How to start a small home business

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A new way of working has emerged from the 2020 pandemic. For some Americans, that meant working from home for the same company. For others who have been made redundant, this may have translated into the search for a new career. And for about 4.3 million Americans, that meant starting a home-based business, according to the US Census Bureau. The number of entrepreneurs has increased by around 1 million compared to 2019, CNBC reported.

Whether out of economic need or a desire to make a long-held dream come true, these entrepreneurs started working in 2020 as their own bosses, and the trend has not changed in 2021. Until August, requests were filed for 3.8 million additional companies.

Are you ready to make your dream of becoming a business owner come true? This may require a serious reality check. Walk through the first steps of starting a small home business to see what it will take to be a successful small business owner in your state.

Use the resources of the Small Business Administration

Learning how to start a small business from home can be overwhelming, especially when there is a lot of information to research, so leveraging resources like the Small Business Administration is a strategic way to grow faster. The SBA was created to help small business owners and serves as a resource for aspiring entrepreneurs.

Some of the resources available through the SBA include training on small business operations, writing business plans, and how to get small business loans and subsidies. Mentorship from experienced business owners is also available, so you can get guidance through the different phases of starting and growing your business. Most of the resources provided by the SBA are free and they have an extensive library of information for learning.

Identify your target market

If you are providing a product or service, it is important to identify your target market so that you can understand the wants and needs of your customers. So whether you’re starting a home business that remodels antiques or an online business that sells eco-friendly home goods, knowing your consumer demographic will determine how you market your product. Study your competition and various online customer forums to spot any underserved needs your business may be meeting.

Make a business plan

A business plan, or executive summary, is a blueprint for the direction you want your small business to go. It should include information such as, but not limited to the following:

  • Company Description
  • Market analysis
  • Organization and management
  • Financial forecast
  • Marketing strategy, including advertising and social media

Be as thorough as possible so you get a good idea of ​​the capital and people you need to start and maintain your business. Your business plan will likely be required when you apply for a small business loan or other financing.

Finance your business

Starting a business requires an investment of funds. If you don’t have personal funds or seed money to start your business, you may want to consider other financing options. You need to get your personal finances in order before apply for a small business loan because most lenders require good credit.

What is an angel investor?

These are funders who invest their own funds in your business. Another funding alternative is equity crowdfunding where a group of people invest in your startup in exchange for equity in your business.

Review your business plan, what you know about yourself, and the information you gather about your investors and lenders before making a decision. Your funding decision should reflect what is good for your business but also what works for you personally.

Select the legal structure of your company

The structure of your business can affect the agility, financial or tax requirements of your business, and other factors. When you start your small home business, you will find that the simplest legal structure is a sole proprietorship where you are responsible for all assets and liabilities.

Other structures you might want to consider are a partnership, limited liability company, or corporation. Each of them has their own responsibilities and tax implications, so consult an accountant or lawyer to help you decide which business structure is best for you. If you are start a family business or business partnership, make sure all parties are clear and in agreement on business goals and finances before proceeding with loan applications and starting the business.

Obtain business licenses and permits

Before opening a business, make sure you have obtained all the necessary licenses and permits. Your business may be subject to various federal and state requirements, including laws that apply only to online transactions. As you research these rules and regulations, don’t forget to add the costs of maintaining compliance into your long-term business plan.

When creating your timeline for starting your business, consider how much time you need to learn what you don’t yet know and what variables you can’t control, like getting loan approved. Break these big steps down into specific, smaller tasks to help you achieve your goals and determine how you will define success for each step in this process.

Jami Farkas contributed to the writing of this article.

Our in-house research team and on-site financial experts work together to create accurate, unbiased and up-to-date content. We verify every statistic, quote and fact using reliable primary resources to make sure the information we provide is correct. You can read more about GOBankingRates processes and standards in our Editorial Policy.

About the Author

Allen is a writer with over 10 years of experience as a real estate investor and business owner. He is a writer based in the San Francisco Bay Area specializing in personal finance, investing and entrepreneurship. He holds a BA in Economics from the University of California at Berkeley.


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