More than half of all entrepreneurs run their small businesses from home1 — about 15 million businesses as of 20202. But starting a small business at home (or anywhere else, for that matter!) comes with challenges: Only about half of all businesses make it past the five-year mark3. If you want to join the ranks of at-home entrepreneurs, you need to learn how to start a successful small business from home.
We want to see your small business fall into the half that’s surviving and thriving. (As well as saving money and enjoying an easy commute down the hall.) These ten simple steps will help ensure your home-based business is a home run.
Step 1: Choose a business idea
If you want to be a business owner, you need to learn how to evaluate your skills and choose the type of business you want to run.
First, assess your skills. Make a list of your talents, hobbies, interests, studies and past job experiences. For example, if you earned a business degree, you might already have the education necessary to start a related company. On the other hand, if you love volunteering at the animal shelter, maybe you’d make an excellent professional dog walker.
While the talents among business owners will vary, entrepreneurs need to hold a specific skill set and outlook to run a successful business. Some of those traits include:
- Time management
Next, think about how you can use those skills to solve a problem for others. Sometimes, the best business ideas come from real-life scenarios that reveal market opportunities. Is there a gap in a particular market you know you can fill? For example, if your social media pages blow up with likes, maybe you would excel at creating viral campaigns to help other small businesses get noticed.
Your skills and talents are the foundation of your business. By combining them with your desired problem area and market, you will find the right business idea.
Step 2: Decide if your business can be home-based
Some types of businesses are easier to run from home. Consulting services like marketing or project management, for example, aren’t tied to a specific location, making them easier to manage virtually. On the other hand, a retail operation is more challenging if you count on foot traffic and visibility to attract attention to your business.
Once you land on your dream business idea, determine if it can be home-based. While you can run many businesses from home, there are exceptions. Here are a few considerations to keep in mind:
- Your family’s needs
- Your at-home workspace
- Zoning laws
- Legal restrictions
For example, if you love cooking and decide to open a restaurant, you likely can’t run such a business from home. However, you could consider alternatives, such as a home-based catering company or hiring out your services as a personal chef.
Step 3: Determine your profitability potential
Once you have your home business idea, determine if it has the potential to be profitable. Consider the following questions to help you decide:
- What is the market size for this product or service?
- How much will people pay for my product or service?
- What are the estimated profit margins?
- What are the start-up costs for my business idea?
- How many clients or monthly sales do I need to secure to generate an income that matches my lifestyle?
- Does the business have the potential to grow?
According to the Chamber of Commerce, the average business requires about $30,000 in capital to get up and running.4 What will it cost to launch and run your business for the first one to three years? Will you self-finance it or get a loan? How long will it take to break even, and how long will it take to make a profit?
Step 4: Create a solid business plan
Every successful endeavor involves a plan. You may not stick to it line-by-line, but writing a business plan and thinking through your strategic decisions can keep your operations running smoothly. It can also help you secure funding!
At a minimum, your preliminary business plan should include the following components:
- Definition of your target audience. Who is your target customer? What problem do they have that your product or service can solve?
- Market research. How much demand is there for what you intend to offer? Who are your competitors, and how can you differentiate yourself from them? What can you provide that your competitors have overlooked?
- Marketing plan. How will you attract customers? Where will you advertise and promote your business? What are your core values, and how will you convey them in your marketing materials?
With careful research, planning and constant self-assessment, your business will have a higher chance of success. If you haven’t gone to business school or written a business plan before, organizations like the SBA offer online examples and templates.
Step 5: Establish a budget and financial plan
Financial shortfalls are one of the biggest reasons businesses fail in their early years. Nearly one-third of businesses that closed down report they did so because they ran out of cash.5
That sobering statistic makes tracking your expenses and sales and keeping your books organized even more critical.
Even though you may be saving money by running your small business from home, you still have other expenses to juggle, including costs for your products, staff or contractor support and marketing.
Fortunately, there’s plenty of great accounting software to help you streamline and automate your finances, so you have less work to do when you get together with your accountant to file taxes or make financial decisions.
Step 6: Register and secure a license for your business
You will need to register your organization and secure a license for operations to make your business official. To register your business, you will first decide on a structure. Examples include sole proprietorships, partnerships, limited liability corporations and c-corps.
The type of business you have will determine the structure you choose. Look to the Internal Revenue Service (IRS) for business structure examples if you’re stuck. Once you choose your structure, you will register your business name with local and state authorities and apply with the IRS to secure an Employer Identification Number (EIN), which you will use to file your business taxes.
Depending on the type and location of your business, you may need to secure state and federal licenses and permits. However, some states, like Texas, don’t require general business licenses. Search the SBA license and permits page to determine what licenses your business needs.
Naming your business may seem like a drop in the bucket alongside all the other steps required to launch your small business at home. However, there’s no time like the present to find something that works. Mainly because your name will be your gateway to everything your business does online, from where it shows up in search engines to whether or not you can secure associated website addresses and social media handles.
You’ll also need your business’s official name to file paperwork and buy insurance policies.
Step 7: Set up a dedicated workspace and buy inventory
Reserving one area of the house for your business offers you and any housemates a physical and mental separation between “work” and “life.”
You may think you can work just anywhere, but your environment truly does make an impact. According to sustainability research from Harvard’s Center for Health and the Global Environment, cognitive scores and productivity are higher in green spaces with better ventilation.6
If possible, set up your home office in a room with a door to shut out all those distractions. When the workday ends, you can truly leave your work in the office.
If you don’t have a separate room available, carve out a dedicated space for your office to accommodate all the tools and furniture you need to do your job. Ideally, this space has plenty of light and air circulation to keep you energized.
Having a space assigned solely to your business can also make it easier if you are insuring your in-home workplace against potential damages. By setting yourself a dedicated space, you can easily identify your work areas as you determine the commercial property coverage you need.
Once you plan, register and insure your at-home business, you can get to the fun part — buying the merchandise and supplies you need to land your first client or customer! Every home business is unique and requires different supplies and inventory items to succeed. For example, a graphic designer may be able to deliver for their clients with just a laptop and software. On the other hand, an artist with an online store may need canvases, paint and shipping supplies. Determine what you need and make a shopping list.
Step 8: Start marketing your business
Once you open your home-based business, you will need to market yourself to attract new clients and customers. Some inexpensive ways to get started include:
- Building a simple website. There are many plug-and-play website-building platforms out there that do not require HTML skills. Whether you use free resources that will help you set up a rudimentary website in minutes or more advanced paid alternatives, having a company website is essential in today’s marketplace.
- Creating social media pages. Take a few minutes to establish a presence on the major social media platforms. Depending on your targeted client base, those platforms will likely include Facebook, LinkedIn, Instagram, Twitter and TikTok.
- Contacting your network through emails, DMs or texts. Your friends, family and former business colleagues are a great place to start spreading the word about your new venture.
If you want to expand your reach further, consider taking out ads or investing in a public relations campaign.
You may be starting a small business from home; however, there’s a wide world beyond your computer and you need to stay connected to it.
As you enjoy the perks of working from home, remind yourself to connect outside the home office periodically. Stay in touch with colleagues from previous jobs and with satisfied clients; these relationships can form the foundation of a reliable pipeline for business referrals.
Finally, remember that great things take time to build — including your small home business! Things may move slowly in the beginning, but don’t give up. The more you build your reputation, the more clients and customers will come your way. When starting out, ask for reviews and testimonials to prove your success. Building your reputation will help build the at-home business of your dreams.
Step 9: Create a schedule that works for you
The great thing about being your own boss is that it doesn’t tie you to a 9-to-5 schedule (assuming your line of business allows for flexibility). Instead, you can design a schedule that aligns with your most productive times of the day, whether that means getting started at 6 a.m. or 3 p.m.
Tools are available to help you stay focused and collaborate with team members or contractors. Many businesses download time-tracking apps or project management software. These tools can help you stay organized and make sure none of your tasks fall through the cracks.
Finally, when you’re at home alone rather than surrounded by colleagues, you may get tunnel vision and work for long stretches without breaks. However, breaking several times throughout the day will improve your productivity, focus and energy in the long run.
Step 10: Purchase business insurance
Whether you are opening an at-home photography studio or a home-based marketing business, accidents can happen. It’s essential to protect yourself against third-party claims with small business insurance. Since your work-from-home business doesn’t have commercial property to worry about, there are two main types of insurance to consider:
- General liability insurance protects you against the financial impact of claims of third-party bodily injury, property damage, and personal and advertising injury. For example, if you accidentally break an expensive sculpture while visiting one of your pet-sitting clients, general liability insurance can help cover the expenses resulting from the damage.
- Professional liability insurance protects you in cases when your services cause your client to suffer a financial loss. For example, it can provide your legal defense if you fail to deliver a marketing campaign by the due date, which means your client has to push back an important campaign.
As the CEO of your home and home business, you have a lot on your plate. Luckily, Thimble makes it easy to check small business insurance off your to-do list. Simply click “Get a Quote” or download the Thimble mobile app, answer a quick set of questions, and get covered for the job, month or year within minutes.
- Small Business Administration. 5 Key Financial Tips When Starting a Business from Home
- Small Business Administration. U.S. Small Business Economic Profile.
- U.S. Bureau of Labor Statistics. Survival of private sector establishments by opening year.
- Chamber of Commerce. Small Business Statistics.
- CB Insights. The Top 12 Reasons Startups Fail.
- Harvard School of Public Health. Green office environments linked with higher cognitive function scores.