Small Business
Jun 7, 2024

How to Start a Small Business at Home in 12 Steps

Are you tired of the rat race? You’re not alone.

Many people have entertained a long-gestating business idea while toying with leaving their full-time jobs.

However, the confusion as to how to start a small business at home has stopped them from taking action.

This guide aims to explore what it takes to start a business.

So whether you want to do search engine optimization, graphic design, dog walking, or other freelance work, you’ll learn everything you need to act on your home business idea.

How to Start a Small Business at Home (Step-by-Step Guide)

Follow these steps to pave the way to a successful business:

Step 1: Decide on a Small Business Idea

Your first step to starting a small business from the comfort of your home is deciding on an idea for your business.

There are thousands of viable businesses you can start from your kitchen counter, car trunk, or garage.

Thanks to the internet, small business owners can compete with huge players using nothing more than a laptop, internet connection, and credit cards.

The same applies whether you’re running a product or service-based business.

However, deciding on a business and ensuring it succeeds come down to how thoroughly you conduct market research.

Your business needs a target market, which refers to the group of people that needs your product or service.

You can only confirm that these people exist after doing your research.

To do market research, you can converse with people who you think fit your target customers and ask them about their needs.

In the alternative, it’s quicker to rely on data compiled by data-gathering companies like Statista.

Once you confirm that a market exists for your product or service, making a decision will come easier.

Step 2: Develop a Business Plan

Your business plan outlines your vision for your new business.

The business-plan-creation stage demands you to be forward-thinking because you’ll be planning for a business entity that is yet to exist.

Thus, when creating a business plan, you must cover everything from how your business will operate on a day-to-day basis to the fixed and variable costs of staying a going concern.

A typical business plan has the following sections:

  • Executive Summary: Talks about your business’s mission and vision
  • Business Overview: Explains your business idea
  • Market Analysis: Provides an analysis of the market your business will cater to. It could include your business’s marketing strategy, marketing and sales plan, etc.
  • Cost Analysis: Explain your business’s fixed and variable costs. Some businesses have fewer upfront costs than others (e.g., a graphic design versus a catering business)
  • SWOT Analysis: Stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis explains your business’s strengths and weaknesses and the opportunities and threats it faces.
  • Financial Forecast: Indicates your financial projections and explains how you see your business making money over a time period.

The business plan sections listed above aren’t exhaustive. Note that the level of detail you put into your business plan will depend on the industry you’re entering.

Also, this stage of starting a small business is vital, so don’t skip it. You’ll need a business plan to provide a roadmap for your operations.

It’ll also give you a guide that’ll help you stay on track and keep yourself accountable.

Step 3: Create a Business Name

With your business plan done, now would be a good time to think of a business name.

While there’s no exact science to choosing a business name, you can consider the following factors:

  • Does the name reflect your brand and core values?
  • Does your business name tell the public the types of products and services to expect?

Once you’re satisfied the name meets the above criteria, you’ll need to check if it’s available.

You can check for business name availability in several places, including:

  • Your state’s filing office
  • The U.S. Patent and Trademark Office website
  • Google

Regarding searches conducted at a state filing office, consider checking for availability beyond your state if you plan to operate nationwide or online.

Your search should also reveal any domains registered in the name you’re after.

Consider drawing up a list of possible business names just in case one or more are already taken.

When you find an available business name, consider trademarking it. Then, register a domain with a .com extension and create accounts for it on your target social media platforms.

Step 4: Choose a Business Entity

After choosing a business name, your next step is to choose a business structure. The Internal Revenue Service (IRS) lists five business structures:

  • Sole Proprietorship
  • Partnership
  • Corporations
  • S Corporations
  • Limited Liability Corporation (LLC)

Deciding on a business structure for your business is important because it determines the following:

  • Your level of exposure to legal liability
  • Whether you’ll need to register with the state
  • How you’ll be taxed

Sole proprietorships are the easiest to start, but they offer no separation between you and the business.

So if someone sues your business, and its assets aren’t enough to cover the money they’re suing for, they can get you to pay the balance from your personal assets.

Many small business owners prefer this business structure.

LLCs and the various corporation types offer better protection for your personal assets. Therefore, in the event that your business gets sued, the person suing can only claim against its assets.

The downside to these structure types is they require you to register with the state and are susceptible to double taxation.

If you choose a sole proprietorship structure but want to operate under a separate business name, consider registering a DBA (doing business as).

Step 5: Register the Business

This step applies if your business fits the legal structure of a corporation or LLC.

There’s no one-size-fits-all process for registering a business, as each state has unique regulations governing business registration.

So it’s a good idea to visit your local Business Bureau to get the exact guidelines for registering your home-based business.

Regardless of what the procedure is at the state level, you also need to register with the Federal Government.

The process involves applying for an Employer Identification Number (EIN), which, among other benefits, lets you hire employees and apply for a business bank account.

The IRS is responsible for issuing EINs.

Step 6: Acquire Business Licenses

After registering your business at the federal and state levels, your next step is to get a business license.

Businesses require different licenses depending on their type, industry, and location.

Below are some of the licenses worth looking into when you’re taking this step:

  • General Business License: This is a requirement to operate a business in the U.S. It may take the form of a sales tax permit, business operation license, etcetera.
  • Property/Zoning Permits: Every area has zoning laws that regulate how home-based businesses can operate. Some are stricter than others, going as far as banning home businesses outright. So ensure you check your area’s zoning laws to make sure you’re not violating them.
  • Home Occupation Permit: If you’re running a business from home, you’ll need a home occupation permit to do it legally. This permit tells the government that your business isn’t constituting a nuisance by causing traffic, environmental damage, noise pollution, and so on.

Please note that you’ll need these licenses regardless of whether you’re running an online business or offering a freelance-based service.

Step 7: Setup Your Business’s Finances

Depending on your business structure, the law may recognize your business as a separate entity from you.

As such, you’ll need to separate your personal and business finances using a business bank account.

The way to achieve this split is by opening a business bank account.

A business bank account lets your business receive money, obtain small business loans and take on business debts, and other benefits.

Even if you register a sole proprietorship, it’s still a good idea to keep your personal finances separate from your business’s.

Step 8: Gather Funds

Starting a new business from home means you’re exempt from many typical startup costs (like office space) that other businesses incur.

However, the opposite is true if you need equipment and inventory to run your business.

Plus, if your business needs more capital than your savings can cover, you’ll need to secure outside funding.

While it’s challenging for newer businesses to secure funding, you’re not out of options just yet.

You can obtain loans from friends and family, get a business credit card, and obtain a line of credit.

Thus, once you open a business bank account, start gathering the funds you need to fuel your operations.

Step 9: Setup an Office

A major drawback of starting a small business at home is the lack of separation between home and office.

Setting up a home office will help you ensure work-life balance, but it has another benefit: it instills a sense of discipline.

Before you worry about building an entirely new living space, you can convert an extra room, shed, or garage into an office space using existing furniture around the house.

Step 10: Prepare for Taxes

As a small business owner, you must pay taxes to the state and federal governments every quarter. Therefore, you need to set yourself up to pay self-employment tax.

Also, if you hire employees, collect sales tax, and so on, you’ll have to set up different accounts (payroll withholding and sales tax accounts) at the state government level.

Most people find this step challenging, so it’s best you consult a tax expert in your area to learn everything you need to be compliant.

Step 11: Take Care of Accounting and Payroll

Running a business from home involves keeping track of its finances. You have three options: do it manually, hire an expert, or use payroll software.

Doing your accounting manually might seem like the best option when you’re starting out, but it’s time-consuming.

Also, you’re liable to be fined for mistakes. Meanwhile, your business’s available capital might not be enough to justify hiring an expert.

Thus, your best bet is to use one of the many accounting and payroll software programs available.

Accounting software offers the best of both worlds in terms of letting you do your taxes like an expert without the monotony and mistakes that come with doing manual data entry in a spreadsheet.

You can get one within budget and save yourself high fees and headaches.

Step 12: Build an Online Presence

Nowadays, everyone is on the internet, including your customers and competitors.

So after sorting out your business’s financial affairs, build a business website.

Your website should:

  • Inform your target audience about your products or professional services
  • Provide related marketing materials
  • Showcase your branding (business logo)
  • Display your contact information and social media channels
  • Be optimized for search engines

Also, you need to register a domain name for your business and purchase a hosting plan. You can think of your domain name as your business’s digital address on the World Wide Web.

Meanwhile, if a domain name is your business’s digital address, hosting is the rent you pay to a hosting company to host your website on its server.

Don’t worry if you don’t have the skills or budget to design or hire a web developer.

There are several easy-to-use content management systems and website builders you can use to quickly put together a professional-looking website.

Wrapping Up

Starting a home-based business is straightforward, and anyone with a business idea can do it.

After reading this guide, you’ll be equipped with the tools to join the many entrepreneurs who have, no matter your financial situation.