7 Steps to Starting a Home Based Business

Are you one of the millions of disgruntled “9-to-5ers” who are sick of the rat race and truly want to figure out how to work for yourself? Have you been bombarded with advertisements chock-full of promises of wealth and freedom and want to taste the rewards that could be waiting for you? Or perhaps you’ve actually tried a few things in the past that didn’t work out…

Don’t give up! The fact that you’re reading this right now proves you are still interested in learning how you can realistically work for yourself, supplement your income and maybe even quit the day job.

If you don’t have the obvious credentials – such as being a plumber or electrician, or even a physical therapist, nurse, or accountant – there is still hope. With the proper planning, the right tools, some self assessment and a sincere desire to succeed you could well be on your way to “self employed” very soon.

STEP 1 – What will your business be?

First and foremost, what is it you want to do? Do you have a special skill or trade that can support you? Most people fail to understand or recognise their marketable skills and they never give themselves the opportunity to learn how to capitalise on their natural talents.

Whether you are looking for a way to be able to afford to stay home with your kids, or you’re out of work and want to fully explore all your options, these are just a smattering of ideas to base a business on – full or part time.

Babysitting / day care services: If you have your own children to care for, invite other mothers to leave theirs with you as well. It’s the ideal play date.

Cooking / catering: You don’t need to be a gourmet cook. Cakes, appetisers or even side dishes could be your specialty.

Sewing: I’ll bet you there isn’t one person in your neighborhood that wouldn’t kill to have some hems taken up or a skirt let out.

Typing / bookkeeping services: for small companies or even sole proprietors (like you!).

Pick up / delivery / errands: Have you ever wished you had a personal shopper to get the cleaning, pick up the kids, get to the pharmacy or just get milk and diapers? So does everyone else!

Crafts: Can you arrange flowers? Make gift baskets? Knit? Design picture frames?

Organiser: This is a new in-demand skill. Many would pay top dollar for someone to find room for the car in the garage, or to have someone organise closets and junk drawers.

STEP 2 – Choose a business structure

Now that you know what you will be doing in your business, you need to decide what type of business structure you will have. In very simplified terms, there are three major choices:

SOLE TRADER (or sole proprietor)
This is the most common for people who find a way to earn money at home and it’s the simplest, cheapest business structure to set up. You can use your own name to trade under or you may want to register a business name but, either way, you’ll need to apply for an ABN – both options are explained in STEP 3.
As a sole trader, your business income and expenses need to be shown each year in your personal income tax return.

PARTNERSHIP
A partnership operates in a similar manner to a sole trader, except there is more than one of you. You will need a registered business name, a written partnership agreement and you’ll need to decide with your partner/s how much each is investing, how much will be drawn out by each partner and how the profits will be split.
Like a sole trader, you are not limited in your personal liability. Each partner is personally liable (responsible) for the debts of the business – even if it’s a debt owed because a customer has sued your business – for example – over something involving one partner only.
Each year you will show your share of partnership profit/loss in your own personal income tax return.

COMPANY
A company offers the owner/s (in this case as a shareholder) limited liability. The company is a separate legal and taxable entity. It is not you. For most home based businesses, this is expensive and probably overkill. There are more legal requirements and it requires a certified accountant to complete the financial statements and tax return each year.
If you are really afraid that you might lose your house if you’re sued, go bankrupt etc. – spend some money and have a serious discussion with a CPA (certified public accountant) or tax accountant about setting up a company.

STEP 3 – Applying for an ABN and business registration

If you are a sole trader, partnership or company you must apply for an A.B.N (Australian Business Number). If you are a sole trader you can have several business activities and still use the one ABN.
The quickest way to apply is to go to the Australian Business Register website where you will be asked a series of questions: what is your business name, business address, contact and business bank details.
You will also be asked if you want to register for GST – if your expected turnover is above $75,000 in the next year, then you need to answer “yes”.
The application will also ask whether your business will be employing staff, what the expected business start date is, and your own tax file number. Sometimes the ABN is given to you immediately; otherwise you will receive it in the mail within a few weeks.

You don’t need to register a business name if you plan to trade under your own first and surname. But if your name is Peta Smith and you want to conduct business under the name Peta Smith’s Hairstyling it is compulsory to register that name.
This is done through the office of Fair Trading / Consumer Affairs in your state. The cost of a business name varies; in NSW it is currently $146 and lasts for three years.
IMPORTANT! It is possible the name you apply for will not be approved, or may not be available to use so don’t rush into any business card printing, advertising or signage until you have received your Certificate of Registration.

STEP 4 – Tools of the trade

No matter what your new business, there will be specific tools you will need at a minimum. Whether it’s a computer, sewing machine or pots and pans – make sure you know ahead of time what you will need so you can get the best for your budget.

STEP 5 – Profit, Pricing and Taxes

Know your cash flow! Set up at least a simple Excel spreadsheet to list your expenses and your income. Your success depends on how much money you’re clearing (your profit or margin). You don’t want to find out the hard way that you’re not even breaking even.
Many new business owners are too frightened to charge full market rates for their work. This creates big problems down the line. Usually you end up running out of cash and can’t keep up with the bills (let alone considering any personal drawings). It is not a hobby, you’re in business to make a profit – so charge proper business prices!
The two certainties in life are death and taxes. Don’t wait until the end of the year to find out you owe a large sum of money to the tax man. Put away at least 25% of your income into an interest bearing account so you will be able to pay your GST and your income tax when the time comes.

STEP 6 – Advertise

Get the word out! Print some business cards, hand out fliers, email everyone you know, have your spouse take some brochures to his or her workplace. Ask people for referrals.
It is a real challenge to market your business on a shoestring budget. The most successful of businesses, however, find a niche in the market place. That is, a specialised service or product that provides you with an advantage over your competitors and gives you a foothold into the market place.

STEP 7 – Stay focused and organised

No matter what kind of business you have, you’ll need a way to keep track of what’s what. This could be as simple as a notebook you carry with you or as high-tech as a Blackberry. Remember commitments and appointments, track quotes and proposals, follow up with prospects, and ask clients for add-on business. Everything you need to know should take no more than 30 seconds to find!

If you can accomplish all seven steps above, you’re well on your way to being successful. Developing a secure foundation is half the battle.

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