08/ 27/ 2007
by Charles R. McConnell
It's the employment dream of many: Keep your own hours, do things your own way and answer only to yourself and your customers--all within the four walls of your home. However, as many independent business owners have discovered, whether you conduct business from home or elsewhere, you must plan carefully before beginning the venture. The home often appears to be the ideal site for a new small business, especially one involving only one or two people. But it always makes sense to first compare the advantages and disadvantages of using your home as a place of business.
A significant advantage is avoiding the need to pay rent or separate utility bills. This built-in low overhead can be important, allowing a start-up business to pass the savings along to customers and compete more effectively. Low or at least reasonable start-up cost is one of the pluses of operating a business from home.
Another advantage of many home-based activities is flexibility of work hours. In many home businesses, you're able to work different hours during the day or night, depending on how much work you have to do and the needs of your customers.
Working from home can be ideal for the self-starting individual who works best alone and who feels the need for personal control over all aspects of the business.
Other potential advantages include:
- No more commuting to and from a work site; perhaps just an occasional business errand.
- Availability at home when needed for emergencies or repair-service calls or the like.
- The ability to "go to work" in casual clothes.
There are also disadvantages associated with working from home. Leaving a regular job to start a home-based business often means settling for decreased income, at least initially. And working at home is often subject to unpredictability; sometimes there's too much to do and, at other times, you may experience slack periods when you're not busy at all.
When working at home, you have to be able to shut the door--often both literally and figuratively--and block out disruptions. There's a tendency for many people to behave as though the person who works at home doesn't really "go to work" and can thus be called upon at any time.
Working at home can be isolating. You may go for days without human interaction beyond telephone calls and e-mail messages. Some people love this and will flourish in isolation, but others experience cabin fever after just so much time working alone within the same four walls.
Also, some kinds of work can't be done at home; for example, an activity that generates considerable noise will ordinarily be prohibited by zoning regulations. And in some communities, zoning codes prohibit client visits and non-resident employees.
There are tax advantages associated with devoting a portion of the home to business. However, the space claimed for business use can't be used for both business and personal purposes. A tax professional should be consulted on this and other tax matters, such as the necessity to make quarterly estimated income-tax payments in lieu of withholding tax. Also, since the independent work-at-home business person doesn't receive a paycheck that's subject to FICA (Social Security and Medicare) tax, it's necessary to reckon with self-employment tax, which essentially amounts to payment of both the employer and employee portions of FICA.
Insurance can be an issue for the home-business operator. Property and casualty insurance are essential, and business interruption insurance is often recommended. Lack of adequate coverage can place the business at risk. You can't assume that your homeowner's insurance will cover accidents occurring in the course of business, so you may need a separate commercial liability policy to cover customers and others. The bare minimum of insurance should cover property against loss and people against personal injuries. Anyone wishing to learn about business coverage can obtain information from the Insurance Institute at www.iii.org/individuals/business. This site also provides a checklist of the kinds of insurance to consider.
To enjoy a reasonable chance of succeeding in a home-based business, the activity must be something you take on for satisfaction and fulfillment as well as for income. Bare necessities you'll need include:
- A plan; a well-defined purpose and thorough knowledge of what's required to make a profit.
- A separate, dedicated space that you can arrange for work and keep that way.
- Some rules for limiting distractions.
- An organized means of keeping track of income and expenses.
Finally, plan on getting out occasionally, perhaps to NFIB Area Action Council meetings, chamber of commerce meetings or an occasional conference. Solitude can be healthy and productive, but too much solitude can become isolation--which is neither healthy, nor productive.
