How to start a home-based business

The pandemic has changed work in many ways. More people are working from home, and a lot of people have started businesses of their own. Some have done both: started a business from their home. Starting your own home based business can give you more flexibility, the possibility of financial security, and better work-life balance.

Here’s what you need to know about how and why to start a home-based business. 

Why start a home-based business?

There are lots of reasons entrepreneurs start home-based businesses: less overhead, which can lead to better cash flow: flexibility, and more work-life balance. So many types of businesses can operate 100% online that the market for starting a home-based business is full of new opportunities. 

But before you dive in, make sure you’re someone who will be successful working 100% from home. Do you have space in your house to set up a home office? Can you stay focused and not get distracted by other things in your home, like kids or a roommate? These things matter when you are starting a business from home. 

You also want to be sure you’ll be successful working for yourself. Are you a creative thinker? Self-motivated? If you are easily distracted or need explicit directions to complete most tasks, it doesn’t mean you can’t be an entrepreneur, but you’ll need to be aware of these tendencies and compensate for them. 

Related: Neurodivergent? Use your unique talents to succeed

What kind of home-based business should I start?

The next step is to decide what type of business you should start. 

There are certain industries that lend themselves particularly well to a home-based model. For instance, consultants can generally conduct most of their business from home. If you consult with small businesses on their marketing strategies, most of your work can probably be done virtually, on a computer. Similarly, freelance writers can easily start a business from home because all they require is a computer, Microsoft Word, and an internet connection. 

Here are some other types of businesses that you can start from home:

1. Financial advisor
2. Graphic designer
3. Teaching online classes
4. Web designer/developer
5. Bookkeeping
6. E-commerce or dropshipping store
7. Selling home-made products 

Even if your business requires you to meet clients face to face, that can often be done at the client’s location, at a workspace like WeWork, or even at a local coffee shop.

8 Steps to starting a business from home

To help you decide the type of business you want to start and begin building your business from the ground up, follow these eight steps.

1. Market research

Your business idea should be backed up with market research to support it. Let’s say you want to start an online company selling pet slippers, but if there isn’t any data that shows lots of people want to buy slippers for their pets, your business idea probably won’t be successful. 

You could start with an idea and see if there is data to support it, or you could research what industries are thriving right now and create a business plan around those findings.

2. Write a business plan

That brings us to the next step: writing your business plan. Studies show that entrepreneurs who write a business plan have greater success in the long run compared to those who skip this step. We have written about this topic a lot, so check out our blog post on how to write a business plan for more in-depth information. 

3. Understand your cash flow

When it comes to running a business, cash flow is king. Figure out how you’re going to make money and how you are going to continue to reinvest in your business for things like inventory or marketing, while still covering business expenses. Read more on why cash flow is essential to a successful business and how to achieve positive cash flow.

4. Choose a business structure

Home-based or not, every business must choose a structure. If you are going to be the only employee for a while and/or if you’re testing out a new business idea, register as a sole proprietorship. (This is also what you’re automatically labeled if you don’t formally register as a specific business type with your state.) However, you may also consider registering as an LLC to protect your personal assets. 

Related: What is the difference between DBA, LLC, and sole proprietorship?

5. Apply for a business license

Depending on the type of business you are starting and where you live, you may need to obtain a business license. Some of the types of licenses you may need to apply for include state licenses, federal licenses, and industry-specific licenses, such as real estate, architecture, and cosmetology. 

Related: Do I need a business license?

6. Get an EIN

Depending on the type of business you register as you may be required to get a federal Employer Identification Number (EIN). If you are a sole proprietorship, you do not need to obtain an EIN. Get more info here.

7. Check zoning laws

Look into zoning laws where you live. There could be city zoning laws that restrict certain types of businesses from operating in residential areas. If you live somewhere with a home-owners association (HOA) you should check if they have any rules or regulations about operating a business out of your home.

8. Get business insurance

One of the most important steps to running a successful home-based business is protecting it with the right type of insurance. The type of business you start will determine what kind of insurance you need, but we’ve broken down the insurance basics to help you determine which kind you will need. If you’re looking for information about how much business insurance will cost, the best way to go about that is to get a free quote.

For more information on starting a business, check out the Start Your Business page on our blog.