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How to Create a Plan for Your Home Business

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This chapter outlines the various things you'll need to keep in mind when drafting a business plan for your new home business. Considerations like health coverage for employees and yourself are covered in detail, with links copious links to resources you'll need throughout the process.
This chapter is from the book

In this chapter

  • Reviewing your current employment contract, calculating insurance costs, checking zoning restrictions, and eliminating major obstacles to your home business

  • Drafting your home business plan

Okay, you now know that you can do this. But where do you start? This chapter takes you through the biggest obstacles first—those half dozen "deal breakers" that might make you seriously rethink starting your home business. Then, step by step, we will outline a business plan for your home business. You will describe your business and its structure, document who your customers are, and define what services you provide and how you get business. Your business plan must also outline the financial plan and structure of your home business; in Chapter 4, "Creating Your Business Plan, Part 2: The Money Pages," we will complete that aspect of your business plan. Do not proceed beyond Chapter 4 until you have completed the business plan and are satisfied with the results.

However, you should also have some idea of where we're headed—and if you're a "big picture" kind of person, plowing in to the details can be confusing. Figure 3.1 is an overview of what we will be doing for the rest of the book. There's no "you are here" arrow because it's simple—we're at the very beginning.

Figure 3.1Figure 3.1 An overview of the home business process.

To do list

  • Review employment contract

  • Investigate health insurance options

  • Scrutinize experience

  • Compare desired business with actual home

  • Review planning and development restrictions

  • Hold a family/household meeting

Eliminating the Biggest Obstacles

There are six major obstacles to your home business—what business negotiators would call "deal killers." These obstacles include limitations imposed by your existing employment contract, any outstanding legal issues you might be facing, your health insurance costs, inexperience in your chosen field, neighborhood restrictions, and family objections to the home business.

Most of these obstacles can be resolved. But before you consider the cost of a new computer or give notice at your current job, you need to determine whether any of these issues present insurmountable barriers to the success of your new business.

You'll need list

  • Self-employment journal

  • Notes from Chapters 1 and 2

  • Current employment contract and related communications

  • Copies of all current rental or homeowners' restrictions/guidelines

Review Your Employment Contract

Before you put the first word on your business plan, take out your current employment contract and read it carefully, word for word. If you have emails, letters, or other documents instead of, or in addition to, a formal contract, read those, too.

Don't assume that stipulations agreed to in email are not binding because you "didn't sign anything." In many instances, such emails can be considered evidence of what is called an oral contract, and therefore legally binding. If you are unsure whether you would be held to the terms, consult an attorney.

Did you agree not to contact customers about your impending departure from the company or for a given period of time after leaving the company's employment? Are you required to provide a certain amount of notice? Are you allowed to pursue a business that competes with your current employer? Employment contracts often include language that restricts or prohibits direct competition, taking customers, and similar activities. Be sure that you know what limitations you must abide by prior to starting your business.

But what do these limitations mean, in terms of your business? It depends:

  • If you are planning to start a business in direct competition with your employer, and your employment contract forbids it, your home business plans might be thwarted. However, if the noncompetition language seems broad, you might want to have an attorney review it to determine whether it is enforceable. But bear in mind that you might have to fight your employer in court to prove how unenforceable it is.

  • If you are not allowed to take current customers with you, you might have to allow for a higher marketing budget in Chapter 4. Check whether your contract allows you to have any contact with these customers at all—even if they cannot be your customers, perhaps they would be willing to refer others, thus partially circumventing this restriction.

As your excitement about your business escalates, you will want to tell the world. Don't do it (not yet, anyway). Although you might be very excited about your new venture, your co-workers might have very different feelings. They might be jealous, longing for the courage you have and envying your ability to make such a transition. Meanwhile, your boss could become suspicious, wondering if you are stealing supplies or customers, wooing other employees to be part of your new venture, or just not being as loyal as he expects you to be. Depending on your company's policy and your current job, you could even be escorted out the door as soon as you announce your plans. Keep quiet until you give notice with a specific plan in mind.

Clear Up Outstanding Legal Issues

Is there a student loan that you "forgot" about? Do you need to attend traffic school—but haven't, even though the ticket was five years ago? Are you in the middle of a divorce, or waiting for the divorce to be finalized? Are you aware of any outstanding arrest warrants? Is the IRS trying to collect money from you? Do you have a lien against your house or other property? Do you owe property, state, or local taxes?

These issues will come back to haunt you, especially when you begin the process of launching a home business. Starting a business means that you will be filling out paperwork—and that paperwork will enable many government entities to find you. What's more, your marketing efforts will be telling everyone about you and your new business. The entire world will know about you, so if you have to clean up some neglected legal or tax issues, now is the time to do it.

When you take care of the problem, be sure that you know how long any such delinquency will appear on your credit report or criminal record. Credit problems, once fixed, might remain on your record for as long as 7 to 10 years. Criminal matters might stay on your record indefinitely. Be sure that you know what consequences are likely as a result of tax or legal issues. Most problems won't necessarily prohibit you from owning a business, but you will need to know, for example, that a bankruptcy on your credit report means that you won't be able to get a business loan for quite some time.

Is Moonlighting the Best Option?

Normally, starting your business on the side (also known as "moonlighting") can be frustrating. You are usually restricted from competing with your employer, and have to figure out how to meet your own clients' needs while putting in a full day for your full-time employer. And, although your income from a side business will typically be less than that of a full-time business, your business expenses might not be proportionately less. After all, you still have to have a desk and computer (or whatever equipment your business requires), whether you use it 4 hours a week or 40. And, because you are not working at the effort full time, your ability to deduct some business expenses might be limited. Nevertheless, you might want to consider moonlighting if

  • You need to hang on to your job for health insurance or other benefits.

  • You are still gaining experience, but want to begin your business anyway.

  • You have the energy to devote sufficient time to both your full-time employer and your side business.

At times, moonlighting can also resolve the problem of insufficient startup funding. However, this is not always the case. If you are concerned about money, be sure to read Chapter 4 before making a decision to start your business on the side.

For criminal matters, enlist the help of an attorney. (You can usually obtain a referral from your local bar association.) Tax and financial matters can be resolved with the help of an accountant or credit counselor. If you need a credit counselor, be sure to use a nonprofit agency. Avoid scams that offer to clean up your credit for a price.

Calculate the Cost of Health Insurance

Pick up any newspaper, visit any news site on the Internet, and the current health insurance situation screams from the headlines. Health insurance can be expensive, tough to get, and insufficient when it comes to covering chronic illnesses or prescription drugs.

Is the need for health insurance a deal killer? Perhaps not. Consider these options:

  • Check whether your spouse or partner's employer can cover you.

  • Join a group offering health insurance. Check with your local chamber of commerce or professional industry group. These plans often allow participation without minimal restrictions on prior conditions, and are less likely to require a physical or reject you for a health condition.

  • Choose to form a partnership or corporation, which might qualify you for group rates. Talk to a benefits specialist about the minimum requirements for obtaining group insurance and the difference in pricing between an individual and group policy.

  • Continue your employer's coverage via COBRA (Consolidated Omnibus Budget Reconciliation Act), national legislation enacted that allows an employee to continue health insurance through his or her employer, even after leaving. There are a number of restrictions and requirements—for example, you must be working for an employer with at least 20 employees or more and be currently enrolled in the health plan. If eligible, you (and possibly dependents you also covered via your employer's health plan) would be able to continue this coverage for 18–36 months, depending on your circumstances. However, this does not mean that you will pay the same amount currently deducted from your paycheck—you will be paying your employer's contributions to your health premiums as well, making the total cost higher, and often prohibitive. (For more information, visit http://www.dol.gov/dol/topic/health-plans/cobra.htm and http://www.dol.gov/ebsa/faqs/faq-consumer-cobra.html.)

Not sure who to contact as a benefits specialist? My recommendation is Maria Poroy, Access Business Services, Inc. She can be reached at 415–986–7726 or visit http://www.accessbenefitsgroup.com. Based in California, she is licensed in some other states as well. Maria has been invaluable to me when assessing health insurance options.

Or, you might want to check with the National Association of Professional Insurance Agents (http://www.pianet.com) or the Independent Insurance Agents and Brokers of America (http://www.iiaa.org). See Appendix A, "References and Resources," for more insurance resources.

Overcome Your Inexperience

Earlier in the book, I noted that ageism actually works in your favor when you strike out on your own. Owning your own business remakes you from an employee who seems "too old" into a consultant who is wise and experienced.

Conversely, if you are on the opposite end of the experience ladder, you might struggle gaining the confidence of potential clients. If you don't have at least three to five years of experience in your chosen line of work, you will need to prove to prospective customers that you have what it takes to work for them. (And no, a college degree, in and of itself, won't cut it.)

For those with little or no experience, you might have the necessary credibility if you

  • Started a business (and operated it successfully) earlier in your life

  • Worked at a job in your chosen field while attending school

  • Have a solid background in business in general and possess sufficient basic business and interpersonal skills (often called "transferable skills")

In all three cases, however, you will be working harder than other business owners, who have the experience you don't. Seriously consider this. The average 12-hour day of a new business owner might be 14 or 16 hours for you, as you gain experience others already possess.

Determine That Your Business "Fits" As a Home Business

Is your business suitable as a home business? To make that determination, ask yourself how well your situation matches these descriptions:

  • Almost no clients will visit your office. When they do, it will be rare and will be one car/one person at a time. Someone viewing your home from the outside would not know that a business is being run inside.

  • You will rely heavily on phone, fax, email, and regular or "snail mail," and you will frequently visit clients at their offices or meet them at a coffee house or restaurant—if you have to visit them at all.

  • You are probably offering a service. If you are offering a product, it is either solely offered over the Internet or through mail order; or it is in conjunction with, or resulting from, your service business.(For example, as a writer, I offer both a service and products (books), but people don't come to my house to buy them.

  • You regularly employ only yourself and can run the business without permanent, full-time employees. (Occasional or temporary help is fine. More on this later in the chapter.)

  • Your business does not require exterior signage or equipment that's too large or otherwise incompatible with in-home use.

  • It would be virtually impossible for someone passing by your home on foot to know that you are conducting business.

  • Your home can accommodate any special needs the business will require—such as adequate space for activities and necessary equipment (copiers or printers for a small printing business, room for temporarily holding dogs for a dog-walking business, space for producing soap and bath salts for a small toiletries business, and so on).

The less your business fits the preceding profile, the more difficult (but not necessarily impossible) it might be to actually operate your business from home. Two important factors might give you the setting you need even if your business differs radically from what is detailed previously: the specifications of your own home and your local area's planning guidelines.

If your home is a studio apartment, you will be much more limited than if your home is a 10-room house with one or two acres of land. Setting aside a storage room, or setting up a shed, for your business is much easier if you have the space for it.

The long-term development goals of your community—as expressed by your city or county's planning department in the form of building codes, use regulations, and other rules—will also greatly determine how close your business must fit the previous description. Which leads us to our next "make or break" consideration.

Studying Relevant Planning and Development Restrictions

How will you use your home to operate your home business? That question is a big one—and one you will have to answer to the satisfaction of your local planning commission, as well as your landlord if you rent. Those living in condominiums or other planned developments will need to review their CC&Rs (Covenants, Conditions, and Restrictions), which might restrict or forbid a home business.

Whether you need to speak to a city planner, your homeowners association, or your landlord, their concerns will be the same: They do not want you doing anything that will create noise, traffic, or eyesores that will in any way interfere with the quality of life in your neighborhood. Homeowners and planners will particularly be concerned with a possible decrease in property values. The following sections discuss specific ways you can track down and familiarize yourself with the relevant rules and restrictions governing small businesses in your neighborhood.

Renters and Condo or Planned Development Homeowners

You will need to review your lease/CC&Rs and talk to your landlord/condo association, respectively. There is a very good chance your lease or CC&Rs out-and-out forbids business activity. However, if you have a decent relationship with your landlord, approach him or her and ask for a change to that stipulation. Condominium owners might be in a more difficult bind—although you own your own condominium, changing CC&Rs usually requires great effort, as you often must convince the majority of owners in your complex to go along with the change. How to go about getting such a change should be covered in CC&Rs or other paperwork relating to your condominium owners' association.

Whether you need to renegotiate your lease or get your co-owners' permission, try to couch your discussion in terms that avoid the phrase "running a business" out of your home. This has the connotation that you want to start a nightclub, trucking company, or department store from your humble abode—and you definitely do not want your landlord or neighbors to think in those terms!

When you approach your landlord, start off with a comment such as, "I don't know if you remember, but I do quite a bit of writing." Continue by saying that you would like to do this kind of work for yourself instead of others. You have now placed the activity into the category of something that is already happening, with no adverse consequences. Your landlord might worry about your ability to pay the rent, and might ask for additional money in your deposit or verification of money in the bank. Before you talk to your landlord, be sure that you have several reassuring things to tell her, such as, "I've been doing this for other companies for 15 years, and I already have 10 clients interested in my services," or, "As you know, my partner's salary alone is sufficient to pay our rent." If you know of people in your complex who work from home for their employer, who are students, or who are retired and home during the day, be sure to compare yourself to these people as favorably as you can. After all, if your next door neighbor is doing work from his home for ABC Corporation, why should your landlord refuse to grant you a modification on your lease so that you can do similar work for yourself?

Condominium and planned development homeowners can try a similar approach, but again, changing the rules governing your condo might be difficult. Although renters usually have one person—a landlord or apartment manager—to convince, you might have to persuade the entire complex.

What do you do if your landlord/condo association won't budge? If you really want to start your business, move. Every region in the United States has plenty of apartment and condominium complexes that will not mind if you are running a home business. Look especially in up-and-coming areas of your city or areas that are struggling a bit.

Zoning Issues

Whether you rent or own your home, you must comply with your city or county's zoning laws. Finding out the laws in your area should be fairly simple. If you have a computer, look up your city's web page on the Internet. Go to the section of the planning department, and look for information on running a home business. If you cannot find the information that way, stop by your city's planning department and ask for regulations governing home businesses.

As with landlords and homeowner associations, most planning departments will be concerned about noise, traffic, and eyesores. They don't want a big sign reading, "Al's Junkyard" in a quiet, residential neighborhood, and they don't want traffic rivaling Macy's on a busy Saturday. If your planning department hits you with regulations that might be problematic, ask if there is a workaround or if you can receive a variance.

Don't hesitate to ask the planning department how many home businesses it has licensed. Chances are, the more it has allowed, the more routine your visit will be, and the less hassle involved. If your planning department has not experienced very many home businesses, set up a second meeting. Bring as much research as you can find about your type of home business, and educate your planning department.

Don't let all those scary stories about the planning department put you off—yes, planning departments can give big developers a hard time, and often for very good reasons. But you're a very, very small and very quiet fish. Many planning departments will be relieved that someone like you is waiting to see them. With a check and a completed form in my hand, I was in the Planning Department offices for 30 seconds! The planner on duty said something along the lines of, "Writer—can't get less controversial than that," signed off on my home permit, and shooed me out of the planning office.

Will the Business Fit Your Physical Home?

Perform a thorough, visual walk-through of your home. No matter how crazy, briefly consider the possibility of each room in your home being used as your home office or workshop. List your top three possibilities.

Of the top three options, which room is best suited for this purpose? Will you need to repaint or switch bedrooms or other uses? Is the wiring "iffy"? Is your home prone to leaks? They can damage costly equipment, so address the problem before you move in costly furniture and computers. Is the area out of the traffic flow of your home? Will it be sufficiently quiet, so you can work? Is it separate enough, so you can avoid entering the work area when you are on personal time, such as evenings and weekends?

If you don't have a separate room, don't worry. Can you divide a larger room with panels or room dividers? Or mark an area by the use of a different carpet and/or creation of "walls" using bookcases?

Not only does this break up the space and encourage a better work-life balance, but it also helps meet the IRS provisions of having a separate space dedicated to business activity. Unless you provide day care, you will have to be sure that the space is set aside solely for business purposes, and not used for any other reason, if you want to deduct related expenses. For more information, see the IRS website: http://www.irs.gov/taxtopics/tc509.html.

Making Sure That Your Family Is On Board

Unless you are single and childless, you will need to convene one or more family meetings to be sure that everyone is comfortable with your home business. After all, one of the key words in home business is "home"—and you are going to be changing the way that your family's home operates somewhat. Although you could, technically, start a home business with no input from your household, it is not recommended. Other members of the household will need to honor your requests to work undisturbed, your need to work weekends or evenings, and perhaps give up some space currently used for other things.

Don't forget that there is a huge difference between telling your spouse or partner, "I'd like to start a business some day," and saying, "I am starting my own home business. Please look over my business plan." You are serious now, and setting aside a separate time to discuss the matter is a clear indication that you are no longer merely dreaming.

Here is how to talk about your ideas with the most important people in your life:

  • First, sit down alone with your spouse or partner and discuss your desire to have a home business. You don't have specifics right now, but you do have dreams—share those with him or her!

  • Be willing to address reasonable concerns. For example, if your partner objects because you have no savings (a very legitimate reason), discuss what an acceptable level of risk might be. If he or she simply says, "It's too risky," and clams up, try to discuss the perceived risks. Ask for the specifics.

  • Although you will be in charge of how the business is run, your family should have a say in how the business affects home life. Will you need to alter the quantity or quality of your time together? Your partner might be fine with that, but will insist that Sundays are "family day," and no work will be done on that day of the week. One or two of these commitments should be okay, but if you are presented with a long list, explain that much of the business is unknown; then, ask for the one or two commitments that are most important.

Do You Need to Move?

If you were discouraged by your planning department, or shot down by your landlord, you might want to consider relocating to a more home-business–friendly area.

When considering whether your current geographical area is adequate for your home business, consider your client base. If you live in a rural area and rely on customers who are accessible within a reasonable traveling distance from your home, you might be okay. If your business requires that you work and frequently meet with medium or large business, however, your location will determine whether you can afford the time and expense necessary to have those meetings. Being a freelance graphic artist in New York City or other major urban area, for example, seems logical. Starting your own business as a graphic artist in a remote, rural area could be problematic.

Also, consider the cost and availability of services in your geographic area. Can you

  • Get a high-speed Internet connection if needed? Have access to a local dial-up number, 24 hours a day, 7 days a week?

  • Send and receive packages by overnight courier?

  • Have reasonable access to necessary services, such as copying and printing at a nearby office center?

  • Get a second phone line installed in less than 30 days?

  • Easily visit a library and other resources, or conduct necessary research online?

  • Purchase office and other supplies close by, or pay the added expense of having them delivered within 48 hours?

Most, if not all, of these amenities should be readily available to you. If they are not, you can count on spending extra money and taking extra time to gain access to less readily available services or risking a loss of business because you cannot provide services to your clients within a reasonable time frame. It might be cheaper to live in an isolated area, but those savings might be offset by a reduced income because of the lack of access to clients or services.

Finally, do not assume that you can do all of your business online. Unless your business is a retail website, the Internet is much more likely to be a means of communication, and at most, you might be dealing with 10–20% of your clients from outside your initial area, especially when just starting your business. As the downslide in Internet-based businesses indicates, businesses with no local customer base are very difficult to build and take quite a bit of time, planning, and capital to succeed.

  • Starting and running a business is a 40-hour–plus endeavor for most people. Your spouse or partner needs to understand the time involved and respect your decision enough to work with you on issues such as who does the housework, who chauffeurs the kids, and so on. If you are currently a stay-at-home mom or dad, be sure that your spouse or partner clearly understands that housework and children are no longer your sole priorities and that you expect them to pitch in regularly, without being asked.

  • Work through the rest of the information in this book with your spouse or partner. Most people who are starting a home business find that their spouse or partner can be a valuable built-in sounding board. Your partner is usually close enough to be concerned with your business success, yet far enough removed from daily business activities to offer an objective opinion.

  • If the discussion becomes heated, don't be afraid to seek couples counseling. As difficult as starting a business can be, it will be almost impossible if you are going through a breakup at the same time.

CAUTION

In fact, if you are contemplating any major change in your household, you might want to consider putting off beginning your business. Juggling the beginning of a home business with other major events (even good ones, such as getting married or having a baby) can make an already stressful situation impossible.

Your children need to be prepared for changes resulting from your home business, too. If you are a single parent, sit down and talk with your child(ren) about what you are planning to do, and what it means to them. (If you have a spouse or partner, do this together.) Just be as honest as you can, and don't be afraid to say, "I don't know." If you approach the upcoming changes as a wonderful adventure, chances are your children will be more at ease than if you talk about how scary it is going to be.

At the same time, be realistic in your discussion. Although you will want to let your children know about the positive aspects (such as a more flexible schedule), be sure that they know not to volunteer you for a class field trip right away! Provide them with examples of what this venture will mean in terms of your time, your availability, and any additional chores they might need to do.

To do list

  • Write your draft business plan

  • Note any known costs of items you need for use in Chapter 4

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