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Starting Your Home-Based Small Business


In the U.S., 69% of new entrepreneurs will start their businesses out of their homes. If you’ve been thinking about starting a small business at home, here are six steps to help you get started.



The first step to starting a small business is coming up with a winning business idea. Ideally, you’ll develop a business venture that interests you and meets a need in the market.


A great way to do this is by identifying a problem that frustrates you. Is there an issue that you continually encounter that you wish someone would solve? That could be your next business venture.


But, you don’t necessarily have to reinvent the wheel. Take a look at the businesses that are already out there, and ask yourself how you could improve upon what they’re already doing. Are there any gaps in the marketplace that you could fill?


There are a number of different home business ideas out there — and within certain industries, home businesses are far more popular (and feasible) than others. As an example, according to the SBA, a business in the information industry has a 70% chance of being home-based, closely followed by businesses in the construction industry, at 68.2%.


So, how do you decide on the perfect (and profitable) idea for your home-based business?

In essence, this part of the process is a process in itself. After all, deciding what type of business you're going to run will influence all of the other steps from here on out.


A lot goes into starting a business, but the first place to start is to figure out what you plan to sell. Your success as a business depends on your ability to sell products or services to your customers.


Come up with a list of ideas for products or services you can offer. From there, you should consider the following questions:

  • Is there a demand for this product or service?

  • How will this benefit my customers?

  • Would I purchase this product or service?

  • What could I reasonably charge?

  • Is there enough of a demand for me to make a profit?


Can this business idea actually be run from home? It's not only important to find an idea that plays to your talents, but also one that can be run from home. If you're a skilled cook, you may be able to start a private chef business where your home serves as your office, but you may find it difficult (with laws and regulations) to start a catering business from home.


Read more: The Complete Guide to Selling Online



Next, you’ll write a business plan. A business plan will help you gain clarity as you’re getting started, and it will help tremendously if you decide to apply for small business financing in the future.


According to the SBA, most business plans fall under the category of a traditional business or a lean startup. You’ll go into great detail in a traditional business plan. These plans can be several dozen pages long, and are required by most lenders and investors.


In comparison, a lean startup business plan focuses on a high-level overview of the business. You’ll summarize the most important aspects of your business, and it will only be about a page long. This will be much faster to create, but if you seek out funding, investors may ask for more information. Minneapolis Business Mentors can help you with either a lean plan or traditional plan.


Once you've gone through this exercise and have an initial idea for your home-based business, you'll want to ensure that it's worth investing in. To make this evaluation, you'll want to do a few things:

  • Conduct market research: First, you'll want to perform some research to ensure there's market demand for your product or service. Through this process, you'll also want to consider who your competitors are, what your value proposition is and what your target market looks like.

  • Consider startup costs: Before you decide to run with any given idea, you'll want to think about how much it will cost to start this type of business from home. If you're going to start a freelance writing business, your startup costs may be very low — especially if you already have a computer and internet access. On the other hand, if you're planning on starting an Amazon selling business, you might need to invest more in terms of inventory, packing and shipping, etc.


Read more: Startup 2021: Business Plan Financials



After you've written your business plan, you'll want to officially decide on the name of your business.


You'll want to choose something that's memorable, but also something that makes it clear what your business is or does.


Once you have a name in mind, you’ll have to make sure it’s actually available to use. There are a few places you can check this — including the Secretary of State's website or business bureau website, the U.S. Patent and Trademark Office and by doing a simple Google search.


This being said, extending your search beyond your state is especially important if you plan on launching an online component to your home business, as you'll want to make sure that a potential domain name is available for your business's website.


In addition to deciding on a name, you'll need to choose a business entity type to define your business structure. The business entity you choose for your home business will affect how your business is taxed and the legal risk you’re exposed to, as well as whether or not you need to officially register your business with the state.Choosing the correct legal structure is an important part of running your business. If you want to get started quickly and with as little hassle as possible, a sole proprietorship may be right for you.

With this type of business model, you don't have a partner or executive board to answer to, so you’re in complete control of all the decisions. Keep in mind, though, there is no legal separation between you and the business; you’re responsible for any debts and lawsuits that the business incurs.

In contrast, a limited liability company (LLC) provides more flexibility and creates a legal separation between you and the business; however, there is more paperwork to fill out, and you’ll have to file your business with the state.


Read more: Sole Proprietorship vs. LLC: Which Should You Choose?


If you decide to form your business as an LLC or C corporation, you'll need to register with your state to start and run your business from home legally.


The exact process that you'll need to follow to complete this registration will be unique to your state. Therefore, you'll want to consult with the MN Secretary of State on how to complete your business registration.


This being said, regardless of whether or not you have to register with the state, you'll want to register your business with the federal government by applying for an employer identification number. This number (also called an EIN) comes with a number of benefits, making it a worthwhile choice whether or not you’re technically required to obtain one. Your Employer Identification Number (EIN) is a federal tax number that will identify your business entity. If you ever plan to register your business as an LLC or hire employees, you’ll need an EIN.


In short, this number will be useful for hiring employees, opening a business bank account, filing business taxes and more. You can easily apply for an EIN online, you’ll have to use your Social Security Number to identify your business, so applying for an EIN can help you keep your Social Security Number safe. You can apply for free on the IRS website and receive your EIN within minutes.



Once you've completed your necessary registration with the state and federal governments, the next step in learning how to start a home business is getting a business license.


As a home-based business, your business license requirements may differ from other types of businesses. Nevertheless, the licenses and permits that you need will also vary based on the state where you're located.


Generally, when you're starting a small business from home, you'll want to look into the following types of business licenses:

  • Home occupation permit: Most home-based businesses will require a home occupation permit to operate legally. Essentially, this permit shows that by running your business out of your home, you're not adding significant traffic, noise, or harmful environmental conditions to your area.

  • Property use and zoning permits: When you're starting your business from home, you'll want to check into local zoning ordinances that apply to home-based businesses in your area. Some residential areas have strict zoning regulations that may limit or even prevent home- based businesses from operating. You'll want to check with your local or city government office to find out what regulations might apply to you.

  • General business licenses and permits: On top of the two previous permits that are more specific to home-based businesses, you'll also want to consider any general business licenses you need to operate legally. Along these lines, you might need a business operating license, professional or trade license, sales tax permit and more.

Overall, even if you're just starting an online consulting or freelance business from your home, you shouldn't assume that you don't need a business license. In addition to consulting local and state business resources, you might also work with a legal professional or service to ensure that you've taken all the necessary steps to run your business from home legally.



Once you’ve established your business entity, you should set up a business bank account. This is important because it separates your personal finances from your business finances.


It’s a good idea to partner with a local bank so you can establish a personal relationship. Many people find that smaller banks are more helpful and are able to respond quickly if a problem occurs. You'll use your business bank account to manage any money coming into your business, as well as for paying suppliers, services, or employees.


There are a variety of business bank accounts to choose from — however, you might start with the bank where you have your personal account.

Since you're running your business from home, you may want to focus your search on a business bank account with online and mobile banking, mobile check deposit and free ACH payments.



There are a number of risks that come with running your own business, including lawsuits, data breaches or business interruption. So you should start by making sure you have the right insurance.


A good place to start is by looking into a Business Owner’s Policy (BOP). This type of insurance includes three different types of coverage:

  • General liability insurance: This insurance covers bodily injury, property damage or personal injury.

  • Commercial property insurance: Commercial property insurance protects the equipment used to run your business.

  • Business income insurance: If you’re unable to run your business for some reason, business income insurance can help pay for necessary expenses like payroll.

  • It’s a good idea to speak to an insurance agent for recommendations that are specific to your business.



If you plan to work from home, it’s a good idea to set up a designated home office. This can either be an empty room in your home or just a designated corner in your bedroom.


But you want to choose an area that will offer you a certain degree of privacy. Also, be mindful of the background, especially if you’ll have to conduct client calls regularly.


Read more: How to Create an Effective Home Office Setup


Taxes are confusing to most people, and they get even more complex when you’re running a small business. Plus, you need advice on how to structure your business, how to set up payroll and how to track your expenses. That’s why it’s a good idea to hire an accountant.

An accountant can help you with all of this and ensure that your business is up to date with the most recent tax laws. And in the unlikely event that your business is audited, an accountant can walk you through this process.


Read more: When and Why You Should Change Business Entities



Marketing is crucial for building a successful business, but too many business owners go into it without a plan. This lack of planning often leads them to spend a bunch of money without seeing any real results. Or worse — something does work, but they have no way to recreate it.


That’s why it’s essential to start with a marketing plan. A marketing plan will outline how you plan to get the word out about your new business. It will typically include:

  • An overview of your marketing goals.

  • A description of your target market and customer.

  • A timeline of tasks to be completed.

  • Important metrics to track along the way.


From there, you can outline your plans for your website, social media channels and company branding.


Read more: The Best Online Marketing Strategies



Now it’s time to get out there and test your business idea, which means you need to focus on making some sales. After all, successful businesses are measured based on profitability.


There is no perfect plan to launch your business, and you may encounter many missteps in the beginning. It can help to partner with more established businesses to get your name out there and grow more quickly.

Regardless of the strategy you implement, you should be prepared to adjust as you go. The important thing is that you’re creating a solution that’s relevant and fills a need for your customers.

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