There are quite a few conveniences to starting a business right out of your home, including more flexibility and lower overhead. While it may be tempting to just dive right in without much planning, it’s important to take the time to fully develop your idea(s) before officially launching your business. Here are 7 vital steps you should take before starting your home-based business.
1. Assess your skills
What skills do you have that are unique to you? What can you do well? Your previous professional experiences can help frame this thought process. What did you enjoy doing? What skills of yours did former supervisors or colleagues praise? Think about your hobbies, too. Do you possess certain talents or skills that can be valuable to a group of people? Of course, starting a business is not for everyone. If you have never been self-employed before, do you have the skills and discipline necessary to be successful? Check out 6 Traits You Need to Be Self-Employed.
2. Define your market
Without buyers, you don’t have a business. Who is your market? Who needs your product or service? What is your unique selling proposition—the thing about your product or service that sets it apart from others? Will you market to businesses, to consumers, or to both? Are other companies offering the same thing? How will your customers benefit from your product or service? What is your competitive advantage? Here’s more about developing your value proposition.
3. Calculate your start-up budget
Before you even launch your website, receive a sales call, or (eventually) open your doors, you’ll have bills to pay. Understanding your expenses will help your launch be successful. Calculating startup costs helps you estimate profits, secure loans if needed, and can even help determine your pricing since you’ll have a better idea of how much cash you’ll need to bring in to cover your costs. Read How to Apply for a Small Business Loan.
4. Handle the legal stuff
This part can definitely be overwhelming to tackle, but it is so very necessary to protect yourself and your personal assets. During this step, you should:
Get your Employer Identification Number (EIN), the federal tax number used to identify your business. You’ll need an EIN if you plan to form a partnership, LLC, or corporation (see more about that below).
Register your trade name if you don’t plan to operate your business under your own name.
Choose your company’s legal structure to protect your personal assets. Each business structure has its own advantages and disadvantages. Forming an LLC or corporation for your home-based business will protect your personal assets (such as your personal savings or property) from any liability your company may encounter. Read How to Choose a Legal Structure for Your Small Business.
Get your business license if your county or city requires one.
Choose a registered agent to receive important mail sent by the state (such as tax documents or notice of litigation). If you’ve incorporated or formed an LLC for your home-based business, your state probably requires that an agent for the business is always available during normal business hours and has a physical address. Many small businesses get a registered agent to handle these responsibilities. This is beneficial if you want to keep your personal address information confidential since a registered agent will give you an added level of privacy.
5. Determine your insurance needs
The kind of small business insurance you need depends on the type of business you own. Typically, the basic coverage for a small business includes general liability insurance, business property insurance, and workers’ compensation insurance. Without at least this level of coverage, you may be required to cover any losses against your company. Read What Kinds of Insurance Does a Small Business Need.
6. Open a business bank account
Even with a home-based business, it’s important to separate personal and business finances. If you mingle your finances, a court may target you personally because legally it looks like you and the corporation are the same entity. And, using a business account makes it much easier when you need to file your taxes since you’ll need to file your business income and expenses separately from your personal finances. Read How to Open a Small Business Bank Account.
7. Create a business plan
A business plan provides a roadmap for your small business. It may be tempting to skip this step if you’re planning to keep your company small, but it’s helpful to go through the process to make decisions now for the future of your company. The good news is that there’s no right or wrong way to write a business plan. Read How to Create a Small Business Plan Template.
Once you complete the tasks above, it’s time to launch your business!
Thanks for reading our educational resource! Any above reference to a specific company or product is meant for educational purposes only and is not specifically endorsed by Pie. If you’re a small business owner, see more small business resources or get a workers’ compensation rate in 3 minutes.