How to Start a Home-Based Business

Starting a new business can be a major undertaking, so for entrepreneurs wanting to start off small, a home-based business is a great idea. You’ll learn a great deal about running a business successfully, while avoiding many of the costs associated with larger businesses, like office rental, utilities or hiring employees.

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If you find a good niche for your home-based business, it can even grow to provide a full-time income for you and your family. These types of “lifestyle” businesses are becoming increasingly popular, and provide the freedom and satisfaction of running your own business while avoiding much of the risk that a larger-scale venture would create.

We want to help you get your home-based business off the ground.

Since 2004, we’ve helped over 500,000 people to become entrepreneurs, starting exciting businesses and bringing their ideas to life. We’ll give you the support, guidance and advice you need to start a business from home and make it into a success.

From validating your ideas and doing the research to filing your paperwork and running your business, this guide will help you out. We’ll talk you through the main things you need to do to get your home-based business off of the ground.

Read on for some insight into starting a business from home and becoming an entrepreneur.

Why You Should Start a Business from Home

You’re probably wondering whether a home-based business is for you. If so, we’ve got some surprising statistics that suggest it’s a growing and lucrative type of business to run:

400M

Businesses in the U.S. that were started from home

$400B

Total revenue of the 40M businesses per year

100K

A fifth of home-based businesses make over a year

Nearly three-quarters of home-based businesses are still operating after three years, compared with only a third of traditional businesses

Almost half of home-based businesses are started for less than $5,000

Women start more home-based businesses than men

What Type of Home-Based Business Should You Start?

If you want to start a successful home-based business, it’s important to know what your options are. Here are some of the more popular home business ideas:

Freelancing From Home

If you have a creative streak, becoming a freelancer could be a great idea. Whether you’re a writer, artist, designer, programmer or have another in-demand skill, this can be a lucrative field. You will need to start small and build up a portfolio and reputation to command higher rates.

Selling Products From Home

Online retail and ecommerce is becoming increasingly popular. You can set up a store on a platform like Shopify, or sell through a third-party marketplace like Amazon or Ebay. Note that if you’re selling products, you will need to store inventory and take your products to the post office for shipping.

Dropshipping Products

If you want to sell products but don’t have a place to store them, dropshipping could be a good idea. This relies on you selling the product through a website and then getting a supplier to ship the goods directly to your customer. Please note that this is a very competitive space.

Creating and Selling Products

If you have artistic talent, you can even sell the products that you make. You can do this through a marketplace like Etsy, or create your own store to sell art, prints and other creations. Websites like CafePress and Zazzle will even put your designs onto items and take care of everything else for you.

Providing Services From Home

Home-based businesses aren’t just about selling products and skills — you can also provide other services too. For example, you might offer tutoring or childcare, or make private appointments with clients if you have skills as an instructor, coach, consultant, complementary therapist or counselor.

Providing Professional Services From Hom

If you have professional qualifications, they can be a great basis for a home-based business as well. Perhaps you're a certified business coach, bookkeeper or accountant — these are all services that are in-demand from trustworthy and experienced professionals.

Validating Your Home-Based Business Idea

The above home business ideas are all great starting points, but you’ll need to build on them to make the business your own. You have unique skills and insight you can use to create a home-based business that will really stand out.

Start by determining whether you have the right skillset. For example, if you’re selling products from home, have you identified the right niche and marketplace? If you’re providing home-based services, is there a demand for those services in your area?

Don’t assume that just because it’s home-based, it’s easy. Every home-based business will have dozens or hundreds of competitors, and you need to stand out, deliver superior products and services and excel in your chosen area.

Getting started in a home-based business is easy, but becoming a success is harder. Before committing too much time, energy and money into your new home-based business, it’s important to test the marketplace and validate your ideas.

Identify your home-based business’s unique selling points (USPs)

Whether you’re competing on features, price, quality, speed or something else, your USPs set you apart from competitors and encourage customers to come to you.

Look at who your competitors are in the space

Having competitors is a good thing as it shows there’s a market — but if there are too many, you’re likely to struggle without a really good unique selling point.

Understand your market

Clearly identify exactly who your customers are likely to be, where they hang out and how you’re going to reach them. This will be essential to your marketing, communications, sales and customer support.

Talk to clients

Speak with potential customers to understand what they want from your products and services, and validate this by asking if they would commit to spending real money on them.

Get involved with business communities and discussion groups

One of the great things about home-based business is that there are plenty of great communities and discussion groups. Get involved in them and learn the ins and outs of your chosen market before committing.

The thing to learn here is that it’s okay to say “no” to your first, second or third home-based business ideas. Very few entrepreneurs get it right first time. In fact, getting it wrong is often a badge of honor!

Still, you don’t want to waste too much time, energy or money on the wrong initiatives, so ask and answer these questions honestly to find the right way forward.

Your Home-Based Business Needs a Plan

It's easy to overlook a business plan when starting your home-based business, but that’s a mistake. Every business needs a business plan to become successful and grow.

You need to define how you’re going to run your home-based business, market yourself, get sales, make a profit and grow. This can only come about through creating a watertight business plan. It will help you get your thinking in order and show your commitment to your home-based business.

Business plans do vary slightly, but they should all cover the following areas:

An executive summary with the most important points from your business plan

Your goals and what you hope to achieve with your home-based business

A description of your home-based business, background information and context

A market analysis and likely demand

An overview of how your home-based business is structured

Your business model

How you will market and sell your offerings

Financial projections, revenue and profitability

Appendices

We’ve got the perfect guide to writing your business plan.

Choose the Right Business Structure and Register Your Home-Based Business

Now that you have all the background information for your home-based business, it’s time to make it into a reality. That starts by choosing the right structure or “legal entity” for your business. In the U.S., there are five main business structures. They are:

Sole Proprietorship

This is the "default" business structure and is what your home-based business will be if you decide not to create a more formal structure. We don't recommend this type of business as it doesn't give you the legal protections you need.

Partnership Company or LLC

This is a type of business that is formed when two or more people work together without creating a formal business entity. Like a sole proprietorship, it may not give you all the protections your home-based business may need.

Limited Liability Company or LLC

The most common type of business entity. An LLC is fast, simple and inexpensive to set up and maintain. It protects your personal finances and assets and is a great way to start your home-based business.

S Corporation

This is a more complex type of business and isn't generally recommended for smaller organizations, like a home-based business.

C Corporation

These are the largest and most complex types of businesses and are typically far more than the average entrepreneur or home-based business owner will need.

For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide. If you've still got questions, we've answered them to help you choose the right business structure.

In most cases our recommendation would be to create an LLC, We'vegot a complete guide to everything you need to do and we can set one up for your Home-Based business. LLC formation dose vary from state to state, but we've got you covered, wherever you are.

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Setting up Business Operations in Your Home

Once you've legally created your home-based business, you’ll need to get some other things in place.

Location

Of course, the whole point of a home-based business is that you run it from home. But it might not be quite that simple! You will probably want to put aside a room in your home as your office, where you can work undistracted. If you’re selling goods, you will need space to store inventory, and if you provide services you may want a room where you can see clients who come for appointments.

Equipment

The equipment you need when you start a business from home will depend on the type of business you run. While a freelancer, consultant or accountant might only need a laptop and smartphone, an Etsy seller may need specialized equipment for crafting. Whatever you need, make sure you have the space and expertise to store and use your equipment safely.

Employees

It’s very unlikely that you will need any employees to begin with. You can always hire other freelancers for specific tasks who can work remotely. You can try platforms like Upwork, People Per Hour or Fiverr Pro.

Software and Process

The right software and processes will make running your home-based business much easier. See our list of the best apps and software at the end of this guide.

Marketing

Marketing will be a huge part of your online business. You will probably need a great website, but you'll also need to get branding, newsletters, digital ads, social media accounts and other channels in place.

Finances and Taxes

You will need a separate business bank account for your home-based business. You might also want to consider a business credit card. Additionally, you will need to keep careful bookkeeping records and file business and personal taxes. Here at Incfile we can even help you file your taxes.

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Rules, Regulations and Taxes for Your Home-Based Business

Depending on the type of home-based business you run, you will need licenses, permits and regulations. You will need to explore local, state and federal licenses and permits, and we can also help out with researching your business licensing needs

Taxes

Taxes are a fact of life if you’re in business, and there are various ways you will need to file and pay them. This can include self-employment tax, state income tax and federal income tax. Depending on where and how you’re selling products and services, you may also be liable for sales and use tax.

As a rule of thumb, we recommend holding back around a third of your earnings to pay your taxes. We can also prepare and file your tax returns for you.

Maintaining Your Home-Based Business

There are certain forms and legalities you need to follow to keep your home-based business in good standing.

File an Annual Report

Depending on the state you’re located in, you will probably have to file a report every year. This report tells the state about any major changes to your business, and we can file your Annual Report on your behalf.

Annual Report

Pay estimated taxes

You will be expected to pay estimated taxes on what you plan to earn in the current business year. Typically, you will need to pay estimated taxes in April, June, September and January (of the following year).

Renew Business Permits and Licenses

Your business will probably have several licenses, permits and other regulations. These typically need to be renewed every year.

Prepare Your Taxes

You will need to work with your accountant to prepare all the taxes you need to pay.

File your taxes

You will need to file your taxes once a year.

Pay payroll and sales taxes

If applicable, you will need to make payroll and sales tax payments on a regular basis.

Groups and Forums for Your Home-Based Business

Here are some useful places where you can connect with other home-based entrepreneurs.

Small Business Forums

The Home Business Forum

Startup Nation Home-Based Businesses

Home-Based Business on Facebook

Useful Online Tools for Running a Business from Home

Here are some really great online tools for managing your home-based business. They will reduce the time you spend on administration, help you to collaborate with others and free up your time to grow and manage your new venture.

Project Management

Asana Basecamp Trello

Productivity

Todoist Evernote

Collaboration

Google Docs Dropbox Box

Social Media Management

Hootsuite Buffer Sprout Social BuzzSumo

Communication

Skype Grasshopper Slack Yammer

Email Marketing

MailChimp CampaignMonitor

Advertising

Google AdWords Bing Ads

Marketing Automation

Hubspot Hatchbuck

Customer Relationship Management (CRM)

SalesForce Insightly Zoho CRM

Customer Support

ZenDesk GetSatisfaction SurveyMonkey

Human Resources

Gusto Hire Athena

Legal

DocuSign RightSignature

Ecommerce

Wix Recurly Vendio Square

Website Development

Wix Squarespace Wordpress

Analytics

Google Analytics SumAll

SEO

SemRush KWFinder AHREFS Moz

Hiring

ZipRecruiter

Conclusion

The world of home-based businesses is extremely diverse. With the right intent and purpose, you can start a home-based business and turn it into something that could earn you more than $100,000 a year. Use this guide to start your search, form your business and the sky's the limit!

Start your business with us, today