Due to the COVID-19 global pandemic, many people have opted to work from home, and some have even launched startups. Starting your business at home has many advantages, but it requires meticulous planning, preparation, and proper documentation. But even though you may start out small, you can eventually enjoy the success of other, bigger businesses.
The process can be easy if done step by step to avoid getting overwhelmed. Consider these tips from 1st & Main Financial Advisors.
Decide On a Business Idea
There are many different ideas for a home business. Deciding the type of business to do will determine all the other steps you take. To help you make a decision, think about:
- Your skills and talents
- How to incorporate these skills or talents into a business
- Whether the business you have in mind can run from home
- Carry out market research
- Find out the startup costs
Create A Business Plan
Armed with your home business idea, you’ll need to come up with a business plan.
Your business plan should have adequate information to help you run your business from home. The business plan prompts you to consider the business operations more comprehensively. It also plays a role if you need to look for funding or investors.
Choose A Business Entity
When starting a small business, committing to a corporation or partnership carries some risks. Forming a Limited Liability Company may be the best option for you. It allows you to have limited liability similar to a corporation and offers flexibility when it comes to operations.
Some of the benefits of an LLC include:
▪ Limited Personal Liability
As part of an LLC, your business is not part of your personal life. The LLC is accountable for its debt and obligations. Personal assets like your home can’t get leveraged for business debts. If your employee or business partner gets sued for negligence, your assets remain protected.
▪ Less Paperwork
Although corporations also provide limited liability, there are some predetermined requirements, such as record keeping. For example, corporations must conduct annual shareholder meetings, create annual reports and pay yearly state fees. LLCs, on the other hand, don’t need to have annual meetings or keep comprehensive records.
▪ Tax Advantages
LLCs are independent and rely on the total income generated by the owner instead of the business. The income and expenses get included in the owners’ personal tax returns, where they pay personal income tax on any profits. Since they have no federal tax classification, they are flexible. LLCs have the privilege to choose the tax status of sole proprietorships, partnerships, or corporations.
Besides the lower taxes, LLCs are also exempt from double taxation. Early profits of an LLC do not pass as income, and therefore don’t have to pay self-employment taxes.
Register Your Home Business
Registering your business with your state allows you to start and manage your business from home legally. The registration process is unique depending on your state, so ensure you contact the local authority for guidance.
It’s also advisable to register your business with the federal government. This will provide you an employer identification number, or EIN. This number is useful when hiring employees, opening a bank account, and filing taxes.
Get A Business License
The license requirements for a home-based business may vary from other types of companies. The specific licenses and permits you’ll require also differ depending on your state.
Separate Business and Personal Finances
Create a bookkeeping system to monitor your business expenses and income. The business checking account and credit card should also be separate to avoid mixing personal and business expenses.
The IRS mainly audits home-based businesses more frequently if you opt for the home-based business tax deduction. Ensure you maintain updated records of all business activities and transactions.
Set Up Your Payroll
If you plan to bring on people as employees or freelancers, you’ll need a payroll system that can ensure your workers are paid accurately on time. However, payroll involves more than simply cutting checks, so you’ll need a thorough understanding of everything this process entails. If you feel a little out of your element with payroll, consider using software or service to help you stay on top of everything.
As you can see, there are several important steps to starting a work-from-home business. However, with the above tips in mind, you can make your entrepreneurial venture a success!