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Forming a Home-Based Business

Why Start a Home-Based Business?

There are many different reasons to start a home-based business, but one of the most common is the sense of freedom that people achieve by working for themselves unsupervised in a comfortable environment. A home-based business allows people to work a flexible schedule without having to commute to the office. There is also the added benefit of reduced operating expenses and overheads by utilizing space in the home, which removes the need to acquire additional office space.

Home-based businesses also have various tax advantages that can help a homeowner reduce their overall tax burden by having the ability to write off certain normally incurred expenses as related to the home-based business. Individuals should always check with a tax specialist to make sure they are claiming the proper expenses related to their particular home-based business situation.

Advantages of a Home-Based Business

The main advantage of forming a home-based business is the freedom it gives the individual. Operating your own business is a particularly risky endeavor, all the more so if large amounts of money are invested in office space, equipment, and employees.

Starting a business in the home is advantageous because the costs are dramatically reduced. There are no initial expenditures required to secure an office lease, and those funds can be utilized toward the purchase of any equipment that might be required in order to start the business. Home-based businesses, by nature, are usually smaller enterprises that are designed to take advantage of a niche that the business owner has discovered.

Most home-based businesses do not require employees initially, but if the business becomes successful, over time employees can be added as needed. This allows business owners to grow into the business and expand it incrementally as needed. The minimization of risk exposure is perhaps the most advantageous element of forming a home-based business.

The Elements of a Home Business

Home-based businesses can cover a wide spectrum of business possibilities, and just because it is started in the home or garage does not mean that it will never become a larger business success. Several of today’s largest corporations were started with an idea sparked at a kitchen table and followed up in the garage.

The key elements of the home-based business are the quality of the idea behind it, and the commitment of the entrepreneur to see it through. All the other elements of a home business will eventually fall into place as long as the idea is sound and the commitment is unwavering. Ideally, a home-based business should be dedicated to filling a niche that is needed, and it should be something the business owner feels comfortable accomplishing.

When it comes to funding a home-based business, there are several different types of funding sources that are available. Many individuals who start a home-based business opt for traditional means of funding such as loans from banks, credit unions, or a Small Business Administration loan. These loans require the borrower to have good credit and a well-thought-out business plan.

For individuals who don’t have an excellent credit history, acquiring funding from traditional sources such as banks will be more difficult. In this instance, non-traditional sources of funding are usually the best option for the borrower.

Many individuals that find it difficult to obtain traditional funding find financial assistance from alternate avenues such as credit cards or friends and family. When borrowing money from a family member or a friend, it is important for the borrower to officially document the loan in the form of a promissory note.

A promissory note or promissory letter is a legally binding instrument and can be used as documented proof of a loan repayment that can help the borrower attain traditional funding at a later time. Borrowing money from a friend or family member is preferential over using credit cards because the interest rate is negotiable and will usually be lower than credit cards. Another advantage to borrowing money using a legal promissory note is that the repayment schedule can be negotiated and adjusted to be beneficial to the borrower.


Home Business Structure

Another important consideration for the home business entrepreneur is the decision of which type of business structure to use. There are several different types of business structures that can be effective for a home business owner, but the most common one is a sole proprietorship. Most home-based businesses are individually owned or run by a husband and wife team, so a sole proprietorship is adequate to begin the business until it expands.

Partnerships are also common in home-based businesses as well as LLCs, which can help to protect various assets from liability. The cost of starting up a business structure and the level of liability protection needed for the type of business should be part of the individual’s decision on which type of structure to choose from.


It is also common for home business owners to start their company as a sole proprietorship and then change their business to a different structure later on as it grows and gets larger and more complex. The structure of the home business is a fluid element that can change to suit the needs of the business.

Conclusion

When forming a home-based business, there are some key considerations that are important to the potential success of the business. While most home business owners enjoy the freedom that comes with working for themselves in a comfortable environment, the main reason people take the plunge into a home business is because they see a niche that others have missed, and they have the desire and determination to take advantage of it.

Home business owners are usually risk takers to a degree, but approach business in a pragmatic manner. The primary requirement necessary for a home-based business to succeed is a belief and determination on the part of the owner to make the idea happen. As long as there is the drive to succeed, the potential of the home-based business is limitless. A sound business structure and proper funding are very important to the continued success and growth of the business, but as long as the owner believes in and is committed to what they are doing, there is no limit to what they can accomplish.

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