The Home-Based Business Kit: From Hobby to Profit

The Home-Based Business Kit

From Hobby to Profit

Diana Brodman Summers

D-M Boulay

Attorneys at Law

Copyright © 2005 by Diana Brodman Summers and D-M Boulay Cover and internal design 2005 by Sourcebooks, Inc.

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First Edition: 2005

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Library of Congress Cataloging-in-Publication Data

Summers, Diana Brodman.

The home-based business kit / by Diana Brodman Summers and D-M Boulay

p. cm.

ISBN-13: 978-1-4022-3389-0

ISBN-10: 1-4022-3389-2

1. Home-based businesses--Management. 2. New business enterprises--Management. I. Title.

HD62.38.S86 2005

658.1'1412--dc22

2005021729

Printed and bound in the United States of America BG 10 9 8 7 6 5 4 3 2 1

Contents

INTRODUCTION

10 STEPS TO MAKING YOUR HOME-BASED BUSINESS A SUCCESS

Section I: Evaluate Your Home for Business

CHAPTER 1: Why Start a Home-Based Business?

The Desire for Financial Independence

The Dream of Working for Yourself

The Need to be Creative

Your Personal Reasons for Starting a Home-Based Business

Don’t Quit Your Day Job

CHAPTER 2: Kinds of Home-Based Businesses

Providing Services to Others

Professional Businesses

Craft Businesses

Child-Oriented Businesses

Foods and Edibles

eBay

Portable Businesses

Franchises

Getting Ideas for a Home Business

CHAPTER 3: Is Your Home the Right Place for a Business?

Zoning and Other Local Laws

Business Address

Image

Home Office Furniture

Home Office Equipment

Phone Lines

Parking

CHAPTER 4: A Home-Based Business and Your Family

Family Support and Distractions

Naysayers

Friends and Neighbors

Security

Section II: Start Getting Organized

CHAPTER 5: Prioritize Your Ideas

Your Time is Valuable

Choose a Business You Can Grow to Love

Identify Your Goals

Create a Daily Activity List

Analyze Your Activity List

Focus Your Initiative

Identify Your Business Skills

Know Your Personal Limitations

Develop Balance in Your Life

CHAPTER 6: Use Your Time, Wisely

Prioritize Your Tasks

Plan Your Time

Too Much Work and Not Enough Time

Control Your Interruptions

Project Scheduling Challenges

Inventory Scheduling Challenges

Section III: Develop Your Plans

CHAPTER 7: Make a Business Plan

Start-Up Action Plan

The Importance of a Business Plan

Developing a Business Plan

Writing a Business Plan

Presenting Your Business Plan

Putting Your Business Plan to Work

Sample Business Plan

CHAPTER 8: Make a Marketing Plan

Determine the Marketability

Learn About the Competition

Spot Trends

Think Outside the Box

Write a Marketing Plan

Home-Based Business Marketing Plan

Truth in Advertising

Implementing Your Marketing Plan

Networking

Set Your Pricing Policy

Discounts

Legal Issues for Pricing

Tracking Your Prices

CHAPTER 9: Make a Financial Plan

Personal Savings

Inheritance or a Gift

Credit Cards

Debit Cards and ATM Cards

Equity in Your Home

Loan from Family or Friends

Promissory Note

Buying on Time

Renting or Leasing Equipment

Line of Credit

Retirement Funds

Banks and Credit Unions

The Small Business Administration

Assistance for Veterans

Budget

Section IV: Put Your Plan into Action

CHAPTER 10: Legal Considerations

State Registration

Business Structure

Employer Identification Number

Licenses, Permits, and the Collection of Taxes

Zoning Regulations

CHAPTER 11: Basic Business Setup

Naming Your Company

Bank Account

Credit Cards

Telephone Systems

Computer Hardware

Computer Software

Office Equipment

Tips on Acquiring Equipment and Furniture

Business Cards, Letterhead, and Envelopes

CHAPTER 12: Use Business Experts to Your Advantage

The Attorney

The Accountant

The Insurance Agent

Business Records

Section V: Manage Your Business Relationships

CHAPTER 13: Working with Customers

Developing Solid Customer Relations

Customer Service Principles

Customer Satisfaction Policy

Customer Payment Policies

Preparing Invoices

Extending Credit

Payment Problems

Refund Policies

Disputes

Conflict Management Policy

Contracts and Customer Relationships

CHAPTER 14: Working with Vendors

Negotiation Guidelines

Negotiating Contracts with Vendors

CHAPTER 15: Working with Employees

Choose the Correct Employment Category

Write a Job Description

Interview Process

Check References

The Decision Process

Employment Compensation

Employer Tax Responsibilities

CONCLUSION

GLOSSARY

APPENDIX: Secretary of State Contact Information

INDEX

Introduction

This book is a culmination of the experiences of many people. Both authors are small business owners who began with home-based businesses. Additionally, we have assisted many clients, friends, and family members in starting their own home businesses.

For us the enjoyment has been watching a business grow from the first glimmer of an idea to a money-making career. The purpose of this book is to assist the readers from the initial thought of wanting to start a home-based business, to deciding what business to start, to getting you and your family prepared.

We begin with our 10 Steps to Success. This short section identifies concepts and actions that you can consider right now. Then, we begin to help you make the decision to start a business by discussing the common reasons people start home-based businesses. Once you have made the decision to work from home, it is time to discuss the variety of businesses that easily fit in a home-based environment.We look at how you can accentuate the positives and reduce the negatives in each type of home-based business. If you do not know what type of business you could be good at, there are checklists and questionnaires to help determine your personal talents.

Following the discussion of the types of businesses, you must determine if your home is the right place for that business. We discuss it all—laws, neighbors, naysayers, and your family. Steps are even suggested to keep your family and your property safe while operating a business from your home.

Once you have decided on the type of business you want to locate in your home, this book helps you set both business and personal goals.We provide information on how to set short-term and long-term goals that you can easily track to see how the business is doing.We give you the tools to organize your business ideas so you can clearly develop a business and easily measure the progress of that business. There are also tips on how to prioritize your business duties, and we provide time-saving ideas, so you can use your time wisely. In addition, we give the reader tools on how to remain flexible in the direction of their business so that each success and each failure can be quickly evaluated, resolved, and used for the growth of the business.

This book assists the home-based business owner in developing a business plan that can be used in presentations for loans and for community events. It also helps you decide how to market your home-based business. In addition, it will help you to make a budget or financial plan for the business.

Another section in the book gives you steps you need to actually start-up your home-based business.We discuss the legal considerations of selecting a business form, including the positives and negatives of each type of business structure and what it means to you and your family. We also discuss how to deal with others in your business such as lawyers, accountants, insurance agents, and other business experts.

Finally, this book helps you run your home-based business on a day-today basis.We give you information on how to deal with customers, how to get customers to pay your bills, and how to set a fair customer policy.We then discuss dealing with vendors, how to research a vendor, and what to do when a vendor lets you down. In addition, for the future growth of your business, we give you information on dealing with employees, both from a legal and personal side.

If you have ever thought of opening a home-based business, this book will give you a taste of what setting up and running a business is like without ever getting out of your easy chair. If you are planning to open a home-based business, this book will give you ideas, checklists, case studies, and places to go for even more information. Whether you are just thinking about starting a home-based business or are actively planning to start one now, this book is for you.

10 Steps to Making

Your Home-Based Business

a Success

You have a great idea for a home-based business. In fact, you are spending considerable time thinking about your future business and can’t wait to get started. Here are ten steps you can take right now, that will help to make your home-based business a success.

1. Involve your family in planning

your home-based business.

Remember, your business will be running out of the family home, so include your family in the business at the very beginning. Older family members can help you stake out that separate area in the house that is just for your business. They may also be able to do some minor work for your business. The younger ones may be able to support your business by taking on more chores or just by being quiet when Mommy or Daddy is on a business call.

Use your family members as your first focus group to discuss your product. Ask their opinions. Would they buy the product? How would they change/improve the product?

Get the entire family involved and excited about your home-based business—their love and support will make your life easier.

2. Set aside a certain space just for your business.

A home-based business needs a location, even in the smallest of homes.You need a place that is set aside to keep all your business documents and, depending on your business, the products you are working on. You will also need space to store the products made before sale (inventory) and to store the parts that go into making your product (ingredients, components).

Home-based businesses can run from the corner of a room, in a rebuilt closet, from an extra bedroom, from the basement, from the garage, or even out of a small file cabinet. The only requirement is that you keep all your business materials in one place and not spread throughout the house where they can be misplaced or lost.

3. Get all the preliminary work done

before you open your business.

Every business, even one that is home-based, must do some preliminary things in order to become a real business. This may mean registering your business in your state, getting financial accounts set up, and finding someone to supply you with the raw materials to make your first product. Your home-based business may need to have a computer in place, an additional phone line brought into your home, commercial cooking pans, or just printed business cards. Make sure all these preliminary tasks are completed before you open your business so you are able to hit the ground running on your first day of being a business owner.

4. Keep expenses low to start.

You probably cannot start up a home-based business on a dime, but you can pinch pennies on start-up costs. Make a list of what you need to start your business. Now go over that list and prioritize that spending. See if you can get by with smaller quantities, postpone a purchase, or use something you already have on hand. By keeping the start-up expenses low, you can concentrate on selling your product because it is a good product, not just selling to pay the bills.

5. Know what you are selling.

This is your business, and you need to know everything about what you sell whether it is a product or a service. If you are making a product, you should be familiar with everything that goes into your product, such as components and ingredients, exactly how it is made, how long it takes to assemble or cook, etc.You will be looked at as the expert, so make sure that you have the answers or know where to find them.

6. Treat all your customers with respect, even when they don’t buy anything.

Be kind to your customers, even when they are having bad days. Often a calm voice and a kind word can do more to get you a sale than advertising. Answer the customer’s questions, offer assistance, and be ready to give the customer a refund if your product fails.

7. Sell your products or services for a fair price.

Along with treating your customers with respect, make sure you set a fair price for your product or service. If you set your prices too high, you can scare off good customers. On the other hand, if you price too low, the customers may feel that they are getting inferior work. Your prices should reflect the cost to produce the item or service, plus a small profit. The bigger profits will come as your business succeeds.

8. Know the competition.

In setting a fair price for you products or services, you should look at how much other businesses who produce same or similar goods are selling their products or services for. You should also look at your competition to see if there is something you can add to your product that would make it different from your competition. Watching the competition is something you should do for the life of your business.

9. Be flexible with changes.

Life has a way of throwing changes at everyone, even those who own home-based businesses. Be willing to adjust your business to these changes. This may mean making your product with substitute ingredients, subsidizing your business with a part-time job away from home, or looking at a new market. Be one of those people who can turn life’s lemons into lemonade.

10. Keep smiling.

It sounds simple, but this is very effective. Every time you talk about your product or service, make sure you are smiling and are enthusiastic. Do not cry about lazy suppliers, backed-up orders, high expenses, or the myriad of other business woes to customers or potential customers. You want your customers to associate your product or services with something happy, not gloomy.

SECTION I:

Evaluate Your Home for Business

Chapter 1

Why Start a Home-Based Business?

Although there are many reasons people start their own businesses, your reason for choosing a home-based business will be based on your own particular needs, wants, and family situation.

The Desire for Financial Independence

The Dream of Working for Yourself

The Need to be Creative

Your Personal Reasons for Starting a Home-Based Business

Don’t Quit Your Day Job

The Desire for Financial Independence

If your goal is to support yourself and perhaps your family, you are not alone. This reason is at the top of the list for many business owners. However, you need to know how much that support will cost.

If you do not yet have a personal or family budget, before you begin your start-up activities, you need to develop one. You must know how much money you need each month for such things as:

• rent or mortgage payments;

• general housing expenses;

• food;

• clothing;

• toiletries;

• insurance;

• car payments;

• gas and car maintenance;

• recreation;

• student and other loans;

• charitable giving;

• church, mosque, or synagogue obligations; and,

• all other living expenses.

Once you understand what your personal bottom line is, you will understand what amount of money you will need to earn from your home-based business.

You may also want to consult with a financial planner to get a good idea of what you need to earn to achieve the lifestyle you want. That will give you solid figures to use in your business plan for projected income.

Financial Freedom = Budgeting: Even businesses that eventually produce regular revenue can start out with an irregular cash flow. Making a budget will help prepare for fluctuations in your income as you start your business.

You Need to Take Care of Family Health Matters

If you or a family member has health matters that need your attention, you may want to choose a home-based business that gives you the flexibility to attend to these matters without diminishing the income you need. Learn as much as you can about future health-care costs, so you can factor those costs into the amount of income your business will need to earn to cover them.

QUICK Tip

Calculate Future Health Costs: Your doctor’s office should be able to put you in touch with resources such as the American Heart Association, the American Cancer Association, or other relevant groups that can discuss possible future costs from any current illness.

The Dream of Working for Yourself

There is nothing like starting and running a business to give you a sense that you are in charge of your life. Those who have worked for someone else in a trade, profession, or other occupation can use that business experience to help in setting up their own home-based business. Those who have never worked for someone else may want to check out business start-up and management books at their local library or even take a course at a local college or technical school.

There are many other places you may want to contact to get information on starting your own home-based business.

• Local Business Owners. Your local chapter of the Chamber of Commerce, the National Association of Women Business Owners, and groups of small business owners are businesspeople who get together in order to assist each other with business advice.

• Service Corps of Retired Executives (S.C.O.R.E.). These retired executives can share their time and expertise with you. You can call them at 800-634-0245 to ask for the office nearest you or contact them on the Internet at www.score.org.

• U.S. Small Business Administration (SBA). Visit their website at www.sba.gov to find a branch near you. You may also be able to get funding for your home-based business from this organization. It is worth the time to visit this website.

You Like the Idea of Working from Home

Many people start a home-based business as a way to take charge of their lives while still fulfilling the needs of their growing family. The exchange of a long commute for a short walk down to a basement office allows you to set a schedule in which you can put aside time during the day for family obligations and crises. No longer will you need to beg your boss for those precious hours off to get your child to the pediatrician, to see your daughter star in a school play, to watch your son make the winning soccer goal, or to be a homeroom parent.

If this sounds familiar, you will need to take special care in setting up schedules and boundaries for your home-based business. You must also be sure to set aside space in your home that is just for your business. This can be your little island of quiet used just for work.

The Need to be Creative

Many people are eager to seek an environment that will free them to use their