Three Tips to Starting a Home-Based Business

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Starting a home business can be a tricky endeavor. Not only can forming the business be expensive but business formation can also present hidden legal or procedural obstacles which must be addressed with sincerity. Only with a crystallized business plan and a dogged work ethic can one form a successful home-based business. In particular, one must have a clear and cogent business idea, ensure adequate funding is present to raise the business from birth to infancy and finally tailor said idea to work within the confines of existing laws.

Clear and Cogent Business Idea: New Idea or Old Idea Modified

All businesses fall within two categories, or perhaps a blend of the two, either one is forming a business based upon a new idea entirely or one is taking an old business idea and transmuting it into a better business. Regardless of the category, one must have a clear business in mind. This is important for three reasons.

First, consumers must know what product or service you are offering them. For instance, a home baker who markets his products at local farmer’s markets as simply “baking goods” is not giving consumers notice of the individuality and desirability of her products. Proper signage indicating, for example, “Pumpkin Pies: 100-year-old family recipe” gives the consumer adequate information to make a decision to buy the product.

Second, clear business ideas are easier to market. For a notary-based home business it may be prudent to offer printing services to go with the notary services to increase profits. But, proper marketing must be done to give the consumer notice of this fact before making the decision to use the business for their notary needs. Only with clear marketing and adequate notice can the consumer’s surface needs as well as latent needs be met.

Lastly, if one is transmuting an old idea it is important to be clear and cogent so one does not simply copy another’s idea. Although home business typically don’t engage in intellectual property disputes it should be noted that misappropriating another’s idea in general can lead to legal consequences. To be safe, be clear and put the world on notice what your business is and what it is doing.

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Adequate Funding: Loans

Adequate funding can come from three main sources, personal funds, family of community funds, or through personal loans. A business which derives its funds through personal funds typically means that the business startup costs are financed through one’s personal bank account. Family or Community funds are typically loans given to one by her family. Personal or Business loans are done through a non-familial and disinterested third party lending institution or service.

Funding one’s home-based business using personal funds may be a dangerous expedition as it can lead one to be insolvent for paying static monthly bills. The home-based business should not be pursued at the cost of not paying rent or your car bill. The reasons are obvious; you will likely need both your car and home to operate the business properly. Given that the ability to default is present, paying all funds upfront through personal accounts is not recommended.

On the one hand, asking for loans from your family or your community (those living with you) may provide you with the resources necessary to start the business. However, as these loans are typically not guaranteed by contract these are at the mercy of the one lending the money. The unclarity of loaning terms and performance can lead to familial disputes, as well. As with personally bankrolling your business, this method is not recommended.

On the other hand, financing startup costs of your home-based business through personal loans from accredited loaning institutions can provide both reliability and predictability. Although some lenders will ask for the business itself or its profits to be collateral for the loan, it is preferred if the loan is unsecured, from the business owner’s perspective. The lender will give definite terms and ask for repayment, typically in installments. This gives the home-based business flexibility to pay back the loan as profits are realized from the business.

Legal Compliance: Subject Matter and Liabilities

Most home business owners do not outright engage in illegal business practices. However, legal compliance can be a tricky matter. One must first identify the subject matter of the business. The subject matter of the business would either be the product or the service rendered by the business. The liabilities are the legal consequences which flow from carrying out the business idea. Only with identifying these two features may the home-based business be both legal and avoid liabilities.

For instance, if one is making hot sauce there are legal consequences to production of hot sauce. Hot sauce may be a nuisance in the community if ventilation is not proper. If the neighborhood had no prior exposure to said fumes this can create a legal problem for the business owner. This may require the hot sauce producer to install expensive ventilation appliances in their home. However, the installation of ventilation appliances will no doubt be less expensive than hiring an attorney to litigate a nuisance charge.

If the home business is based upon a delivery service it would be prudent for the business owner to have proper automobile insurance to cover the event of an accident. Be aware that insurers will want to know and probably have different rates for coverage if the coverage is for a home-based business purpose.

Zoning may be another legal category which limits what can be done on your property. Ensure through local zoning records your business can be conducted or headquartered at your home. If it appears this may present a problem going before your local zoning board and presenting your business idea and looking for a variance may be an option.

Do not sell your home-based business short of its potential. Brainstorm with a clear business idea in mind and know whether you are fabricating a new idea or reinventing the wheel. Then, ensure your business is legally compliant and able to be done from home. Purchase insurance where necessary. Then responsibly finance your business through an accredited lending institution and make the necessary payments while realizing profits.

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