Did you know that over 52% of all small businesses in the U.S. are based at home? The Small Business Administration reports that there are more than 28 million small businesses in the United States, comprising 99.7% of all U.S. businesses.
If you’re thinking about starting a home-based business, it’s an exciting yet significant task. Taking the right steps is crucial to set yourself up for success. Below are five key financial tips to guide you in starting a business from home.
1. Choose Your Entity Structure:
One of the simplest and least expensive structures to start with is a sole proprietorship. In this case, the legal name of your business is your own name. If you want to operate under a different name, you’ll need to file for a “doing business as” (DBA). If you’re looking to limit your liability, consider structures like a limited liability company (LLC). It’s wise to consult with an attorney, accountant, or business counselor to choose the right structure for your business.
2. Obtain Any Required Business Licenses:
As a home-based business, you will likely be required to have a business license and permit to operate legally in your city or county. Check your local government’s website for the necessary details and forms. The specific requirements and fees depend on your business activities, location, and local regulations.
3. Set Up a Designated Office Space:
Regardless of the size of your living space, set aside a specific area just for your business. Running a business from home means you need a dedicated workspace that you use regularly and exclusively for business purposes.
4. Open a Business Bank Account:
A business bank account is essential for managing your finances. From the moment you start handling money as a business, you should have a dedicated business bank account. This helps keep your records accurate, prepare reports, make deposits, and separate your business finances from your personal finances. To open a business bank account, you will need your employer identification number (EIN) or social security number (if you’re a sole proprietor), business formation documents, ownership documents, and any required business licenses.
5. Get a Business Credit Card:
A business credit card is vital for keeping personal and business expenses separate. It not only simplifies tracking expenses but also helps your business to establish its own credit identity and payment history with credit reporting agencies.
Starting a home-based business can be both challenging and overwhelming. There’s a lot to think about, organize, plan, and execute. The good news is that there are many free resources, training, and support available from the SBA both online and offline. Make sure to explore all the free courses and support offered through the Small Business Administration website.
