Start and Manage a Business From Your Home

Introduction: "There's No Place Like Home"

The cottage industry, an old-fashioned enterprise, is enjoying a revival so strong that it's difficult to find out just how many Americans are now working at home.

Because women now enter business at a rate five times faster than men, the trend of operating from home is growing. A natural starting place for many businesses seems to be the garage, basement, or den.

Homemakers, hobbyists, retirees, people interested in a second income, and the disabled are just a few of the groups attracted to home enterprises. A young mother's craft business began when she started appliqueing decorations on her children's clothes.

A retired government worker bought 36 beehives and sold honey to local health food stores and at craft fairs. A teacher did typing and secretarial jobs for her husband and friends until she realized the potential market and opened a full-time secretarial service from her apartment. Others have become home business owners by using their skills in catering, counseling, teaching, day care, sewing, writing, photography, consulting, market research, and landscape design.

The list of services that have been successfully operated from home is endless: chimney sweeping, maid services, messenger services, wake-up and answering services, home nursing, mail order businesses, party planning, dog grooming, kitchen and closet planning and organizing, and others too numerous to mention. You can target exactly the right type of business for your skills, your home space, your market, and your part of the country.

Home Entrepreneurship: Is It For You?

The first step in deciding whether to start a business is to ask yourself this important question: "Do I have what it takes to be an entrepreneur?" Studying the characteristics of successful business owners will help you to tell whether your personality traits, experiences, and values are similar to those who have succeeded. And assessing your experience, skills, and life goals will also help you decide if you want to invest the energy, time, and resources that successful entrepreneurship requires.

Who is the "Typical" Entrepreneur?

What makes an entrepreneur successful is a hotly debated and vigorously researched subject. The following questions are designed to help you determine your "Entrepreneurial Quotient."

Do you reconcile your bank account as soon as the monthly statement comes in?

Entrepreneurs are careful about money. They usually know how much money they have so they can seize opportunities on short notice. They know what things cost, whether prices are going up or down, and whether they are getting a bargain.

Did you earn money on your own from some source other than your family before you were 10 years old?

Most people who are going to make money in business show an affinity for making money at an early age--by babysitting, selling lemonade, delivering newspapers, or some such strategy.

Do you get up early in the morning and find yourself at work before others are out of bed?

Entrepreneurs sleep and eat enough to keep up their strength, but they don't usually tarry at these pursuits.

Do you tend to trust your hunches rather than wait until you have a lot of information on hand?

Hunches are judgments based on factors that cannot be quantified. A big part of entrepreneurship seems to be risk-taking based on these hunches.

Do you keep new ideas in your head instead of writing them down?

Entrepreneurs keep a lot of things in their heads, including their most creative ideas.

Do you remember people's names and faces well?

Ease in remembering names and faces is very important in the business world.

Were you good in "hard" subjects--mathematics, biology, engineering, accounting, and so forth--in school?

People who major in business administration in college are more likely to be successful entrepreneurs than anyone else. They prefer subjects in which the answers are conclusive rather than open-ended conclusions full of contingencies.

In school, did you pretty much stay away from such organizations as Scouts and student government?

Most entrepreneurs tend to be loners rather than joiners, unless joining is a useful tactic for making contacts and gathering business information.

In courting the opposite sex, did you tend to go for one person at a time as opposed to playing the field?

Most entrepreneurs preferred one person because to play the field would have taken too much time away from business activities.

Do you close deals with a handshake rather than insisting on written contracts and guarantees?

Good entrepreneurs are often comfortable with something less binding than written contracts. When the only bond is a word, it becomes a matter of honor, and no entrepreneur can afford to lose honor.

Do you devote considerably more time and thought to work than to other activities, such as hobbies?

Entrepreneurs may have some leisure time activities, but their principal hobby is their work.

Was your parent an entrepreneur?

Having a close relative who was an entrepreneur is the single most telling indicator of a successful entrepreneur.

What size company do you now work for?

The typical entrepreneur comes from a medium-sized company -- 30 to 500 employees.

Have you ever been fired?

Entrepreneurs make poor employees. That's why they become entrepreneurs.

If you had a new business going, would you play your cards close to the vest, or would you be willing to discuss problems with your employees?

Typical entrepreneurs have a secretive streak. If they confide in anyone, it is likely to be another entrepreneur.

Are You Ready, Willing, and Able?

Now that you have studied the characteristics of others who have succeeded, look at your reasons for wanting a home-based business. Are you dissatisfied with your current job? What are your skills? What is your business experience, especially in the business you want to start? What are your life goals? What resources do you have
that might help?

Answering these questions will provide reality testing for ideas that can sound incredibly glamorous when chatting with friends or seductively attractive when you are irritated or bored by your present job.

How does your family react to the idea of a home business? Will you expect them to help out? What changes would your business use of the house mean for them? Will you have to remodel to create a usable business space?

What resources are available to you? Will you start by keeping your job and "moonlighting" for a while? Do you have a small nest egg, inheritance, or retirement income to live on until you get the business going? Do you already own tools or machines that will help (for instance, a computer for a secretarial business or professional cameras and a darkroom for a commercial photography business)? Are you able to go back to school for training if necessary? Have you built up a network of contacts and possible customers through your previous lines of work or will you be starting from scratch?

Answering these questions honestly and completely will help you assess not only your chances for success but also which type of home-based business to choose. For instance, if your past professional life and contacts are all in the educational, teaching, child-oriented school area, then you should have powerful reasons for leaving that and opening a mail-order seed business. Possibly a tutoring business
or a tot exercise franchise would use more of your resources and networks. On the other hand, if your assessment of your life goals and preferences helps you realize that you are burned out from working with kids, then perhaps a business planning birthday parties could later be built into a general party planning and catering business. You would be using your old contacts to build a long-range business
plan that focuses on a service business for adults.

The Advantages of Home-Based Business

Why have millions of Americans chosen to work and live in the same place? Why are cottage industries sprouting faster than we can count them? Some home-based businesses start by accident rather than by conscious design. Secretarial services, day-care centers, craft ventures, and the like may start out as weekend activities
in the recreation room. After a while their owners are surprised to see how profitable or enjoyable the venture has become. The glimpse of a healthy market lures them into a full-time venture. This low-risk, low-overhead, gradual kind of start-up is very attractive to new business people.

Many home-based business people cite decreased commuting time and other lessened business expenses as advantages for working at home. If your place of work is just 30 minutes away, that's five hours a week in commuting time, many dollars in gasoline and car maintenance or transit fares, and untold stress fighting traffic. Getting out of the high-fashion rat race is a plus for many who dislike having to dress up and continually buy new clothes to feel comfortable in settings outside the home.

Homemakers--mostly women but also an increasing number of men--are choosing a home-based business in order to have a more flexible lifestyle and to be closer to family. A parent who has a home office can eat lunch with the children or more easily attend special school or sports events. The home-based business person has more control over work hours than someone with a 9 to 5 job. Night owls who like to work until 3 a.m. can then sleep late (remembering, of course, to turn on the answering machine and let customers know the business hours). On the other hand, early birds can work without the usual disturbance from the telephones.

The tax advantages of operating a business from home are numerous but sometimes complicated. Wise business owners keep careful records and work with accountants, attorneys, and financial planners to make sure they are filing for the legal maximum write-offs and benefits.

The Disadvantages of a Home-Based Business

If you were hard at work in an office downtown, it is unlikely that three children would come storming in to ask for snacks or that you would end up using the ironing board for a bookshelf or have to think twice about hiring others because they might resent working at your kitchen table. These are just a few of the problems that make the glamour of working at home fade fast. Some disadvantages of working at home can be minimized by self-discipline, by setting clear limits with family and friends, and by projecting a professional image. Other disadvantages "come with the turf" and just have to be lived with. If a delivery man comes to the door, you will probably be the one to interrupt your work and sign for the package.

It takes time and discipline to establish steady, at-home work patterns. Often it seems easier to water the plants or do the laundry than to call a client, design a new brochure, or prepare bills for customers whose work you've completed. Without the deadlines imposed by supervisors or peers, it can be hard to do the least appealing jobs on your list. To make matters worse, others may not take you seriously. Neighbors may stop by to chat or friends may call your business number knowing you will answer. Without supervisors or managers, you are the one who must set limits and plan your time. There also is the problem of isolation. While you are now your own boss, you won't have the chats, the parties, the companionship of
fellow workers. Losing such social contact requires adjustments.

As the business grows and changes, the home entrepreneur has to put up with cramped or inappropriate space. No more simply putting in a request for a bigger file cabinet or a new copy machine; now you must visit showrooms or garage sales, evaluate features, compare prices, and probably pick the item up yourself.

Your teenager may resent having to keep the stereo low because you're meeting with a client in the next room. Your spouse may be irritated by having to fry that freshly caught trout on the backyard grill so your office won't smell of fish. Your son
may not want to give up the recreation room pool table so you can cut out 100 doll patterns this weekend. Neighbors may comment on the extra traffic your customers create on their quiet street. Family privacy and lifestyle patterns may be disturbed. And you will probably find yourself wrestling with laws and regulations
you never dreamed could exist before you went into business.

Your Professional Image

Developing a professional image may be hard if you work out of your home. Projecting a businesslike image is an important part of building credibility with your customers and contributes to your own professional self-image. Design a logo or have one designed; order business cards and stationery. Set regular business hours.
Use an answering machine or answering service. If other members of the family also answer the phone, make sure they know what to say. Have a businesslike office or "showroom" if you meet customers face to face. Consider referring to your apartment number as your "suite number" or rent a post office box rather than using your street address. Such practices might improve your chances of doing business
with potential customers.

Your Next Steps

Now that you have reflected on the characteristics of successful entrepreneurship and assessed your skills, experience, and life goals, it's time to plan your next steps. Ask yourself: Given the disadvantages of working out of my home, do I still want to? Now that I know more about what's involved in starting a business, is it still for me? Do I need further training or experience? Should I begin part-time in order to test the waters, check out market potential, or refine my product or service? Do I need more time to research possible products or services? Have I decided on a particular business?

Answering The Big Question: What? Who? Where? How? and How Much?

What's the perfect home business for you? You've listed your skills. You've outlined your interests. You've described your family's preferred lifestyle. You've come up with a business idea. Next, consider such questions as: Are there customers for my product or service? How do I know? How will I find them? Who are my competitors?
What will I charge? How will I promote my product or service? Finding the answers to these questions is the challenging and sometimes tedious homework that will help you determine your chances for success, and whether you should look for another more marketable idea.

What Is My Product?

"I bathe and groom poodles and small dogs." "I design, construct, and sell roll-top desks." "I provide accounting services to small business clients." "I make dried flower arrangements." "I teach intermediate and advanced piano to children." "I design and implement direct mail advertising campaigns for small businesses and nonprofit organizations."

The first step in creating a business is to decide what your product is. What are you selling? Practice writing a short, specific statement describing your product or service. Getting a clear idea of a business concept is one of the most difficult
tasks in creating a business. Your statement may change several times as you experiment with the market and test your skills.

Who Will Buy It?

To develop and test your business idea, answer the question "Who will buy my product or service?" Make a list of potential customers: individuals, groups, segments of the population, or other businesses that need your product or service. If you are making fabric-covered lap boards for people confined to bed, how will you quickly and inexpensively find a market? Through hospitals or home nursing care organizations? Through craft stores by displaying them as gift items? In mail order catalogues? Is there a market avenue that will reach children? Ask friends and colleagues for help in brainstorming all the possible markets (customers) and uses for your product or service.

Who Is the Competition?

Your business planning must also include an up-to-date analysis of your competition. Why? Because you need to plan your market position--how you will fit into the marketplace. Will your product or service be cheaper or more expensive than that of the major competitions? Will it be more durable? Will you be open during hours
that your competitors are closed? What benefits can you build into your product or service that your competitors don't offer? Will you do rush jobs?

In planning your business, look for a unique niche that will give you freedom from strong competition or that will make your product or service more valuable than others in the market. If you plan to open a day-care center and find that none in your area is open before school, early opening might make your service more competitive. If you discover that local caterers have overlooked the office party
market, you might highlight that in your brochure. The more you can learn about your competition, the better you'll be able to decide how to position yourself in the market.

Where Are the Buyers? How Can I Find Them?

As you become more familiar with the competition, you will also be discovering where and how to find buyers. Whatever the type of home business you want to open, you will need to do market research to determine if there are buyers for your idea, where they are, and how to find them. (And in the process, you will also be gathering information on pricing.)

When your marketing research is completed you will have 1) identified your potential customers; 2) found out all you can about their habits, needs, preferences, and buying cycles; and 3) decided how to reach them to generate sales.

How Much Shall I Charge?

Four main factors will help you decide what to charge for your product or service: 1) your direct and indirect costs; 2) the profit you want to make; 3) your market research data on competitors' prices; and 4) the urgency of the market demand. There is rarely an exact "right" price but rather an acceptable price range within which you will want to fall. Avoid the common mistakes made by many new business owners--charging too much or too little. Use several approaches to arrive at a cost and "test" the price. If your ego is too involved, your price may be too high. On the other hand, if you have the attitude that "this is just a little something I
do in my spare time" or "anybody could do this," then your price may be too low.

Here is a formula for setting a fair price. Calculate your price using other approaches, too, before you make a final decision on price:

Typical Pricing Formula

1. Direct Material Costs--Figure the total cost of the raw materials you have to use to make up your item. Figure the cost of a group of items and then divide by the number of items to find the cost per item. If you can easily and immediately determine the material cost of a single item, fine. Some items are produced in batches, however, and it is easier to get an item cost by dividing the cost of a batch by the number of items eventually produced.

2. Direct Labor Costs--Figure what you pay to employees to produce the item (whether or not you have employees now). You must assign a wage figure, even if you are the only one producing the item. Take the weekly salary you pay someone to produce the necessary number of items and divide it by the number of items. Add this figure to
the Direct Material Costs total.

Materials + Labor = $__________.

3. Overhead Expenses--These expenses include rent, gas and electricity, business telephone calls, packing and shipping supplies, delivery and freight charges, cleaning, insurance, office supplies, postage, payroll taxes, repairs, and
maintenance. The accuracy of your costing depends on estimating logical amounts for all categories of expenses. If you are working at home, figure a portion of your total rent or mortgage payment(in proportion to your work space and storage areas), or assign a reasonable, competitive rent figure for the same amount and type of space. List all overhead expense items and total them. Divide the total overhead figure by the number of items per month (or time period you used above). The answer is your overhead per item.

Overhead + Materials + Labor = Total Cost/Item

4. Profit--Include an amount added to the cost of each item so you won't end up just breaking even or making the employees' wages. Check your competition and see what they are charging. (Retailers generally double the wholesale price.) If your product is a little better than the competition, charge a little more. If your product is comparable, price it similarly. Remember, you will get the profit from each sale,
in addition to the salary figure. Add the profit figure you have chosen to the total cost per item to get your total price per item.

Profit + Total Cost/Item = Total Price/Item

Remember, the main purpose in operating a business is to make a profit. Don't undersell your product or service just because "I'd be baking cakes anyway" or "I'm just starting out" or "I work out of my home." If you have a new, rare, handmade product or personalized service, the demand may be so high that customers are willing to pay a little more.

Promotion

Promotion is an overall, long-range plan designed to inform potential customers about what you have to sell. Advertising is usually thought of as the paid communication part of the promotion program.

To develop a total promotional campaign you must answer these questions: 1) What image or message do I want to promote? 2) What are the best media and activities for reaching my potential customers? 3) How much time and money can I spend on the effort?

Develop a long-range, consistent program for building image and reaching customers. Your image should be reflected in your business card, logo, stationery, brochure, newsletter, telephone answering service, signs, paid ads, and promotional activities.

Word-of-mouth recommendations from satisfied customers are the very best promotion any business can have. Consider which promotional tactics will build the confidence and image you are looking for--giving speeches and interviews (often good for
counselors, teachers, lawyers, consultants), having an open house or holiday home sale (for craftspeople), holiday recitals or shows (for music and dance teachers or day-care operators), free demonstrations and samples (for retailers, decorators,
caterers).

Several small ads may have more impact than one large, splashy ad. Conduct a campaign rather than having a one-shot ad or event. If you hire a public relations firm, look for one that can give you personal attention and develop a total marketing plan for you, not just a couple of ads.You're The Boss.

Now that you have decided to open a home-based business, all decisions will be your responsibility, not just those you previously enjoyed because they involved your area of expertise. You are the boss now and the good health of your business depends on your management skills.

Choosing Your Form Of Business Organization

One of the most important decisions you will make is how to set up the business as a 1) sole proprietorship, 2) partnership, or 3) corporation. Remember, the small business owner risks it all, no matter what form of organization.

The forming of a business organization depends on the following factors:

* Legal restrictions
* Need for capital
* Liabilities assumed
* Number of people associated in the venture
* Kind of business or operation
* Tax advantages or disadvantages
* Intended division of earnings
* Perpetuation of the business

Most home-based businesses are sole proprietorships or partnerships, but a comparison of the advantages and disadvantages of each type of organization follows:

A sole proprietorship is the least costly way of starting a business. You can form a sole proprietorship by finding a location and opening the door for business. There are the usual fees for registering your business name and for legal work in changing zoning restrictions and obtaining necessary licenses. Attorney's fees for starting your business will be less than for the other forms because less document
preparation is required.

Sole Proprietorship

Advantages Disadvantages

* Easiest to get started * Unlimited liability
* Greatest freedom of action * Death or illness endanger
business
* Maximum authority * Growth limited to personal
energies
* Income tax advantages in * Personal affairs easily
very small firms mixed with business
* Social Security advantage to
owner

A partnership can be formed by simply making an oral agreement between two or more persons, but such informality is not recommended. Legal fees for drawing up a partnership agreement are higher than those for a sole proprietorship, but may be lower than incorporating. You would be wise, however, to consult an attorney to have a partnership agreement drawn up to help resolve future disputes.

Partnership

Advantages Disadvantages

* Two heads better than one * Death, withdrawal, or
bankruptcy of one partner
* Additional sources of endangers business
venture capital
* Better credit rating than * Difficult to get rid of bad
corporation of similar size partner
* Hazy line of authority

You can incorporate without an attorney, but you would be unwise to do so. You may think a small family corporation does not need an attorney, but an attorney can save members of a family corporation from hard feelings and family squabbles. Attorney's fees may run high if organization problems are complex. The corporate form is usually the most costly to organize.

Corporation

Advantages Disadvantages

* Limited liability for * Gives owner a false
stockholders (while true sense of security
for big business, may not
be for small business) * Heavier taxes
* Continuity * Power limited by Charter
* Transfer of shares * Less freedom of activity
* Easier to raise capital * Legal formalities
* Possible to separate * Expensive to launch
business functions into
different corporations

Recordkeeping

Keeping accurate and up-to-date business records is, for many people, the most difficult and uninteresting aspect of operating a home-based business. If this area of business management is one that you anticipate will be hard for you, plan now how you will cope. Don't wait until tax time or until you are totally confused. Take a course at the local community college, ask a volunteer SCORE (Service Corps of Retired Executives) representative from the Small Business Administration to help you in the beginning, or hire an accountant to advise you on setting up and maintaining a recordkeeping system.

Your records will be used to prepare tax returns, make business decisions, and apply for loans. Set aside a special time each day to update your records. It will pay off in the long run with more deductions and fewer headaches.

If your business is small or related to an activity that is usually considered a hobby, it's even more important that you keep good records. The IRS may decide that what you are doing is only a hobby, and you won't be allowed to deduct expenses or losses from your home-produced income at tax time. So keep records of all transactions in which you spend or bring in money. Pick a name for your business
and register it with local or state regulatory authorities. Call your city hall or county courthouse to find out how.

Your records should tell you these three facts:

* How much cash you owe,
* How much cash you are due, and
* How much cash you have on hand.

You should keep five basic journals:

1. Check register--Shows each check disbursed, the date of disbursement, number of the check, to whom it was made out (payee), the amount of money disbursed, and for what purpose.

2. Cash receipts--Shows the amount of money received, from whom, and for what.

3. Sales journal--Shows the business transaction, date, for whom it was performed, the amount of the invoice, and the sales tax, if applicable. It may be divided to indicate labor and goods.

4. Voucher register--A record of bills, money owed, the date of the bill, to whom it is owed, the amount, and the service.

5. General journal--A means of adjusting some entries in the other four journals.

Choosing a Recordkeeping System

Set up your records to reflect the amount and type of activity in your particular business. There are a wide range of pre-packaged recordkeeping systems. The SBA's pamphlet Small Business Bibliography No. 15 (see "For Further Information") lists many such systems. The most useful system for a small, home-based business is usually based on what is called the "One-Write System." It captures information
at the time the transaction takes place. These One-Write Systems are efficient because they eliminate the need for recopying the data and are compatible with electronic data processing if you should decide to computerize.

Even though you may be small and just beginning, it is probably wise to consult an accountant to help you decide which recordkeeping system is best for your business. Once it is set up, you can record the daily transactions or periodically have a bookkeeper post your daily transactions in your General Ledger and prepare your financial statements.

Be sure to establish a separate bank account for your business--even before the first sale. Then you will have a complete and distinct record of your income and expenditures for tax purposes, and you won't have to remember which expenses were business and which were personal.

It is important to choose a recordkeeping system that you understand and will use. It will help you see how well the business is doing and is the first step in responsible financial management.

Tax Obligations And Benefits

Significant tax savings are available to the home-based businessowner in the form of deductions, credits, and depreciation allowances. The time, money, and energy you put into keeping good records and keeping current on tax laws will be worthwhile and ensure that you operate within the law. You will need to plan for income tax, social security (all self-employed persons must pay a federal self-employment tax), employees' taxes (if you hire anyone), property tax on your home and business-related taxes, such as sales tax, gross-receipts or inventory tax (in some states and localities), and excise or individual item taxes (on certain commodities).

As a home-based business owner you should be aware that every business decision--each purchase and transaction you make--has tax implications or built-in tax advantages or disadvantages. Deductions may be available for home maintenance and improvements; automobile expenses; telephone expenses; office and work space; inventory space; major purchases, such as a computer; and a wide variety of other items such as uniforms, coffee service, trademarks, a safe deposit box, credit bureau fees, and business cards.

Each business situation is different and tax laws change, so consult up-to-date references, a trusted attorney, and an accountant who can advise you on your particular obligations and benefits.

Insurance

Insurance helps to safeguard your business against losses from fire, illness, and injury. You cannot operate without it. Talk with an insurance representative about your business needs. Check with the insurance carriers on your home policy and make sure business use of your home is compatible with your homeowner's policy. In addition to a homeowner's policy (personal plan), now that you have a business,
you will need a commercial policy for full protection. Discuss these other possible needs with your agent:

* Product Liability Coverage--to protect you in case
your product causes injury to the user

* Auto Liability and "Non-owned" Auto Liability
Insurance--if a car is ever used to support the
business in any way

* Medical Payments Insurance--payable if someone is
injured in your home whether or not it was your
fault

* Worker's Compensation--if you have employees

* Business Interruption Insurance or Earnings
Insurance--in case your business is damaged by fire
or some other cause and you must totally or partially
suspend operations

* Disability Income Protection--a form of health
insurance in case you become disabled

* Business Life Insurance--to provide funds for
transition if you die

Be sure to keep all your insurance records and policies in a safe place--either with your accountant or in a safe deposit box. If you keep them at home for convenience sake, then give your policy numbers and insurance company names to your accountant or lawyer or put it in your safe deposit box.

Final advice for the wise business person is to read and understand the fine print in all policies and to reevaluate business insurance needs about every six months.

Other Considerations

Another aspect of planning is sheltering tax dollars through a Keogh Plan or corporate pension and profit-sharing plans, if your business is incorporated, or a retirement plan.

If you have a partnership, consider making a Buy and Sell Agreement with your partner(s). This agreement requires the surviving partner(s) to buy, and the heirs to sell, the deceased partner's interest. The surviving partner(s) then becomes the sole owner(s) and the heirs receive cash for their share of the business.

Dealing With Laws: Zoning, Licensing, Permits, and Others

Unfortunately, many home-based business people try to "slide" into business, saying "I'll just try it for a few months and see how things go" or "It's not really a business. I have only ten clients." This attitude can lead to a lack of planning and big disappointments. If you set up your studio, print business cards and flyers announcing classes, and then find that regulations make it illegal to operate out of your home, you may have to start all over.

Zoning

Before you start your home-based business, do a thorough investigation of the zoning laws in your community. Zoning regulations spell out activities permitted and prohibited in specific portions of a city or county. Call your town hall, zoning office, or local library to get a copy of zoning laws. Find out the structure of your local zoning groups. Most areas have Planning, Zoning, and Appeals Boards.

If the home business you are planning conforms to zoning regulations, then all you need to do is keep abreast of new proposals that may affect your situation. It's a good idea to stay in touch with others operating from their homes by joining business organizations or neighborhood groups in case you ever need to band together to propose or oppose new regulations. Maintaining a low profile and friendly
relations with your neighbors will result in more support from them should adverse regulations affecting your business ever be proposed.

If through your research you discover that the home business you are planning would violate the zoning code, there are several possible ways to proceed. You might wish to check with an attorney who specializes in zoning law to look for a legal way around the regulation. You might decide to apply to the Zoning Board for a
variance or exception. Or you may be able to change your business enough to make the operation fit the law. If the regulation outlaws businesses that employ people other than the owner at home, maybe you can have employees take work to their own homes. If your business will create too much traffic, consider another strategy for product distribution. If your business will create too much noise, maybe you can soundproof your house. At last resort, ask yourself "Is it worth it to organize a drive to change the law?" Considering the rapid growth in the number of home-based businesses, you just might find other entrepreneurs who are also interested in
submitting a change in the regulations to the Zoning Board. Go to meetings of the Board and try to identify the person who appears most active and most sympathetic to your position.

Keeping Up With Zoning Legislation

There are two ways to keep up with zoning legislation in your community (and with other topics of interest to home-based entrepreneurs). One way is to read local newspapers, especially the business section and the local or "neighborhood" sections. Be sure you notice local items about such things as proposed subway stations or the county's plan for revitalization. Changes like these could eventually influence zoning in your area. The other way to keep abreast of trends and zoning issues is to join the local chapter of a business group, such as the Rotary Club, the National Association of Women Business Owners, the National
Family Business Council, or a Business and Professional Women's Club. Through newsletters, meetings, and friendships that develop, you will hear all the latest local (and national) issues discussed while you learn valuable business skills and make useful contacts.

Working With Professionals

Even the smallest and newest business needs help from at least two kinds of specialists: an attorney and an accountant. Depending on your type of business and your skills you may, from time to time, ask the advice of other professionals, such as a direct mail or marketing specialist, an insurance representative, management
consultant, a computer specialist, a realtor, a public relations expert.

Several guidelines will hold true no matter what type of expert you are dealing with: 1) Interview professionals to see if you will be comfortable working with them. Make sure they have served other small businesses similar to yours. Find out ahead of time exactly what service you are buying, what the working relationship
will be, and what fees will be charged. 2) Be completely honest about your business situation. Advice based on partial or incorrect information is no advice at all. If you are having problems, don't be embarrassed. If your sales are down, give the experts all the information you have and work as a team to solve the problem. If
business is good, don't be afraid that professionals will steal your idea or expect a raise. Build a trusting, businesslike relationship. 3) Expect the professionals you hire to spend at least some of their time teaching you and explaining complex
concepts. But don't expect to be spoon-fed or delegate all decisions to them. Take a course at the local community college in recordkeeping and taxes or public relations to develop more skill in areas where you are inexperienced. 4) Keep your appointments and pay your bills promptly.

Your Lawyer

A lawyer can help you decide which is the most advantageous business structure (sole proprietorship, partnership, or corporation). He or she can help you with zoning, permit, or licensing problems; health inspection problems; unpaid bills; contracts and agreements; patents, trademarks, copyright protection; and some tax problems. Because there is always the possibility of a lawsuit, claim, or other legal action against your business, it is wise to have a lawyer who is already familiar with your business before a crisis arises. A lawyer experienced with your type of venture should also advise you on laws, programs, and agencies--(federal, state, and local)--that help small businesses through loans, grants, procurement set-asides, counseling, and other ways. He or she will tell you about unexpected legal opportunities and pitfalls that may affect your business.

Your Accountant

Most businesses fail not for lack of good ideas or good will, but rather for lack of financial expertise and planning. Look for an accountant as you would an attorney. Get referrals from trusted friends, business associations, or professional organizations. Discuss fees in advance and draw up a written agreement about how
you will work together. Your accountant (along with your lawyer) can advise about initial business decisions, such as the form of the business. Your accountant will help set up your books, draw up and analyze profit and loss statements, advise on financial decisions (e.g., buying a computer), and give advice on cash requirements for your start-up phase. He or she can make budget forecasts, help prepare financial information for a loan application, and handle tax matters.

State and Federal Laws That May Apply to Your Business

Most localities have registration and licensing requirements that will apply to you. A license is a formal permission to practice a certain business activity, issued by a local, state, or federal government. You may have the type of business that requires a permit from the local authorities. There is often a small fee for licenses and permits (usually $15-25). A license may require some kind of
examination to certify that the recipient is qualified. Your business name must be registered and a sales tax number must be obtained. Separate business telephones and bank accounts are usually required. Of course, you will want to have the latter anyway for accurate bookkeeping purposes, If you have employees, you are responsible
for withholding income and Social Security taxes. You must also pay worker's compensation and unemployment insurance and comply with minimum wage and employee health laws.

Think twice about the liabilities of operating without proper licenses and registrations. If you begin to advertise or are fortunate enough to "make the news" in some way, you will probably hear from a local official. You will pay with
embarrassment, time, and money if your business is not properly licensed.

Understanding the Financial Side

Who Needs Financial Planning? You do! All businesses run on money for the purpose of making money. A major reason for business failure is the lack of financial planning. Although it is nearly impossible to make exact estimates, approximate ones will help. The very process of thinking through these financial questions will develop
your business acumen and lead to solid planning. Get your accountant involved in reviewing your plans and advising you, too.

Estimating Start-Up Costs

Begin your financial planning by estimating your initial or start-up costs. Include all items of a nonrecurring nature such as fees, licenses, permits, franchise fees, insurance, telephone deposit, tools, equipment, office supplies, fixtures, installation of fixtures and equipment, remodeling and decorating, funds for your
opening promotional event if you plan to have one, signs, and, of course, professional fees for your attorney and accountant.

Depending on your type of operation, the amount of money you invest, and the energy you expect to put in (part-time to full-time) can determine how much working capital you will need. Many business experts say if you expect a profit in six months, double that time and be ready to operate without profits for twelve months to give
yourself a cushion in case of unanticipated expenses or delays. Study the growth patterns of other similar business and ask for advice from your accountant and attorney.

Projecting Operating Income and Expenses

Next, estimate the "working" capital you will need to keep operating for six to twelve months. Operating expenses include salaries; expenses for telephone, light, heat, office supplies, and other supplies or materials; debt interest; advertising fees; maintenance costs; taxes; legal and accounting fees; insurance fees; business
membership fees; and special services expenses, such as secretarial, copying, and delivery service.

In addition to business operating capital, you will need to plan for reserve capital to cover personal expenses. This estimate will include all your normal living expenses, such as food, household expenses, car payments, rent or mortgage, clothing, medical expenses, entertainment, and taxes for you and your family.

After you have estimated start-up costs, working or operating capital needed for six to twelve months, and personal expenses and obligations, you may see that you need more start-up capital than you thought. What will you do? Discuss this with your accountant, attorney, and trusted business associates and family. Entrepreneurs secure needed capital in a variety of ways. You can:

* Get loans or gifts from family members or friends. Make
businesslike, written agreements and be sure to disclose
fully the potential risk as well as the possible profit.

* Apply for a bank loan. For this you will need a
comprehensive statement of your personal financial condition
and a business plan with financial projections to present
to the loan officer. If you need help in preparing your loan
application, take a course for small business people at a
local community college or visit your nearest SBA office
to get assistance from a SCORE counselor.

* Apply for an SBA loan guarantee. The SBA is not a bank,
but it does extend guarantees and may rarely participate
in a loan when the bank is unable or unwilling to provide
the entire financing itself. The SBA loan officer will ask
you the same hard questions as a loan officer in a
commercial bank and require the same carefully considered
data on your personal finances, start-up costs, and
business projections.

* Search for some sort of venture capital. For start-up
entrepreneurs some prior managerial or entrepreneurial
track record is usually necessary in order to get venture
capital. The main disadvantage of venture capital is that
you will probably have to give up between 50 to 90
percent ownership of the new business in return for the
capital. A home business is extremely unlikely to attract
venture capital.

Understanding Your Balance Sheet

Your Balance Sheet is a summary of the status of your business--i.e., its assets, liabilities, and net worth--at an instant in time. By reviewing your Balance Sheet along with the Profit and Loss Statement and Cash-Flow Statement, you will be able to make informed financial and business planning decision.

The Balance Sheet is drawn up using the totals from the individual accounts kept in your General Ledger. It shows what you have left when you pay all your creditors. Assets less liabilities equal capital or net worth. The assets and liabilities sections must balance--hence the name Balance Sheet. It can be produced quarterly, semi-annually, or at the end of each calendar or fiscal year.

While your accountant will be most helpful in drawing up your Balance Sheet, it is you who must understand it. Current assets are anything of value you own such as cash, inventory, or property that the business owner can convert into cash within a year; fixed assets are things such as land and equipment. Liabilities are debts
the business must pay. They may be current (such as amounts owed to suppliers or your accountant) or they may be long-term (such as notes owed to the bank). Capital (also called equity or net worth) is the excess of your assets over your liabilities.

Prepare a Balance Sheet for your new business during the planning phase to estimate its financial condition at that time and also a projected one for the first year of business. This will help you decide on the feasibility of your venture and make modifications to ensure profitability. You can also use these statements as part
of the documentation in a loan application.

Understanding Your Profit and Loss Statement

Your Profit and Loss Statement is a detailed, month-by-month tally of the income from sales and the expenses incurred to generate the sales. It is a good assessment tool because it shows the effect of your decision on profit. It is a good planning tool because you can "try out" decisions on paper before actually going ahead.

The Profit and Loss Statement includes four kinds of information:

* The Sales information lists the number of units sold and
the total revenues generated by the sales.

* The Direct Expenses category includes the cost of labor,
materials, and manufacturing overhead (but not normal
overhead).

* Indirect Expenses are the costs you have even if the
product is not produced or the service is not delivered. They
include the fixed costs or normal overhead of salaries,
rent, utilities, insurance, depreciation, office supplies,
taxes, and professional fees for your lawyers and
accountant.

* Income or Profit is the last category on the
Profit and Loss Statement. It is shown both as pre-tax and after-tax
or net income. The IRS will look at your pre-tax figure,
whereas your loan officer and you are more concerned
with your after-tax figure.

Your Profit and Loss Statement should be prepared at the very minimum once a year--and more often in the beginning or growth stages of your business. It is a key document from which the economic health of a business can be determined. Make certain you do it properly and understand its meaning.

Understanding Your Cash Flow Statement

Your business must have a healthy cash flow to survive. Cash flow is the amount of money available in your business at any given time. To keep tabs on cash flow, forecast the funds you expect to disburse and receive over a given period of time. Then you can predict deficiencies or surplus in cash and decide how to respond.

A cash flow projection serves one other very useful purpose in addition to planning. As the actual information becomes available to you, compare it to the monthly cash flow estimates you previously made to see how accurately you are estimating. As you do this, you will be giving your self on-the-spot business training in making more accurate estimates and plans for the coming months. As your ability to estimate improves, your financial control of the business will increase.

The creative business owner works with his or her accountant to use the information gleaned from all of these financial tools to make a variety of managerial decisions--decisions on buying supplies, expansion, when to hire more employees, how to get the best tax breaks, and many other important steps that will shape the future of the business.

Make it Easy on Yourself

Successful home-based business owners learn from experience--their own and that of others. Eentrepreneurs use failures as learning experiences and try to understand their role in causing the failure in order to avoid similar problems in the future.

How to Learn From Experience

You can learn from experience in several ways:

First, work closely and creatively with professional advisors, such as your lawyer and your accountant. As you continually review your business records, you will see "mistakes," but you will also begin to develop skill in planning and managing.

Second, continue to learn about all areas of business operations, constantly acquiring new ideas. Most community colleges have short, inexpensive, practical courses for business owners in topics like "Financing a Small Business," "Choosing a Small Business Computer," and "Starting and Operating a Home-Based Business."

Third, get to know other business owners with similar needs or problems. Talking with others may be a way to avoid repeating the mistakes they have made and benefiting from their experience. Local and national organizations offer membership, social events, networking opportunities, newsletters, and seminars for homebased
business owners. Through these organizations you can often advertise your product or service to other business owners. They also provide a way to learn about services you may need, such as accounting, public relations, or a responsible secretarial service. These organizations offer updates in such areas as taxes and zoning in
their newsletters and workshops.

Finding and Using Resources, Networks, and Support Groups

Start out with the attitude "Whatever my current business problem, I can find the solution. Somewhere there is information, a book, a person, an organization, or a government agency that can help." A word of warning though: finding resources and building networks can be very time-consuming. Joining organizations can turn out to be expensive, especially if you are too busy to use their services and support once you join.

As a home-based business person you can overcome feelings of isolation and give and receive valuable information if you tap into networks and resources. Being active in professional and trade associations will help to build a good marketing network
for your service or product. Take the time and invest the money for memberships. Then continually evaluate which organizations and resources best serve your business information and networking needs.

Managing Time and Stress

Expect to encounter stress and time problems similar to those of other business owners but accentuated by the fact that you work at home. Follow these guidelines to make it a little easier on yourself:

1) Plan your time and establish priorities on a daily "to do" list. Decide what your "prime time" is and do your most important or difficult tasks. Set "business hours," specific times when you are at work and times when you turn on the answering machine because you are "on duty but off call." You, your customers, and your family will appreciate knowing your set routine, even though you know that for special events or emergencies you can break that schedule.

2) Notice what your four or five big time-wasters are and learn techniques to eliminate them or compensate for them. Some common ones are: telephone interruptions, visitors, socializing, excessive paperwork, lack of policies and procedures, procrastination, failure to delegate, unclear objectives, poor
scheduling, lack of self-discipline, and lack of skill in a needed area.

3) Stay in contact with people. Even though you prefer to work at home, you should plan work-related or social activities that provide frequent contact with others. This will help your morale if you feel isolated. Even for home-based business owners who like feeling isolated, keeping up with business and professional contacts is a must.

4) Build a fitness program into your day. Many successful entrepreneurs exercise in order to think creatively because physical activity sends oxygen to the brain and helps the mind function better. With regular exercise your health will improve, your stress level will go down, and your trim look will inspire people to have confidence in your abilities.

5) Give your home business as much of a separate and distinct physical identity as possible. Although you might save a few dollars by using the ironing board as a bookshelf and a cardboard box as a file cabinet, the stress and strain of operating without proper space and supplies will take its toll. Have a separate room or area
for your business, with a separate entrance if customers or suppliers visit. Consider soundproofing so your family won't be bothered by your noise and vice versa. (In addition to the psychological and physical comfort of having a separate office, the IRS requires it in order for you to make a legitimate claim for tax deductions.)

6) Take care of your major business asset: YOU. Being the boss can be exciting, fulfilling, and rewarding. It can also be lonely, stressful, and demanding. Learn to balance your professional and personal life. Go on vacation. Get a weekly massage. Join a health club. Take a class in meditation. Attend a business owner's breakfast club. Your business depends on you to be at your best.