Guide

How to start a business from home

Learn about different ways of starting a home business, with a step-by-step guide to make your home business a reality.

A person sitting at their desk planning to start a business from home

What kind of business can you start doing at home?

When you think about it, most new businesses start in the home. Older studies have said 69% launch there, but that figure has probably climbed as digital and ecommerce tools keep making it easier and easier to work from anywhere. Whether you’re looking for a side hustle, a full-time job or to become an entrepreneur, there is a home business idea for you.

Popular businesses to run from home include creative fields (copywriting, content writing, graphic design), IT (web design, developing apps) and ecommerce (handmade products, drop shipping, selling products on marketplaces such as Etsy).

A home-based business is any business where your own home is the principal place of business.

You may need to check the laws in your state or city for starting a home business, as some states control this via zoning regulations. If you’ll have business visitors in your home, you may also want to familiarize yourself with laws about safety and liability insurance.

How to start your own business from home: a step-by-step guide

1. Develop your business idea

The first step is to determine what type of business you want to start. If you don’t have any obvious ideas, try the following:

Choose a home business idea that fits your talents and skills

Do you have years of experience or qualifications to use to your advantage? Do you have a special talent? For example, if you are good at baking, you might consider a home baking business, or you might be specifically interested in making homemade cookies.

Find ideas you are passionate about

Does the business idea excite you? If you are wildly excited about your business, you’ll have more energy and focus.

Make sure your idea is viable and that you can make money from it

Not every talent or skill can become a successful business idea. You’ll need to make a plan to turn your idea into revenue. You can begin by researching the market – and your potential competition.

Consider if you can run your idea from home

You'll need to think about zoning laws. For example, if you want to run a catering business, you may not be allowed to, but you may be able to run a home baking business. Home bakeries are cottage industries and are permitted to make low-risk foods; catering businesses can produce high-risk foods and require more regulation and facilities that may not be allowed in a residential area.

When you’re brainstorming ideas, don’t discard anything. Your ideas are allowed to be wild or simple.

Once you’re satisfied that you can pour your energy and skill into it and make a financial return from it, you’re ready for the next step.

2. Write a business plan

Small business experts like accountants and bookkeepers say it really helps to have a plan. Even if it’s a really short one.

Your plan will describe your product or service, identify who will buy it and why, and explain how those purchases will filter down into profits for you.

Start with a one-pager

Begin with a simple one-page business plan. Keeping it short will help you focus on what’s important – plus it'll help make sure you actually finish the plan.

Besides answering big questions about your product and how it fits into the market, a plan will also cover practical things like funding needed, sales goals, marketing plans, and who your team will be.

3. Create a financial plan

A financial plan will help you understand how your business will make money. Hint: it probably won’t be profitable straight away so definitely budget for a lean beginning.

Budgeting

Your budget will estimate costs and income to help you understand when the business might become profitable. It'll also help you see if you need to borrow some cash to make things happen.

Pricing

You’ll need to strike a balance between affordability for the customer and profitability for you.

Financing

How will you pay for everything? Do you need a loan (or investment) to start up your business?

How to pay yourself

Work out what you can afford to pay yourself. And learn how to do it without getting a surprise tax bill. Quick reality check: most small business owners only take modest pay to begin with.

After you’ve written your business plan, you'll want to name your business. That’s if you’re not going to operate under your own legal name. When deciding, it’s a good idea to make it memorable and something that makes it clear what you do.

Check that your chosen name is available. Start with a simple Google search to see if the name is taken. And also check the official trademark database.

There are four different ways to register your business name:

  • 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.

You'll also need to choose a suitable business structure. This can affect how you’re taxed and how much you’re personally liable for the business.

There are four main types of structure to consider:

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

The government will automatically assume you’re a sole proprietor unless you choose to be something else. To choose the correct entity for your business, consult with an accountant.

5. Register and license your business

If you choose to form your business as an LLC or S-Corp, you’ll need to register your business with your state, and apply for an EIN (Employer Identification Number). This is a federal tax number that will identify your business.

Any other type of business that plans to hire staff will also need to apply for an EIN.

After you have completed registration, you’ll need to apply for a business license. The license and permits that you require vary in each state. Some of the 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.
  • 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.

It’s a good idea to review your home-based business insurance needs. Typical insurance includes health, home coverage, general liability, auto and business income insurance.

Related article: Registering a business

6. Set up your home office

Designate a specific area or room that will be your home workspace. Consider if you need any extra room for inventory or work tools.

Try to keep your workspace as distraction-free and roomy as possible. Being stuck in a noisy spot or a cramped corner will diminish your productivity.

Once you have your space, invest in suitable furniture, tools and technology. You may not be able to afford everything you’d like all at once, so rank things in order of priority.

7. Set up small business accounting

Once all your registrations, licenses and permits are arranged, you should open a dedicated business bank account. This is crucial for bookkeeping and tax filing because it prevents confusion between your personal and business finances.

Record receipts for all your business purchases as you may be able to deduct them from your taxes. Also keep records of all your sales. List all of these incomings and outgoings together in one place so you can see how the business is doing.

Get a tax advisor onboard as soon as you can. They will help you claim all the deductions you’re entitled to and submit an accurate return. Plus they’ll do things like estimate your tax bills so there aren’t any nasty surprises.

8. Create a marketing plan

Writing a marketing plan can help you define your marketing strategy and identify the best channels to market your products or services.

To create your marketing plan, you should:

Analyze the market

Do a SWOT (strengths, weaknesses, opportunities, threats) analysis to determine where your business fits in the market.

Set your goals and objectives

Make them SMART (specific, measurable, achievable, relevant, time-bound).

Outline your marketing strategies

Choose marketing activities to suit your target audience. For example, will you reach them online?

Set your marketing budget

Knowing how much you have to spend is critical to the success of any marketing campaign.

Keep your marketing plan up to date

Analyze your campaigns and tweak or change your plan as needed. Track how much business you get in return for each dollar spent. When you see something isn’t working, invest your money and energy in other ideas.

Useful marketing tools for home-based businesses include setting up social media accounts and a website.

How to start an online business from home

Starting an online business is easier than ever. They generally cost less to run and are easier to run as a side hustle. Plus, online businesses give you the flexibility to work from anywhere and access to a worldwide market.

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

Overcoming possible barriers to setting up a home business

All new business owners face barriers. Resilience and planning will help to solve many problems that you'll face. Some common barriers include:

  • Lack of financial resources: Be sure you can afford to start a business and meet your regular expenses. Consider taking a loan or partnering with someone if you need to.
  • Regulations and red tape: Ensure you obtain the correct permits and licenses to run your business from home. Consult with experts to help you understand requirements.
  • Interruptions from family and friends: You need to establish boundaries so that your family or friends know not to interrupt you during business hours. You also need to avoid working around the clock just because you happen to live in your office.
  • Feeling isolated: You may feel lonely working on your own. Join some professional groups and try working in a shared space or café occasionally.

Resources and tips for running a successful home business

Setting up a home-based business is difficult. The following resources can help you run a successful home business.

  • Business plan template – download this free template (with a how-to guide) to help put your idea together.
  • Cash flow projection template – use this free template to track expected costs against your cash reserves to help see if you need a loan.
  • Small business trends – check out this stat-packed report on the issues affecting small businesses around the world.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

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