Written by Avvo Staff

How to start a home business

Starting a home business comes with both benefits and pitfalls. Before launching a home-based business, consider how these factors will affect your business plans and your home life.

Benefits of a home business

When you choose to start a home business, you’ll enjoy several distinct advantages, such as the following:

  • Tax benefits. Part of the money you spend on home improvements, as well as part of the money you spend on your rent or mortgage, may prove tax-deductible.
  • Low overhead costs. You won’t have to rent an office space, and you’ll be using utilities that you’d be using even if you weren’t operating a business from home.
  • Flexible schedule. You can take breaks to walk the dog, or you can go back to your home office after dinner to catch up on paperwork.
  • Lower risk. Since home businesses have low overhead, you’re less likely to suffer a significant monetary loss if your business fails.
  • No commute time. Working from home takes self-discipline, but you’ll never find yourself stuck in traffic as you try to make your way to the office.

Disadvantages of a home business

Starting a small business isn’t always something you can do from home. There are several obstacles you may run into, such as the following:

  • Small workspace. If you need to store products or if you have a lot of paper files, you might find yourself running out of space quickly.
  • Isolation. If you own a web-based business and run it by yourself, you’ll miss out on the social and networking advantages that come with other types of businesses.
  • Family and privacy disruptions. If you have customers coming in and out of your home, it may interfere with your family’s routines.
  • Neighbor issues. People who live nearby may protest your activities, especially if your customers or business partners commonly take up the neighborhood’s parking spaces or if your business affects the way your neighborhood looks.

You’ll also have to consider zoning laws. While the specific laws vary from area to area, most properties zoned as residences prohibit you from changing your home’s appearance to suit your business, which means you can't post signs outside. You also won’t be allowed to store hazardous materials.

If you’re a member of a homeowner’s association, you should also go over the HOA’s rules to make sure your business won’t violate them.

Other things to take into account

Just like any other business, your home business will require a license and proper registration. Registering your business as a formal entity like an LLC is often a wise choice. This will protect your personal assets in case the business fails.

Alternatively, you could start a home-based franchise. Before you do that, however, conduct a thorough investigation. Many work-from-home franchises that seem good on the surface are nothing more than scams.

Also, bear in mind that federal programs do not give financing for home businesses, so you’ll have to take another route to secure funding. You could seek out investors, or try to get a loan through a local bank or credit union. A thorough business plan will help you impress lenders and get the startup money you need.

In short, home businesses often come with both benefits and drawbacks, so weigh all the factors carefully before you give the green light to your new business.

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