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MyOwnBusiness Institute

How to Start a Home-Based Business

OBJECTIVE:

You don’t need a traditional office space to start a business.  In fact, you might be able to start your business with a laptop, a smartphone, or a promotional flyer you post in your neighborhood.  In this session, you will learn about businesses that don’t rely on a physical space, and in this category, we will describe freelance, independent, and home-based businesses (referred to throughout this session collectively as “home-based” businesses).  This session discusses different types of businesses that you can start from home and provides a Freelance, Independent, and Home-Based Business Readiness Checklist to help ensure you have what you need to get started.

Photo of laptop, phone, and coffee on a desk
  • What are Freelance, Independent, aand Home-Based Businesses?
  • Benefits of Freelance, Independent, and Home-Based Businesses
  • What is the Gig Economy?
  • Characteristics of Freelance, Independent, and Home-Based Businesses
  • How to Launch a Business as an Independent Contractor
  • Starting a Freelance, Independent and Home-Based Busines
    • Freelance, Independent, and Home-Based Business Readiness Checklist
    • Creating an online presence for your home-based business
  • Establishing Work-Life Balance in your Home
  • Challenges of a Freelance, Independent, or Home-Based Business
  • Flexible Workspace Options for Freelance, Independent, and Home-Based Businesses
  • Top Ten Do's and Don'ts
  • Business Resources

What are Freelance, Independent, and Home-Based Businesses?

  • Freelance businesses are businesses with one employee (you) who takes on contract work for other businesses, organizations, and individuals. For example, if you spent the early part of your career as an accountant for a large company and then decided to start your own accounting business, you would be an accounting freelancer. You would then provide your accounting services for businesses that you choose, setting your own hours, schedule, and rate.  
  • Independent businessesare similar to freelance businesses, and business owners in this category are typically known as independent contractors.  Large companies often hire independent contractors for positions that are seasonal, project-based, or for other reasons where a permanent employee is not hired. There are specific laws regarding what qualifies as an independent contractor versus an employee, so be sure you understand these laws in your area. More information can be found in this session and in the blog post about how to start your business as an independent contractor.
  • Home-based businesses are any businesses that you operate from your home. This could be a freelance business, an independent contractor business, or it could be music lessons, wedding cakes, gift baskets, bike repair, landscaping, house cleaning, daycare, or more. Many aspiring entrepreneurs also turn their favorite hobbies into business ideas they can pursue from home. Similarly, many entrepreneurs may start their businesses at home and move to a dedicated location as they grow.

When we refer to home-based businesses in this session, we mean all three categories and any other businesses that don’t rely on physical office space to get started.

Launching a freelance, independent or freelance business has several advantages:

  • Flexibility: Starting a freelance, independent and home-based business provides the flexibility to keep your current job while you pursue your new business on the side. Some people call this “moonlighting” because you might work one job during the day, and a second job in the evening. Another name for this is a “side job.” One note of caution, if you are working for another company when you start your business, don’t use your employer’s resources for your new business and don’t start a business that directly competes with your employer. You should make sure that you understand the non-compete and intellectual property laws of your employment.
  • Help from family and friends: Starting a home-based business, you will be in a familiar setting with family and friends who can help if needed.
  • Low initial investment : Starting a home-based business typically allows you to begin your business with less capital because you don’t need to pay the expenses associated with leasing additional space. Having a small start can lead to big success later!
  • Leveraged resources: Home-based businesses allow you to utilize the resources you already have in your home. For example, a family computer or printer could be used for your business needs as well as internet connectivity or storage space.
  • Lower risk: The risk of failure is a part of every new business. Starting small at home allows you to test ideas, products, services, and markets before you invest a lot of money or incur financial obligations and dealings. To help reduce risk, it might be a good idea to set a limit on how much money you can risk and keep your primary job while you launch your new business.

The term “gig economy” is used to describe an economy in which temporary and flexible employment is common. In the gig economy, independent workers (freelancers) take on short-term engagements with different employers instead of long-term permanent positions with the same company. Freelancers seeking temporary employment often use specialized online services to find opportunities. Examples of these types of businesses include TaskRabbit, Thumbtack, Gentask, and Care.com to name a few.

The trend toward a gig economy has made employment much more flexible for both workers and employers. This can be important for people who cannot work full-time or need to make their own hours. However, it is important to note that gigs, consulting projects, and independent contracts may not have the same types of employee benefits that full-time positions might, such as health care, vacation and sick pay, retirement plans, and more. Also, the laws regarding independent contractors are changing, so be sure to understand whether your position qualifies and what rights and benefits you are entitled to in that position.

Home-based and freelance businesses have characteristics that set them apart from other businesses. If your new business has some or all of these characteristics you might be able to start it at home. With the right idea, it’s never too late to start!

  • Businesses with few employees: One common characteristic of home-based businesses is that there are fewer employees than the typical business. Of course, freelance businesses only have one employee, you.
  • Businesses with low storage needs: Homes often have limited space, so businesses that have less need for storage are better for home-based businesses. Home-based businesses with limited storage needs are businesses that provide services, businesses that make products that are perishable (like catering), and businesses that make products that are small and valuable (like jewelry). If possible, it’s a good idea to start by specializing in a single product or service.
  • Businesses that provide/deliver services to the customer: Many service businesses involve working at the customer’s home or business. Examples of on-site service businesses are landscapers, home repair, remodeling, electrician, rideshare, cleaning/janitorial services, and care: child care, pet care, and elder care for example.
  • Businesses based on specialized skills: Many freelance businesses are based on specialized skills customized for each client. Some examples include writing, translation, coding, editing, consulting, accounting, tutoring, and website design.
  • Businesses with virtual sales transactions: Many home-based businesses involve virtual sales transactions. Virtual sales transactions are transactions that occur through an internet portal. E-commerce companies are built around virtual sales transactions. Examples include Amazon, Etsy, or other internet-based retailers. See the Ecommerce session for more information.

Businesses that do not have the characteristics listed above are more difficult to operate out of the home. What kind of businesses would be poor home-based businesses. Here are some things to watch out for.

  • Businesses with lots of employees: There are two cases where businesses need lots of employees. First, when the product or service need lots of people with different skills to make and deliver it (like hospitals, sports teams, restaurants, and manufacturing). Second, when the sales and production volume is large. If either of these cases apply to your business, then a home-based business is probably not best for you. Consider researching other locations to pursue these types of businesses. See the Choosing a Business Location session for more information.
  • Businesses that needs lots of storage: Some businesses need lots of storage in order to operate. Retail businesses like auto dealerships and grocery stores needs lots of storage. Other businesses that need storage are dry cleaners, florists, and bakeries.
  • Businesses where the customer comes to you: If the customer comes to you, then a home-based business is probably not a good idea. Businesses like this include salons, gyms, bus tours, and theaters.
  • Businesses that depend on a specialized location: Some businesses depend on location and are not good as home-based businesses. Location is important in businesses that are regulated, like businesses that sell alcohol, and businesses that are associated with travel, like fishing charters.

If you business has any of these characteristics, then you should carefully consider whether a home-based business is the right choice.

If you plan to freelance or "hire out" your skills or expertise to start a business, you may be hired by others either formally or informally as an independent contractor.

In the United States there are legal definitions of "independent contractor" that vary by state. It's important to understand the requirements where you will be doing business to ensure that you, your business, and your client are following the law. In some cases, what you think of as a contract position may legally qualify as employment, which would enable you to receive benefits from the hiring entity.

To learn more, read this MOBI blog post about how to start a business as an independent contractor.

Starting a freelance, independent or home-based business is similar to starting any other business. If you are starting one of these businesses, you will need to allocate your time carefully because you are probably doing most of the work yourself. Doing some planning and preparation before launching your business will ensure you have time to work with your clients and increase your chance of success. 

The following checklist will help you figure out what you need to do to be ready.

Freelance, independent, and home-based business checklist screenshot

Download: Freelance, Independent, and Home-Based Business Readiness Checklist  

 

Creating an Online Presence for Your Home-Based Business

An important part of almost any business is creating an online presence (through a website or social media). An online presence is an efficient way for you to connect with new customers, to describe your products and services, to authenticate your business, and to sell products. (The Ecommerce session  has additional resources to consider.)

A website for your business: There are two ways to think about how to design your website. Do you want static information or dynamic information? Some businesses create a “static” website which has basic information about the business (such as location, phone number, email, services offered, etc.), and the content does not change, or does not change frequently. A static website allows people to find your business through an online search and to contact you based upon the information on your site.

A “dynamic” website is one where the information is changing all the time. For example, if you have a restaurant or food truck, you may want to post photos of your food, updates to your menu, your hours, seasonal specials, and more. If you design graphic t-shirts and other clothing, you may want to continually update your site with new designs, sale items, and customer photos. There are many other examples where a dynamic website is a better fit for your business. In general, dynamic websites will be more expensive to create and maintain. If you create a dynamic website, you will need to commit to updating the content frequently.

You can build a website by hiring a professional (usually a freelancer!) or by creating it yourself. PC Magazine recently published a list of tools for creating a website: The Best Website Builders for 2023. Some of the tools to consider are Wix, Squarespace, and GoDaddy.

A web store for your business: If you want to be able to sell items directly from your website, you will need to make sure your website had a web store capability or online shopping cart.

Using a web store has a number of challenges and additional tasks that you need to carefully consider. Some of those include shipping, packaging, managing inventory, consumer fraud, and collecting sales tax. Many of the website building tools mentioned above (like Wix and Squarespace) can help you set up your store.

Social media for your business: Some businesses use Instagram, Facebook, and other social media platforms to create an online presence that they need. Social media platforms are great if your target customers use social media as well and especially if your business is easily promoted through photos. Social media platforms are less expensive than websites and it’s easy to update information. However, social media can also be a difficult way to attract new customers unless you are willing to pay for social media advertising.

One of the unique benefits, and important challenges of starting a home-based business is that you can work on your business any time you want. It is important for freelance, independent and home-based entrepreneurs and freelancers to maintain a healthy balance between work life and personal life. Here are some tips to help you do that:

  • Create a specific space for your business. Establish a desk area or a unique space in your house where you keep your business things and conduct your business work. If your space is very limited and need to use family or personal space for work, then you should try storing business items out of sight when you are not working. For example, for work you can have a separate calendar, organizer/planner, file folder, laptop, and even a set of pens that you take out and put away depending on your work schedule.
  • Set work hours. Create a schedule for yourself, including breaks, and stick to it. Established work hours will allow you to focus all your attention on your business. When you attempt to divide your attention, your “working time” is less focused and less productive. From the beginning, set a schedule that provides balance, and stick to it.
  • Dress for success. One of the ways to separate your home life and your working-at-home life is to dress for work, even if you don’t have to. Getting ready for work will provide a clear physical transition for you, and it will help your mental transition as well. Your mindset will be more focused and dedicated if you dress for work even at home.
  • Set goals. In addition to setting specific work hours, it’s also a good idea to establish daily or weekly goals. The amount of work needed to start a business can be overwhelming. It’s easy to fall into the habit of working around the clock on everything all at the same time and never feeling successful. By establishing daily or weekly goals, you can dedicate your work hours toward specific objectives and feel successful when you achieve them. 
  • Live your life. Starting a business will likely take up more of your time than you expect. However, it’s important that you don’t let it take ALL your time. Be sure to make time for yourself and for your personal life. Make time to do things that you enjoy, and spend time with your family and friends. Taking breaks from your business will give you the time and space to clear your mind and keep your perspective fresh.

There are many challenges to starting a freelance, independent, or home-based business. Before you launch your new business, you should think about how to address these challenges. The other MOBI sessions can help you think through them.

  • Finding new customers and generating sales: One challenge of starting a business is finding new customers and generating new sales. You should plan on starting small and building your sales by providing a great customer experience. Develop a plan for finding and reaching new customers.
  • Controlling risk and liability: Whether you are launching a home-based business or a larger venture, you should give some thought to controlling your risk and limiting your liability. Many risks can be controlled by purchasing a good insurance policy (see the Business Risk and Insurance session).
  • Ensuring you have the right licenses, permits, and permissions: In addition to the usual licenses for operating a business, home-based business owners need to understand local zoning ordinances and Home Owners Associations (HOAs) restrictions (see the Licenses and Permits session for more information). It is a good idea to visit the SBA Businesses Licenses and Permits website where you can find information additional information about state and federal requirements.
  • Understanding the rules for business expenses and deductions:The Internal Revenue Service has carefully defined what business deductions can be taken by home-based businesses. The IRS website summarizes these rules for you.

There are a variety of options for entrepreneurs pursuing freelance, independent, or home-based businesses who would like to work outside their homes as well. In the Choosing a Business Location session there is information about incubator spaces, co-working spaces, temporary spaces, pop-up shops, and more. You can also learn about options to procure resources such as conference room space, a post office box, or receptionist/phone support. More information can also be found in the MOBI blog post, “How to Decide if a Coworking Space is Right for You: Pros and Cons from a Pro.”

THE TOP TEN DO'S

  1. If possible, specialize in a single product or service.
  2. Use the Freelance, Independent & Home-Based Business Readiness Checklist to prepare.
  3. Understand the independent contractor laws in your area.
  4. Create an online presence for your new business.
  5. Utilize your existing resources for your freelance, independent or home-based business.
  6. Evaluate the characteristics of your business to decide if it’s a good fit for a home-based business.
  7. Maintain a healthy balance between your work life and personal life.
  8. Set daily or weekly goals to feel successful throughout your preparation process.
  9. Make sure you have all the right permits, licenses, and permissions.
  10. Understand the tax rules for freelance, independent or home-based business.

THE TOP TEN DON'TS

  1. Overlook a hobby as a potential home-based business.
  2. Quit your job until all preparations are complete.
  3. Compete with your employer.
  4. Conduct business on your employer's time.
  5. Feel like you need a traditional office space to start a business.
  6. Overlook zoning and permitting requirements.
  7. Be in a rush to get started: use the Freelance, Independent & Home-Based Business Readiness Checklist.
  8. Incur unreasonable liabilities in financial obligations and dealings.
  9. Think it's too late to start.
  10. Neglect the importance of selling and finding new customers.

If you are writing your business plan while reviewing this material, take a moment now to include any information about your business related to this session. MOBI’s free Business Plan Template and other worksheets, checklists, and templates are available for you to download. Just visit the list of MOBI Resource Documents on the Resources & Tools page of our website.