Advantages and disadvantages of starting a home-based business
January 11, 2020
In this 10-minute read:
- Advantages of starting a home-based business
- Disadvantages and caveats to having a business in your home
Thinking of leaving the rat race? Sick of hearing Taylor Swift on your office sound system? Want to spend more time at home with your family or significant other? You may be ready to start a home-based business.
However, it’s not all beer and skittles, as my grandpappy used to say. There are significant and unique benefits, but there are a lot of potential downsides also.
Lets go over some things you should be aware of before you start a home-based business.
We’ll give you the bad news first:
Disadvantages and caveats to starting a home-based business
Restrictive local and federal laws and zoning regulations
Depending on where you live and what type of business you’re thinking of starting, you may be subject to local or federal statutes.
Be sure to consult your local zoning laws, chamber of commerce, city business organizations, federal regulations, and HOA bylaws to make sure it’s even legal to run a business out of your home.
Difficulty separating work time from family time
People who create home-based businesses may have a hard time keeping “home” and “work” time and resources separated.
Many times, everything at home becomes subsumed in “the business” and this can cause a lot of friction with family or significant others.
Work hard to maintain dedicated “work hours” and “work space” at home, and try to leave it all behind at the end of your workday.
Depending on how “hands on” you are expected to be with your significant other, spouse, or kids, you may experience more interruptions to your workday when you have a home-based business.
Of course, a brick-and-mortar shop can have a lot of interruptions as well, but an owner might consider them part of the cost of doing business.
It may help to take a similar approach at home and look at these interruptions to your concentration or tasks as part of the price you pay to receive all the benefits of working from home (and there are some great ones! See below).
Difficulty getting funding
Investors, banks, and other purveyors of business capital may view home-based businesses as “less serious” than brick-and-mortar shops, and you might have a harder time justifying loans, cash flow advances, or other needed funding.
This is likely not a serious concern if you have a solid business plan and take your home-based business as seriously as you would a “real shop,” but it could potentially be a concern for some investors and you should be aware of it.
Keeping accurate records is vital
Are you organized? Can you maintain very accurate transactional, financial, and tax records? If not, don’t start a home-based business.
Excellent financial records are essential for any business, but smaller businesses, particularly sole proprietors who work from home, face a higher risk of getting audited by the IRS, so it is crucial to keep impeccable records and all your receipts in an organized way.
Business and personal expenses can be difficult to separate
Since your business space and your domicile are now the same, this can create a headache when you face the need to keep your business and home expenses separate and distinct.
Be ready to accurately estimate and record any use of personal space, vehicles, resources, utilities, etc. if you want to get the tax benefits of starting a home-based business (see the “tax deductions” section below).
Warehousing or shipping concerns
If you sell products and have to worry about maintaining inventory and warehousing/shipping products, a home-based business can make things more difficult.
It is sometimes possible to find enough warehouse space at home, but this comes with a host of potential gotchas (local laws, pests, appropriate climate control and security, and angry spouses are just a few).
Go deeper: Read our complete guide to fulfilling and shipping orders to learn more about some of these concerns and issues.
Similar to what you’d need for a brick-and-mortar business, you’ll need some way to take customers’ payments if you start a home-based business.
Some holdouts still transact mostly by check, but for businesses that sell goods and services it’s pretty much table stakes to take credit and debit cards, which can add significant expense.
Be sure to talk to your friendly processor representative or merchant service provider and see what kind of a deal they can cut you. Don’t pay for features you won’t need as a home-based business.
Now that we’ve touched upon some of the potential downsides of starting a home-based business, let’s get to the good stuff.
Thinking about finding commercial space instead of starting a home-based business? Read our article on the top things to consider before renting your first business space.
Advantages and benefits to a home-based business
Reduced business overhead
If you don’t have to pay for business premises, upkeep, or a commercial lease, you can drastically reduce your cost of doing business.
Since you can share the utilities, maintenance, supplies, and mortgage expense with your primary domicile, and aren’t under any revenue-sharing obligations from a commercial lease, you can save huge… and don’t forget about your tax deductions.
Tax deductions for home-based businesses
You might be surprised to learn the tax benefits of having a home-based business.
When you run your business out of your home, you can “write off”—or deduct from your taxable income—an amazing array of expenses, including all or part of your advertising costs, gifts for customers, business banking fees, business loan amortization and interest, “office expenses” and supplies, phone and internet lines, subscriptions to trade publications or newspapers, even a portion of your mortgage, mortgage insurance, homeowner’s insurance, maintenance, utilities, and HOA fees!
Here’s a great article about all the various home business tax deductions available to you.
More control of your business and personal environment
Brick-and-mortar store owners have some say in how their store looks, feels, sells, and operates, but make no mistake, the commercial landlord and lease owner can be quite annoying and forceful in their demands regarding your facilities and finances.
Read our article on how much it costs to rent space for a small business to learn more.
In addition, retail customers have expectations about when you should be open, how your store should operate, what music you play (or don’t), what holidays you take off, etc.
When your business operates out of your home, you make the call.
And, you can structure your home workspace however you want. No more Backstreet Boys blasting from the office speakers (unless that’s your bag. You do you).
When you’re free from the corporate nightmare of the open plan office or cube farms, when you’re free from noisy environments, smelly co-workers, annoying salesmen, and other distractions… you can make your home business work space a nirvana of creativity and productivity.
Wear what you want
This may not seem like a big deal to some people, but for others it can be incredibly freeing to not have to put on the restrictive, button-down corporate costume, strangling tie, powerskirt, or other stuffy, uncomfortable business attire.
If you find you work effectively rolling out of bed and working in your jammies and bunny slippers, go right ahead. (We suggest at least combing your hair and putting on a shirt for business video conference calls, though… don’t ask.)
Work when you want
Home-based businesses typically don’t have a string of customers stopping by who expect you to be “open” 12 hours a day, six days a week.
If you find you’re most productive late at night and prefer getting into a “groove” and working a marathon 14-hour stretch, there’s nothing to stop you (depending on family/relationship needs).
3 a.m. brainstorm sessions? No prob. Want to dial it back or take some time off? If it’s financially feasible, go ahead. You make the call.
If you prefer to keep regular “business hours,” you can do that while still maintaining more flexibility for personal relationships.
People who have worked in locales where the typical commute can average an hour (or two!) each way have expressed to us that they almost don’t know what to do with all the time they have when they start a home-based business.
More accessibility to family or significant others
When you don’t have to commute or be at work at a certain time, you can be more flexible in your schedule and be there when your spouse, kids, or significant other need your attention.
Live wherever you want
There may be some limitation to this depending on what type of business you run, but if you’re a one-person shop (or part of a remote business team) that produces products or services delivered via remote warehousing, drop shipping, or digital transmission, you can likely run your business from any location with a reliable internet connection or cell-phone signal.
Want to live in a treehouse in Borneo? Make it happen, captain!
More time at home for what’s important… and for yourself
When you don’t have to be “at work” to keep up appearances or conform to others’ expectations, you can take the time you need to meditate, cook, exercise, read, listen to music, or whatever else fills up your personal batteries.
This can mean you do better work and be more productive in addition to being happier and more personally fulfilled. And isn’t that why we work in the first place?
Maximize the success of your home-based business with small business software
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