In the USA it is estimated that twenty million home-based businesses were in operation by 1999, according to Link Resource’s National Work-at Home Survey. All around that country, people who want more control over their lives are starting home businesses
(An excellent read if you’re thinking about starting up a home-based business, and a very encouraging one too, is the book by Bo Burlingham called “Small Giants”.)
If the idea of working from home is appealing, but you don’t know where to begin, here is a step-by-step guide.
STEP #1 DECIDE WHAT PART OF THE HOUSE TO USE
Select an area away from family activity. The perfect space is a separate room (or perhaps the garage), but any area will do, if it can hold all the business supplies and equipment, and also provide enough work space for desks, tables, or counters.
STEP #2 DETERMINE HOW MUCH TIME YOU CAN SPEND ON THE BUSINESS
Many people start a home business on a part-time basis while raising children or working outside the home. Others start full-time when family and finances allow. However you begin, figure out how may hours per week you can devote to the business. Make a weekly chart of your activities, examine it, and determine where the business fits. Don’t assume you have time and find out later you don’t.
STEP #3 DECIDE ON THE TYPE OF BUSINESS
Make a list of things you like to do, your work and volunteer experience, and items you own that can be used in a business. Look over this line-up, and using ideas from it, list possible businesses to start. Eliminate any business that isn’t appealing or doesn’t fill a need people have. For ideas on different types of businesses, consult our separate article.
STEP #4 CHOOSE A LEGAL FORM
The four basic legal forms are sole proprietorship, partnership, company and close corporation. The most common is the sole proprietorship. As its name implies, a sole proprietorship is owned by one individual. It is the oldest form of business, the easiest to start, and the least complicated to dissolve. Here are some of the advantages of this business form:
- You own all the profits
- Your business is easy and cheap to organize. You don’t need any government approval, although you are required to register with the South African Revenue Service for the purposes of VAT and income tax.
- You’re the boss
- You enjoy certain tax savings.
- Greater personal incentive and satisfaction. Since you have your investment to lose if your business is not successful, you should be more willing to put time, thought, and energy into the business.
- And when your business is successful, you enjoy maximum sense of accomplishment since you know its success was dependent upon your decisions about your management ability alone.
For more information about this and other forms of business, contact us and we will provide an outline of the advantages and disadvantages of each legal type of structure. If after reading it you are still uncertain what form of the business should take, consult an attorney.
STEP #5 DETERMINE WHERE THE MONEY WILL COME FROM
There are three ways to finance start-up costs:
- use your own money,
- obtain a loan, or
- Find investors.
If possible, it is better to start small, use your savings, and not worry about repaying a debt. Also keep in mind that since you are a home-based business, chances of qualifying for a loan or finding investors are slim until the success of your idea is proven.
STEP #6 GATHER INFORMATION
Spend a few weeks researching home-based businesses. A library or bookstore can provide numerous books on business basics, and on the specific type of business that interest you. “Homemade Money” by Barbara Brabee is an excellent book to start with. Another one worth reading is “The Millionaire Next Door” by Stanley & Danko. The Internet is also an excellent source of information.
STEP #7 CHECK ON ZONING RESTRICTIONS
Find out how your property is zoned, call the local Town Council offices and ask what regulations apply to home businesses in that zone. Also, if you rent or live in a secure complex, check the lease or homeowner’s association rules to be certain a home business is allowed.
Generally, if you do not annoy your neighbors with excess noise, odors, and traffic, you will not be deterred from running a business at home. The neighbors may not even be aware of the business, but it is necessary to know exactly what you can and can’t do before you start. This is important should any problems or questions arise later.
STEP #8 PICK A BUSINESS NAME AND REGISTER IT
If the business name you choose is different from your name, select an assumed (or fictitious) name. Check your local and regional directory and Yellow Pages to ensure that someone else is not using it already. If you are forming a company, trust or close corporation, you will be advised if there is a clash of names. Do this before investing in expensive stationery and brochures.
STEP #9 WRITE A BUSINESS PLAN
A good business plan clarifies your ideas and establishes a plan of action. A good business plan should include a description of what you are selling, your background and qualifications, who the prospective customers are and where they can be found, what is needed to build the business, how you plan to promote, and how much money is need for start-up costs. If you need help to get a professionally prepared business plan contact FinanciallyInformed.com
STEP #10 GET AN IDENTIFYING NUMBER
If you are the sole proprietor of the business and have no employees, you may either use your VAT registration number (if your turnover is likely to qualify you as a VAT vendor), or your Income Tax reference number as the business number on official forms. If you have employees, you must obtain an Employers Tax registration number from SARS.
STEP #11 OBTAIN A VAT REGISTRATION CERTIFICATE
If the value of the products or services you sell are likely to exceed R1,000,000 per annum you will be required to register for Value Added Tax. You may also register voluntarily if the value exceeds R20,000 per annum. Call the local tax office, explain the type of business you have and what you sell, and ask what is required. If you do qualify, they will send you the necessary information and forms to complete. You also use this tax number when your purchase items for resale.
You can also register for Turnover Tax which is applicable to micro- businesses. In this way, you minimise your administrative load since you pay a flat rate of tax on sales only. SARS will assist you with this decision.
STEP #12 OBTAIN LICENSES & PERMITS
It’s very important not to overlook any necessary license or permit. For example, some cities and provinces require a general business license, and most have special laws regarding the preparation and sale of food. Call your Chamber of Business to find out what is needed for your particular business.
STEP #13 SELECT BUSINESS CARDS, STATIONERY, BROCHURES
Spend time on the colour, design and paper for these items. They make a definite impression-good or bad- on the people who receive them. If you are not certain what are most suitable and effective, consult a graphics designer or a creative printer whose work you like.
STEP #14 OPEN A BANK CURRENT ACCOUNT
Call several banks to find out what services they offer, and what minimum balance, if any, must be maintained to avoid paying a service charge. Also ask about credit card services, if you plan to offer this convenience to your customers. Bank fees can be significant, so shop around for the best deal.
Ensure that you will have access to your bank account on the Internet and that your business and personal account, along with any other accounts you have with the Bank, are electronically linked to each other. Finally, investigate obtaining a credit card in the business’s name. If this is not possible, set aside a personal credit card to use for business expenses.
STEP #15 SET UP RECORD-KEEPING SYSTEMS
If you cannot afford one of the latest small-business computerized accounting programmes you can still do it manually.
Put together a simple and effective bookkeeping system with an A4 binder (Lever arch File), columnar pad sheets and twelve pocket dividers from the Stationery store.
For each month, set up columnar sheets for income and expenses. Use a pocket divider for each month’s receipts, bank statement, deposit slips, and cancelled cheques. In addition, a Motor Vehicle log for business mileage and filing system for correspondence, invoices, supplier catalogs, client records, etc. are two other useful tools. For more information on record-keeping, contact us and we will be happy to advise on the best, and cheapest way of keeping records.
STEP #16 CHECK YOUR INCOME TAX REQUIREMENTS
If you comply with basic SARS guidelines, you can deduct a percentage of normal household expenses (mortgage, interest, taxes, insurance, utilities, repairs, etc.) as a business expense. Once again, Finserv will be happy to advise on the most tax efficient way to structure your business. Also become familiar with the standard SARS forms that require regular submission.
STEP #17 EQUIP THE BUSINESS
Make a list of everything needed to start the business, but before you buy anything, look around the house for things you already own that are usable.
When you are ready to start purchasing, check the classified ads and garage sales. Both are good, inexpensive sources for office furniture, typewriters, computers, answering machines, etc. Buy only what is absolutely necessary for start-up, and wait until the business is off the ground to get the extras.
STEP #18 DECIDE ON TELEPHONE REQUIREMENTS
Call Telkom to find out the cost of a business phone in your area. If you cannot afford a separate business line, consider carefully the impact on your private line. Keep a record of business calls as they are a deductible expense. Finally, consider the benefits of a Fax/answering machine to catch calls when you are out. Don’t forget to investigate the option of VOIP and SKYPE phoning – it can be free!
STEP #19 CHECK OUT THE POST OFFICE
Using a post office box as the business address down-plays the fact you are home-based. It also prevents customers from dropping in at all hours. While looking into box rental, ask for information on the various postal rates, particularly bulk rate, if you plan to do large or specialized mailings.
STEP #20 PURCHASE THE NECESSARY INSURANCE
Check with your homeowners-insurance agent about a rider for your existing policy or the need for a separate business policy. Also make sure you have adequate personal and product liability coverage. Shop around, as each company has different rules regarding home businesses. To save money on medical insurance, consider joining an association and participate in their group plan. Check this out with your local Chamber of Business.
STEP #21 ORGANIZE THE HOUSE & YOURSELF
To have more time for business, organize and simplify household routines. Start by holding a garage sale to get rid of unnecessary possessions. Next, have a family conference and divide household duties, making sure each person does his or her part. The, set up a planning notebook to keep track of appointments, things to do, calls to make, errands to run, shopping, etc.
Finally, (and very importantly) set up a work schedule so you won’t get sidetracked by TV, neighbour’s visits, snacking, and telephone calls. I would even suggest that when you get up in the morning, get dressed as if you were driving into town to your job, and then go to your ‘office’.
Creating and operating a home business is a wonderful and rewarding challenge. The satisfaction is not only in the money earned, but in doing what makes you happy.