN
An Employer Identification Number (EIN) is needed for businesses that have employees or have excise tax reporting obligations. The process of obtaining an EIN is quick and straightforward. To obtain an EIN, you’ll need to file a Form SS-4, which you can do online. If you are a sole proprietor without employees, you can use your Social Security number for reporting business income.
Get Your Finances in Order
Your financial needs will vary significantly depending on the type of business you plan to launch. You will want to create a proposed budget, as well as financial projections, to ensure that you are financially prepared and to pitch to potential investors and lenders.
Create a Budget and Financial Projections
Before you launch your business, you’ll want to confirm that there will be sufficient revenue to be sustainable. You’ll also want to estimate how long it will take to generate a profit and how much the anticipated profits will be. For instance, a service-based consultancy business will likely have very little startup costs, but a product-based business, such as a catering business that you run from your home, may have more upfront costs.
Financial projections are estimations of how much money the business will earn and spend over two to three years. If you plan to obtain a loan or other financing, potential lenders and investors will likely want to see your financial projections so they have a clear understanding of when they will see a return on their investment in your business. You can create your own financial projections or find a template to use, such as those available in Microsoft Excel.
Develop a Plan To Keep Tabs on Finances
Getting your finances in order also includes considering how you will process and record your sales, expenses, income and revenues once the business is operational. There are several third-party providers who can assist with merchant account services, and we’ve ranked the best options for small businesses here.
Open a Business Bank Account
Opening a business bank account helps keep personal and business income and expenses separate. Using a business bank account can make it easier to track and record business income and expenses for accounting and tax purposes. You can open a business banking account at your local branch. You may also want to consider obtaining a business credit card as well. Get the step-by-step instructions on how to open a business bank account.
Consider Obtaining Business Insurance
If you are a sole proprietor or partnership, you may want to consider obtaining business insurance to cover business-related liabilities since there is no liability protection with these business structures. Even if you are formed as an LLC or corporation, which offers personal liability protection, you may want to consider obtaining business insurance depending on the nature of your business.
Create a Marketing and Sales Plan
Before launching your home business, you may want to create a marketing and sales plan so that you are poised for success. Consider how clients and customers will find out about you. Take a look at who in your network may be a potential client/customer or can help spread the word of your business. And evaluate whether there is room in your budget for advertising, marketing materials or sales training.