Starting a business from home

1. Overview

If you are thinking of starting your own business you should consider the possibility of working from home.

Home-based businesses are a popular option for many types of smaller business. Generally the costs will be lower, you can avoid travel expenses and you have the freedom and flexibility to work the hours you choose in an environment that you create yourself.

Advances in technology mean that many kinds of business can be run from a home base.

This guide will help you decide whether starting a business from home is right for you. It also tells you what you need to do if you decide to start a home-based business.

2. Is starting a home-based business right for you?

Becoming a home business owner is an option if you don't actually need to run your business from rented or owned business premises.

It's a common choice for people who just need a small office, or who spend most of their time working on premises owned by their clients.

However, working from home may not be an option if it significantly changes the use of your home, or affects your local area, for example if you have lots of visitors. If you rent your home, your licence or lease may include restrictions on using it for business purposes.

Advantages and disadvantages of home-based business

The major advantages are that you:

  • do not have a sizeable expenditure on office rental or office purchase
  • save time and money by cutting your commute
  • can be flexible around the hours you work

The disadvantages are:

  • it may prove difficult to keep work and home-life separate, and there may be domestic distractions and interruptions
  • a lack of contact with other people and businesses
  • you might end up working long hours
  • your mortgage, home insurance and tax situation may be affected

Addressing the disadvantages

It is important to keep your home and work life separate, especially if you have a family. There are simple steps you can take to make this separation.

If you are feeling isolated from other people, the Welsh Government's regional centre service and other organisations can provide you with details of networking events. You can also get involved in online networking.

3. Popular home business ideas

If you do not yet have a home business idea, ask yourself 3 questions:

  • is there a gap in the market? Have you tried to buy something that you just can't find? In which case, others may be looking for that product too
  • what is my passion/skill/hobby? Can you find a way of making a living from it?
  • can I do something better? Have you seen someone offer a product or service that you think you can offer better yourself?

Popular home business ideas

Consider opportunities in your local area for services such as child care, tutoring, translation, editorial services, dog walking and alteration services.

Other common home-based businesses include:

  • consultants
  • website designers
  • arts and craft makers
  • publishers
  • caterers
  • virtual assistants who provide professional assistance to clients from a home office

You could also consider investing in a franchise. The benefits of being a franchisee are that you are your own boss but also have the benefit of working with a central team. There are a growing number of home-based franchise opportunities that you can explore.

Working '5 to 9'

You may want to consider starting a business whilst in full or part-time employment, using the evenings and weekends to build your business. This means that you will have money coming in whilst your business finds its feet. However, you might find it difficult to manage the extra hours and the extra work.

Your business plan

Once you have worked out a business idea, you need to create a written business plan. 

4. Start-up costs and financing your home-based business

If you are looking for some extra funds, there are various options to consider.

Initial costs

You will need to buy, lease or rent the equipment for your home office and any materials you need for the service you are supplying.

Finding and keeping in touch with customers is a major issue, so investing in a good computer with relevant software and a broadband connection will be a priority in most cases.

The most common costs to consider when starting out are:

  • a computer or laptop
  • broadband access
  • mobile phone
  • office desk or chair
  • business cards
  • stock - if you're supplying products

When you are factoring software packages into your start up costs, take a look at the much cheaper or even free options - open-source software such as OpenOffice, Zoho, Google Docs and StarOffice.

5. Record keeping

It is vital to keep full and accurate records of your income and expenses from the start. Keeping records makes sound business sense and is a legal requirement. So it is important to get a proper system in place from the outset, and update the information regularly.

Keeping good records helps you:

  • complete your tax returns easier and quicker
  • pay the right tax at the right time
  • avoid paying unnecessary interest and penalties

You should keep invoices and receipts to show what you have bought or sold relating to your business.

If you are employing others, you must keep records of their wages and tax and National Insurance you have deducted and paid to HM Revenue & Customs (HMRC).

Keeping bank statements and building society books is vital, especially if you don't have a separate business account. You should be able to show clearly what you have spent personally and what is spent on business. If you use cash, you will need till receipts and a record book to keep track of it all.

If you are using part of your home for business then you should keep copies of the utility bills so that you can work out the amount spent in relation to your business.

If you have an accountant you might want to get their advice on what system suits your business and on how to keep your records up to date.

Keeping records is important as penalties were introduced in April 2009 for not taking reasonable care with records and tax returns.

6. IT and home business

The home business owner depends on technology - to find and keep customers and to keep in touch with suppliers, partners and contacts.

Email and the internet offer simple and effective methods of customer care and management, while IT can help you with almost every aspect of your business.

The benefits of a website

Websites have become a must-have marketing tool for most businesses. Websites are good for:

  • attracting sales
  • branding your product or service
  • keeping in touch with customers through email updates

You might want to start by using an 'off the shelf' template site. These can come with in-built payment systems for selling online and Search Engine Optimisation (SEO) for pushing your site higher up in online search result listings. If you are thinking of selling products online, remember that you can also do this through existing auction websites.

Networking

You can use social media like Twitter and LinkedIn to keep in touch with other business owners. This will alert you to business development opportunities and help overcome any feelings of isolation you experience as a home business owner.

You can also use email and the internet to network, posting comments and articles in relevant forums on websites like horsesmouth and Enterprise Nation. You can also blog on relevant topics on your own website or write articles and syndicate them to other sites your customers are likely to visit.

Working away from home

IT doesn't just allow you to build a professional office at home - it enables you to work on the move. Recent technology such as WiFi, USB dongles, smart phones and Skype means that you can work wherever you want.

Cloud computing provides businesses with a way of managing data and software requirements over the internet - 'in the cloud'. This makes your business information accessible from any computer or mobile device with an internet connection and web browser. Cloud computing can provide a cost effective and flexible solution to your IT requirements. 

7. Your work environment

It is important to create dedicated work space - it allows you to work without distraction and close the door on work at the end of the day.

Workspace priorities

The area that you use for work should ideally be clearly marked as such. A spare room with a lockable door or an outbuilding are popular choices enabling home business owners to:

  • deal with clients in a professional manner
  • resist demands from other members of the household
  • keep work equipment separate from home equipment and therefore protected

Allocating part of your house as a workplace can have tax and insurance implications.

You can create a space to call your own by:

  • using office equipment in a general area of the house and putting it away when not in use
  • housing your workstation in a cupboard, wardrobe or under-stair space with lockable shutters or doors

Work equipment and workstation setup

When setting up your work area:

  • your chair and desk should be fully adjustable and suited for computer use
  • your desk should be big enough for your computer, keyboard and monitor
  • use storage to keep office clutter free
  • when sitting at your desk, keep your feet flat on the floor and your back straight - the top of your monitor should be at eye level

You must carry out a health and safety risk assessment on your work space. 

Home business and planning permission

If you are making substantial changes to your home to accommodate your business you should contact your local authority regarding planning permission. 

8. Managing your home-based business

Managing your business properly will improve your chances of success and prepare you to grow your business.

Developing relationships

The more you communicate with customers, suppliers and other entrepreneurs, the more business opportunities you will identify.

For example, developing relationships with suppliers and other businesses might enable you to bid for public procurement contracts - something that would be impossible on your own.

IT is the key to many aspects of business development.

Stay in touch with fellow entrepreneurs through networking, speaking at events, contacting local journalists and entering awards and competitions.

Consider using customer contact, feedback and loyalty schemes to retain customers and increase your sales.

Cashflow

Cashflow is the lifeblood of every business. You must do all you can to ensure that money owed is coming into the business. You can ensure prompt payment by issuing invoices on time and having a system in place to alert you to non-payment. See our guide cashflow forecast.

9. Your growth options

When it comes to growing your business, one popular option is to focus on what you do best and outsource the rest.

If you are thinking of employing people, you need to determine their employment status, for example whether you will treat them as employees, contractors or sub-contractors, or simply 'volunteer' family and friends.

If you employ someone, you will have extra responsibilities relating to health and safety.

Outsourcing

You can grow your business without increasing headcount or expanding your premises, by outsourcing, for example:

  • accounts
  • administration
  • telemarketing - for generating leads
  • PR
  • design and copywriting

Meeting spaces

As your business grows, you may find that your home is no longer suitable for all your business needs. Remember that you can rent managed workspace and meeting facilities for occasional use through business centres. These can be found in central locations in many towns across the UK.