How to Start a Home Business: Costs, Legal Requirements, and Growth Tips

Published Thursday 11 September 2025

Table of contents

• What kind of business can you start from home?
• How much does it cost to start a business from home?
• How to start your own business from home
• Overcoming common challenges of running a business from home
• Resources and tips for running a successful home business
• Start your home business with confidence using Xero
• FAQs on starting a business from home

Key Takeaways

• Validate your business idea by matching your existing skills with market demand, ensuring your chosen business type complies with local zoning laws and can realistically operate from your home space.
• Create a comprehensive financial plan that includes startup costs ranging from $1,000-$10,000, realistic revenue projections, and budgeting for lean initial months since most home businesses aren't immediately profitable.
• Establish proper legal foundations by choosing an appropriate business structure, registering your business with the state, obtaining required permits including a home occupation permit, and setting up dedicated business banking to separate personal and business finances.
• Implement clear work-life boundaries by creating a dedicated workspace, establishing fixed business hours, and developing a focused marketing strategy that includes social media presence and a professional website to reach your target customers.

What kind of business can you start from home?

You can run your business from home as your main workplace. Over 69% of new businesses start from home, and this number is growing as digital tools make remote work easier.

Here are some popular home business categories:

• Creative services: copywriting, graphic design, content creation
• Technology services: This is a strong fit for home operation, with statistics showing there is a 70% chance of information industries being home-based. Examples include web design, app development, and digital marketing.
• E-commerce: handmade products, dropshipping, online marketplaces like Etsy
• Professional services: consulting, bookkeeping, virtual assistance

When starting a home business, consider the following legal requirements:

• Zoning laws: Check local regulations for home-based businesses
• Business visitors: Review safety and liability insurance requirements
• State permits: Research specific licensing requirements in your area

How much does it cost to start a business from home?

The cost of starting a business from home depends on the type of business, the equipment and tools required, and how quickly you plan to scale. On average, home business startup costs range from $1,000 to $10,000. To make planning easier, you can think of costs in these broad tiers:

Low-cost home businesses ($500–$2,000)

These are the cheapest businesses to start from home because they rely mostly on your skills and minimal equipment.

• Service-based: Virtual assistance, consulting, bookkeeping, writing services
• Digital products: Online courses, digital marketing, web design, templates
• Typical requirements: Computer, internet connection, basic software, business license

Medium-cost home businesses ($2,000–$5,000)

These businesses need more investment in tools, platforms, or product stock.

• E-commerce: Dropshipping, product reselling, handmade goods on Etsy
• Creative services: Photography, video editing, or graphic design with professional software
• Typical needs: Initial inventory, professional-grade equipment, and a marketing budget

Higher-cost home businesses ($5,000–$10,000+)

Businesses with regulatory, production, or professional requirements fall into this range.

• Manufacturing: Food production, craft manufacturing, small-scale product development
• Professional services: Accounting practices, legal consulting, healthcare or therapy services
• Major requirements: Specialized equipment, professional certifications, liability insurance

Universal startup costs for home businesses

No matter the type of business, most home-based businesses need to cover:

• Business registration: $50–$500, depending on your state and business structure
• Basic insurance: $200–$1,000 annually
• Accounting software: $10–$50 monthly to manage cash flow and taxes
• Marketing budget: $200–$1,000 for initial promotion and customer acquisition

How to start your own business from home

Follow these steps to start your own successful business from home.

1. Develop your business idea

Come up with your business idea by matching your skills with market demand to create a profitable venture.

To validate your business idea, follow these methods:

Skills assessment:

• Existing expertise: Use professional experience, qualifications, or special talents
• Passion alignment: Choose ideas that genuinely excite you for sustained motivation
• Example: Strong baking skills could lead to a home bakery or specialty cookie business

Market viability:

• Revenue potential: Research if people will pay for your product or service, keeping in mind that many home businesses start small. For example, census data showed that over half of home-based businesses brought in less than $25,000 in revenue.
• Competition analysis: Study existing businesses in your target market
• Demand validation: Test interest through surveys or small-scale trials

Home suitability:

• Zoning compliance: Verify local laws allow your business type
• Space requirements: Ensure adequate room for operations and inventory
• Regulatory fit: Home bakeries (cottage industry) face fewer restrictions than catering businesses

Once you have validated your skills, market demand, and home compatibility, start your business plan.

2. Write a business plan

Your business plan maps your path from idea to profit by defining your product, target customers, and revenue strategy.

Essential components:

• Product description: What you’re selling and why customers need it
• Target market: Who will buy from you and their purchasing motivations
• Revenue model: How customer purchases translate to profit
• Funding requirements: Startup costs and capital needs
• Marketing strategy: How you’ll reach and convert customers

Use a one-page format to stay focused and complete your plan. This covers the core elements without overwhelming detail, so you can adjust as your business grows.

Download a one-page business plan template.

3. Create a financial plan

Your financial plan shows your path to profitability by mapping your costs, revenue, and cash flow needs.

Key elements of your financial plan include:

Startup budgeting:

• Cost estimation: Calculate equipment, permits, initial inventory, and operating expenses
• Revenue projections: Estimate when you’ll reach break-even and profitability
• Cash flow planning: Most home businesses aren’t immediately profitable—budget for lean initial months

Learn about small business budgeting.

4. Decide on a name, business entity and legal structure

After you write your business plan, choose a name for your business unless you plan to use your own legal name. Pick a name that is memorable and clearly shows what you do.

Check if your chosen name is available. Search online and check the official trademark database.

You can register your business name in four ways:

• Entity name: This can protect your business name at the state level. Depending on your business structure and location, the state may require you to register a legal entity name.
• Trademark name: This protects your business name, goods and services at the federal level.
• Doing business as (DBA): This doesn’t give legal protection but your bank or state may require it. A DBA allows you to operate a business under a name other than your own.
• Domain name: This protects your business web address.

Choose a business structure that fits your needs. Your choice affects your taxes and personal liability. Tax requirements vary by location. For example, seven states have no income tax.

There are four main types of structure to consider:

• Sole proprietorship
• General partnership
• Limited liability company (LLC)
• S-Corporation

If you do not choose a business structure, you will be a sole proprietor by default. Talk to an accountant to choose the right entity for your business.

5. Register and license your business

If you form your business as a limited liability company (LLC), corporation, or S corporation (S-Corp), register your business with your state, and apply for an employer identification number (EIN). This federal tax number identifies your business and is often available immediately after verification.

Sole proprietors may also need an EIN if they plan to hire employees or if required by a bank or vendor.

After you have completed registration, you'll need to apply for a business license. The licenses and permits you need vary by state and local jurisdiction. Common permits include:

• Home occupation permit: Most home-based businesses will require one of these to operate legally.
• Property use and zone permits: You’'ll need to check if local zoning ordinances apply to running a home-based business in your area. Check with your local or city office to find out.
• Review your home-based business insurance needs. You may need health, home, general liability, auto, and business income insurance.
• General business licenses and permits: You'll need to check if you need any operating licenses, such as a professional trade license or a sales tax permit.

6. Set up your home office

Set up a specific area or room as your home workspace. Make sure you have enough space for inventory or tools.

Keep your workspace free from distractions and clutter. A quiet, roomy space helps you stay productive.

Invest in the furniture, tools, and technology you need most in your mobile office. Prioritize your purchases if you are on a budget.

7. Set up small business accounting

Open a dedicated business bank account. This keeps your business and personal finances separate for easier bookkeeping and tax filing.

Keep receipts for all business purchases, as you may be able to deduct them from your taxes. Track all sales and expenses in one place to see how your business is doing.

Work with a tax advisor early. They can help you claim all your deductions, submit accurate returns, and estimate your tax bills.

8. Create a marketing plan

A solid marketing plan helps your home business attract customers, build visibility, and compete effectively in your market. It outlines who your ideal customers are, how you’ll reach them, and what budget you’ll allocate to different channels.

Whether you’re running an online shop, consulting business, or creative service, a marketing plan gives you a roadmap for growth.

To create your marketing plan:

• Analyze your market: Research competitors, customer needs, and trends to see where your business can stand out. A SWOT (strengths, weaknesses, opportunities, threats) analysis is a simple way to map this out.
• Set clear goals and objectives: Define SMART goals (specific, measurable, achievable, relevant, and time-bound) so you know exactly what success looks like.
• Outline your marketing strategies: Identify the right channels for your audience. For example, will you focus on social media, local advertising, email marketing, or SEO to drive traffic?
• Set your marketing budget: Determine how much you can invest in campaigns, tools, or ads. Tracking spend is critical to making sure your marketing delivers results.
• Keep your plan up to date: Review performance regularly. Track ROI, refine campaigns, and double down on what’s working.
• Don’t forget the basics: set up social media accounts and a website to market your home business. These act as the foundation for almost every marketing strategy.

Overcoming common challenges of running a business from home

You may face challenges when running a home business, but you can overcome them with the right solutions.

Learn the pros, cons and how-to’s in the guide to starting an online business.

If you face financial constraints:

• Create detailed startup budgets and explore funding options like small business loans or partnerships
• Underfunding leads to business failure within the first year

To stay compliant with regulations:

• Solution: Research local zoning laws, obtain required permits, and consult legal experts for complex requirements
• Why it matters: Operating without proper licenses risks fines and business closure

To maintain work-life boundaries:

• Solution: Establish clear business hours, create physical workspace separation, and communicate boundaries to family
• Why it matters: Poor boundaries reduce productivity and increase burnout risk

To avoid professional isolation:

• Solution: Join industry groups, work from co-working spaces occasionally, and maintain professional networks
• Why it matters: Isolation limits learning opportunities and business growth potential

Resources and tips for running a successful home business

Starting and growing a home business requires more than just a good idea—you need the right tools, strategies, and market insights to stay competitive. These resources can help you plan effectively, manage finances, and keep up with industry shifts.

Planning tools to help you get started:

• Business plan template: Try a free step-by-step template that helps transform your business idea into a clear, actionable strategy.
• Cash flow projection template: Track incoming and outgoing cash to understand your funding needs, stay on top of expenses, and avoid financial shortfalls.

Use market intelligence to stay informed:

• Small business trends report: Access data-driven insights on global and local trends, including customer behavior, economic conditions, and emerging opportunities for home-based businesses.

Using proven templates saves you time and ensures you don’t overlook critical details. Combined with reliable market intelligence, these tools give you the foundation to make better decisions and set your home business up for long-term success.

Start your home business with confidence using Xero

Turn your idea into a real business by following these steps. Stay organized with your finances from the start so you can make smart decisions and focus on what you love.

With a clear plan and the right tools, you can run your business, not your books. Xero accounting software makes it easy to manage your finances from day one.

Try Xero for free.

FAQs on starting a business from home

Here are answers to common questions about starting a business from home.

What is the easiest business to start from home?

The easiest business to start from home depends on your skills and interests. Service-based businesses like freelance writing, graphic design, or consulting have low startup costs and can be launched quickly.

What is the best business to start with $1000?

With a $1,000 budget, choose low-overhead ideas. Start a dropshipping store, offer freelance services, or sell digital products like ebooks or online courses. These options do not require a large investment in inventory.

Do I need special permits to run a business from home?

You will likely need a home occupation permit to run a business from home. Depending on your industry, you may also need professional licenses or a sales tax permit. Check your city and state government websites for the rules in your area.

How do I maintain work-life balance in a home business?

Set clear boundaries by creating a dedicated workspace and fixed work hours. Tell your family and friends your schedule. Make time to step away from work to avoid burnout.

What business expenses can I deduct for a home business?

You can deduct a wide range of ordinary and necessary business expenses, such as business software, office supplies, marketing costs, and professional fees. If you use part of your home regularly and exclusively for business, you may also be eligible to deduct a portion of your rent or mortgage as a home office deduction. Work with an accountant to make sure you claim every deduction you’re entitled to.