How to start a home-based business: 13 steps for a successful launch

Did you ever imagine that your workday might involve sleeping in until the very last minute, logging on in your pajamas and perhaps taking a shower on your lunch break? With remote work as the “norm,” many professionals have experienced the benefits of working from home. Although the greater flexibility and convenient location are excellent perks, it’s not quite the same as if you were the one calling all the shots. 

If you prefer the advantages of working from home but also find yourself wanting to be the boss, it’s worthwhile to explore whether a home-based business is right for you. To help turn your entrepreneurial dreams into reality, we’ve outlined exactly how to start a home-based business in 13 steps. 

Jump ahead to the infographic to uncover the pros and cons of home-based businesses, business ideas to get you started and secrets to success from other entrepreneurs.

What is a home-based business?

If your business’s main place of operation is your home, it qualifies as a home-based business. There are no size restrictions on home-based businesses — they can range from microbusinesses to larger entities. Many successful companies originated at home, like Microsoft and Google, so if your business does take off, know that you may not be home-based forever. 

Home-based business ideas to get started

When it comes to starting a business, one of the first things you’ll need is a good idea. Check out this list of business ideas you can do at home for inspiration. 

1. Graphic design services
2. Buy and sell products in bulk
3. Social media management
4. Bookkeeping
5. E-commerce
6. Event or travel planning
7. Cybersecurity services
8. Private tutoring
9. Catering
10. Pet care
11. Personal training
12. Landscaping 
13. Car or home maintenance services
14. Construction and contracting 
15. Career coaching
16. Decluttering or organization services
17. 3D printing
18. Beauty services
19. IT consulting
20. Website development

Steps to start a business at home

Entrepreneurship is experiencing a boom in the United States, with more new businesses started in Q3 of 2020 than in any other time in history. Join the entrepreneurial and economic revival by following these steps to kick-start your home-based business today. 

1. Brainstorm your business idea

Your business idea is essential to the success and longevity of your business. It’s important that you approach the brainstorm process thoughtfully and consider personal factors like your strengths and lifestyle, as well as business factors like your potential markets. Here are a few questions to help guide successful business ideation.  

• Can you solve a problem? 
  Business ideas that help solve common problems have the potential to be very successful. For example, if others need help with cybersecurity protection, your business can offer services that fix those problems. As long as the problem exists, you’ll have demand for your services.
• What’s your niche?
  When it comes to starting a business in a saturated market such as home maintenance, it can be helpful to carve out a niche to specialize in. Examples of various niches in home maintenance include drought-friendly landscaping, roofing or decluttering. Basing your home business around a niche and feeling confident that you can provide outstanding quality in that space will help set you apart from competitors.

2. Evaluate if your business can work at home

According to the U.S. Small Business Administration (SBA), nearly a quarter of employers are home-based, and that number increases to approximately half of all businesses when including those with no employees. The SBA also reports that the most common businesses based at home are construction services and business services. Many entrepreneurial ideas are able to operate at home, but not all are viable. 

To determine if your business idea can work from home, start by evaluating whether it abides by local business ordinances. Most home-based businesses will have few zoning restrictions, but it’s good to be aware that most neighborhoods are zoned for commercial and residential purposes only. Check your local laws to make sure whatever commercial operations you choose to start aren't banned in your area. 

3. Assess profitability 

When it comes to assessing the profitability of your business, it’s necessary to do some market research on the demand, market, economic demographics and pricing for your idea. 

• Demand is whether consumers want or need your service or product offerings. To learn about consumer demand, look into consumer spending data and trends. 
• When researching your market, you’ll want to take size and saturation into consideration. Try evaluating your market with a market or industry analysis. 
  • Market size is the amount of people that are interested in your product or service.
  • Market saturation is when the market growth of your product or service stalls.
• Economic demographics, like employment and income ranges, are important to consider when developing your business. If your location generally has a lower income, it may not be the best place to offer luxury services. The Bureau of Labor Statistics is a good resource to learn about employment and earnings in your area.
• Pricing is important to determine based on what potential customers are willing to pay. One option to decide on pricing is to compare what people are willing to pay for alternative products or services. 

4. Make a business plan  

After concluding that your business will be profitable, your next step is to plan it all out. A business plan will help you think through each aspect of your business and provide you with a guideline for structuring, starting and maintaining your business. 

Most businesses use a traditional format for their plan because it’s commonly requested by lenders. Traditional business plans are comprehensive in their detail and often include the following sections:

1. Executive summary
2. Company description
3. Market analysis
4. Organization or management structure
5. Product or service line
6. Marketing and sales
7. Funding request
8. Financial projections
9. Appendix 

5. Determine your business structure 

Another step you’ll have to complete when starting your home business is figuring out what kind of structure is best for you. This step is very important because your location may put restrictions on your structure. Additionally, unexpected legal or tax complications can arise if you don’t choose wisely. Here’s an overview of the common types of business structures:

• Sole proprietorship: A sole proprietorship is the default business structure for anyone who operates a business but isn’t registered. They consist of one person and allow you complete ownership and control. It’s important to be aware that as a sole proprietor, there’s no separation between your personal and business assets or liabilities. 
• Partnership: When you go into business with two or more people, you may want to form a partnership. There are two types: limited partnerships (LPs) and limited liability partnerships (LLPs). LPs consist of one partner with unlimited control while others have limited control, and LLPs mean that all partners have limited control.   
• Limited liability company (LLC): LLCs combine advantages of a partnership and corporation. With an LLC, your personal assets are protected from any business liabilities and operating costs are less than they would be with a corporation.
• Corporations: Many types of corporations exist, but the most general type is a C corp. C corps offer better protection of your personal assets, as they can be held legally liable. They can also make a profit, but are taxed more and require more detailed business records.
• Cooperatives: Any organization or business whose owners also use the services is considered a cooperative. Any earnings are shared among cooperative members and a board is used to control the business. 

6. Pick a good name for your business

Once your business is planned out and you’ve decided on a structure, it’s time to decide on a name. The name of your business can be make or break, so take your time and think of one that aligns with your brand. It’s also helpful if the name makes sense for your product or service and is user-friendly. For tips on coming up with an effective name, check out this business name guide.

7. Register your business with the state 

Now that you’ve decided on a business name and structure, you can register your business. Not every business needs to be registered, but registration can offer you certain personal liability protections and other benefits. Below is a general guide for which type of registration your business may need, but it’s best to consult your local government websites for requirements based on your location.

• File for federal registration if you:
  • Want your nonprofit corporation to be tax exempt
  • Desire trademark protection for your brand or business
  • Are creating an S corporation 

• File for state registration if you are a:
  • Limited liability company
  • Corporation
  • Partnership
  • Nonprofit corporation

• File for local registration if you:
  • Need a permit or license from your city or county
  • Are required to register a trade name  

8. Acquire a tax ID number and business license 

After registering your business, it’s wise to apply for a free federal tax ID known as an Employer Identification Number (EIN). Your EIN will allow you to obtain a business license and is also necessary to pay federal taxes or employ workers besides yourself. To apply for your EIN, visit the IRS website.

Depending on what activities your business is involved with, you’ll also need a business license or a permit to operate. Examples of business activities that need to complete this step include serving alcoholic beverages, selling firearms or transportation and logistics. Look at the SBA site for a full list of federally regulated activities and their issuing agencies for more information.

9. Create separate business accounts 

Your federal EIN also allows you to open a business account at a bank. Business bank accounts offer many advantages for entrepreneurs. These include allowing customers to pay your business with a check or credit card, the opportunity to make purchases with credit, and provides personal liability protection by separating your business and personal accounts. Bring the following if you plan to create a business account:

• Employer Identification Number (EIN) 
• Social Security number (for sole proprietors)
• Documents pertaining to your business's formation 
• Ownership agreements
• Business license

10. Obtain funding

There are many ways to fund your business, and it’s important to choose a financial route that will help you succeed. Start by calculating your startup costs and then evaluate which type of financing will bring your business to life. Three common types of funding are loans, self-funding or venture capital. Learn more about each below. 

• Loans: Small business loans are an option if you don’t have enough money to get started on your own, and they allow you to maintain control over your business. Loans are offered by financial institutions like credit unions or banks, and a detailed business plan will give you the best chance of securing a loan with good terms. 
• Self-funding: If you plan to use your own money to start your home-based business then your business is self-funded. Many people don’t have enough cash on hand to start a business, so you may want to consider getting help from friends and family.
• Venture capital: Another way to fund your home business is through investors. Specifically, venture capitalists offer financing for your business, and in exchange, they have some control over your business as well as a share of the ownership.

11. Insure your home-based business 

Although your home business may enjoy certain protections depending on your chosen company structure, insurance can help provide more extensive coverage for all of your assets. If you have home insurance, your policy will generally cover a certain monetary amount of business equipment, depending on whether it’s located on or off business premises. On the other hand, your home insurance policy won’t cover activities relating to your business, such as accidents or injuries. 

To fully protect yourself in case of emergencies, it’s good to look into home-based business insurance. This type of insurance is added onto your homeowners insurance to cover your business equipment, home office and any liabilities stemming from activities related to your home business. 

12. Designate space for an office

Now that you’ve prepared for your business logistically and financially, it’s important to set yourself up for success at home. A designated office space is essential for any home-based business. Not only will it provide you with a productive workspace, but it can also qualify for a tax deduction. 

Whether you choose to convert your garage into a workspace or opt for the ultimate smart home office, it’s important to consider the essentials that will help you run a successful business. Consider some of the following when setting up your home office:

• Secure modem or router
• Surge protector
• Scanner, printer or fax machine
• Ergonomic desk and chair
• Natural lighting 

13. Start a tax account and know your deductions

As your own boss, it’s necessary for you to be aware of how your business will be taxed. Taxes will correspond to your business structure, but for most home-based businesses, you’ll be paying federal and state self-employment taxes every quarter. Additionally, if you have employees or collect sales tax, you’ll need tax accounts for those separate purposes. 

With established tax accounts, you’ll be prepared to file taxes correctly. Remember to do research on what deductions you may qualify for, like the home office deduction mentioned in the previous section. These deductions can help you save money in the long run that you can put back into your business. 

When it comes to starting a home-based business, it’s important that you plan for your success. Follow the steps in this post to begin brainstorming your business idea and make sure you do everything necessary to structure, fund and maintain your home business. 

Remember that home businesses have some coverage through your home insurance policy, but it’s best to look into additional coverage to ensure you’re protected. When all aspects of your business are covered, you can focus on growing your business and reaching your entrepreneurial goals. 

Sources: U.S. Small Business Association | Consumer Finance Institute | Business Insider