Home-Based Business Is It For Me?

The 1990s were called the “Decade of the Entrepreneur.” More people are starting home-based and micro businesses than ever before. People are turning their skills, hobbies and ideas into profitable ventures. This can be a satisfying experience. The endeavor is usually something a person enjoys doing or is very skilled at doing. It allows for flexibility so you can work around your family and work schedules. It also gives you the independence of being your own boss.

The words entrepreneur and entrepreneurship come from the French word “entreprende,” which means “to undertake.” An entrepreneur is someone who organizes, operates and takes the risk in a business venture, expecting to gain a profit. Entrepreneurship refers to the process of planning, organizing and operating a business.

A home-based business is not for everyone. For many people it will be a supplemental income source for retirement or extra income for the family. In fact, only 46 percent of home-based and micro business owners recently surveyed cited that making lots of money was a motivation for starting their own business. Seventy-eight percent of business owners stated that having more control over their lives was an important reason, and 90 percent said they would go into business again. So, even though you may not get rich from such an endeavor, it may be worth the effort to try your idea out to see if it would be successful. Remember, entrepreneurs may not see a profit right away; it will depend on the type of business.

There are several facets to consider when starting a home business. Determine if there will be a market for your products or services and if such an endeavor is possible. This is crucial before a large amount of money is spent. The business may not be feasible. Too many businesses fail because people do not test their market plan and manage the business properly. Information from Link Research in a 1996 survey of 5,000 Home Office Computing readers reported that 20 million businesses found the most challenging business tasks to be 1) marketing to gain additional business; 2) time management; 3) financial record keeping; 4) avoiding overhead when possible; and 5) assistance in managing varied responsibilities.

This publication will identify and address many of these factors. If you decide to pursue a home-based or micro-business, careful planning and consideration of these topics will help increase the chances of success and in some cases prevent you from making an unwise investment or help avoid unnecessary risks.

Choosing the Business

A home-based business can be either product-oriented or service-oriented. Product-oriented businesses are usually two types: a) selling products made by you, family members and/or employees (like raw materials such as fabrics or tanned leather, kits like yarn/pattern and knitting needles, partially finished items like unpainted bird houses or completed articles such as jewelry and belt buckles) or b)selling products manufactured by others and either purchased by you for resale or sold on an order basis. Services may involve performing a service at the place of business (word processing, tutoring, bookkeeping or child care) or at another location (house painting, carpet cleaning or consulting). To determine or confirm your business idea(s), examine your interests, skills and abilities, education/training, and experiences.

You must enjoy doing the work involved. Just because you make super apple pies or wooden toys doesn’t mean that you would want to create them six days a week. Perhaps you would rather teach others to make pies or toys! Teaching requires a totally different set of skills and interests than doing the actual work yourself.

Spotting Opportunities Among Scams

There are many other enterprises that are operated out of a home. As you consider a business beware of scams. As technology expands and because of the growing interest in the home-based business community, a large number of individuals and companies have organized to meet the needs of budding entrepreneurs. Many of these companies, however, are more interested in selling a worthless business idea to someone instead of helping them develop a real small business opportunity. So check it out! The old adage “if it seems to good to be true, it probably is” holds true.

“Opportunities Questionnaire.” Evaluate all ads carefully, and if you suspect it’s a scam notify the Attorney General’s Office before investing in a business opportunity.

You must thoroughly evaluate the potential for the business you plan to operate. Obtaining good advice can help prevent you from making expensive mistakes which often lead to failure.

Decision to Start a Home-Based Business

While being in any kind of business has certain basic requirements, a home-based business has additional ones. Self-discipline is very important. Working for others means that many responsibilities are shared with other employees. Being in business for yourself means you carry the whole load. Some people don’t want all of the responsibility of licenses, regulations, taxes, insurance, keeping records, advertising and pricing, etc. Are you willing to take on these responsibilities?

Depending on the business, you may find it very confining, stressful, expensive and physically exhausting. On the other hand, being on your own can be very stimulating, financially rewarding and satisfying.

A home-based business may cause problems within the family. You need the full support of spouse, children and others. They need to take you and your business seriously. What help can you expect or do you need from family members? Use of their money, skills and time often make the difference between success and failure.

Will you have adequate time to spend

with your family? Doing work part-time or postponing starting a business a few years may enable you to better prepare for starting a business and allow you more time with your family when they particularly need you.

Lack of planning and insufficient financial backing join poor management as the main reasons why businesses fail. Improve your odds of success by moving slowly and carefully in starting a business and you can join the 95 percent of those who succeeded in their first year and the 85 percent who are still in business and doing very well after three years.

Advantages and disadvantages

Advantages of a home-based business include having a flexible schedule; integration of family and work responsibilities; less involvement with others in a regular work environment, such as power struggles and red tape; no commuting time (unless you travel to a customer’s home or place of business); control of your own personal environment (temperature, light, work breaks, etc); self-determination and independence; increasing personal fulfillment; seeking and setting personal goals; enhancing creativity; and remaining in a community or moving with a spouse to a new community even when jobs are scarce or not available.

Disadvantages of a home-based business include needing to know a lot of information to operate a business successfully; the risk involved in operating a business; conflict in ownership of time (When is it my “own” time and when is “business” time?); lack of guaranteed employee fringe benefits; many competing roles and responsibilities (producer, promoter, bill collector, customer service representative); lack of job security; loss of home space use by family; interruptions; lack of self-discipline; little opportunity to delegate tasks to others; long hard hours, and legal requirements including zoning regulations. Being committed to a business may mean lack of freedom to do other things and to go as you please.

Other factors to consider

The decision to go into business is based on a thorough study of factors such as the potential market, sales promotion and advertising, location, making the product or setting up the service, delivery of the product and profit potential. Consultation with a small business expert such as a Small Business Administration Service Corps of Retired Executives Association (SCORE) counselor or the Small Business Development Center (SBDC) staff (1-800-445-7232) will help you decide if the particular small business would be feasible and help find answers to the following and other related questions: How likely is it that the business will be profitable? What is the competition? Is there a long-time need for the product or service, or is it a fad-type item? Are you an expert in producing the product or service?

“Can You Live Where You Work… and Work Where You Live?”

A unique situation occurs when a business is operated out of the home. Conflict can result from the infringement of the customer/business interaction on family functioning. A family and business does not integrate successfully in the same space without some planning. Five areas of family functioning are likely to be affected.

Family cohesion. Each household will need to answer the following: 1)What will the business demand from the home space? 2)What does the family need from the space in the home? 3) How can you develop a management plan for household space use that best accommodates your family and your business?

Personal and family time schedules. If the schedules of family members are fixed and intermeshed (one car and each person needs to be on time for various commitments), a business would have to meet this time schedule. It would be difficult to retail items such as paintings and crafts if customers stop by anytime.

Use of space. Is your business one which requires storage space, an area for customer interaction, specialized tools and equipment, or convenient access for pickup and delivery? Is confidentiality a problem? The arrangement of space may affect ongoing family activities. The most convenient part of the house for customer interaction, pickup and delivery is often the most shared and public parts of the house (kitchen, living room, etc.).

Space separations must be maintained for deductions as business expenses for tax purposes. One must determine if this part of the house has too many uses that are part of the pattern of your family’s life to also be used in the business.

There are many different types of home-based businesses, but they can be grouped into broad categories: production/service; consulting or counseling; sales or marketing and mail order. These different types of businesses have different space needs. Thinking about what category describes your business can help you begin to think about space needs. Think about storage space, space for tools and equipment, production space, area to meet with clientele, pickup and delivery and office space.

The Neighborhood. How do your neighbors feel about a business in the neighborhood, and do city and county codes permit your business to be established in the neighborhood? Higher traffic in the neighborhood may cause disenchantment among friends and neighbors. A seamstress may consider fitting garments at the client’s house or secure alteration business through a clothing store or dry cleaners in order to preserve the character of the neighborhood, for example.

Shipping and deliveries could be made to a U.S. postal service box or parcel service branch office to avoid unwanted truck traffic.

Risk handling behavior. Another aspect of family functioning which relates to a business at home is the family’s attitude toward risk. Some are risk seekers who look for opportunities to be tested, willingly take financial risks, and promote novelty and change in their lives. Others tend to avoid change and desire a secure environment at home and around the family.