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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How to Start a Home Business
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.
Since 2004, we’ve helped over 1,000,000 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 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 the ground.
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 $100,000 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 e-commerce are 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 Home
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 the 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 business, background information, and context
- A market analysis and likely demand
- An overview of how your business is structured
- Your business model
- How you will market and sell your offerings
- Financial projections, revenue, and profitability
- Appendices
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.
Limited Liability 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.
Series 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’ve got a complete guide to everything you need to do, and we can set one up for your Home-Based business. LLC formation does vary from state to state, but
we’ve got you covered, wherever you are.
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, PeoplePerHour, 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 Bizee, we can even help you file your taxes.
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.
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
- BenchmarkONE
Customer Relationship Management (CRM)
- SalesForce
- Insightly
- Zoho CRM
Customer Support
- ZenDesk
- SurveyMonkey
Human Resources
- Gusto
- Hire Athena
Legal
- DocuSign
- RightSignature
Ecommerce
- Wix
- Recurly
- Vendio
- Square
Website Development
- Wix
- Squarespace
- WordPress
Analytics
- Google Analytics
- Matomo
SEO
- SemRush
- KWFinder
- Ahrefs
- Moz
- Asana
- Google My Business
Hiring
- ZipRecruiter
Please note: This post contains affiliate links, and we may receive a commission if you make a purchase using these links.
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!
