Home-based businesses offer flexibility, freedom

Home-based businesses give people the opportunity to be their own bosses, work the hours of their choice and keep their hands in the working world.

Home-based ventures are often easier to start than typical small businesses for several reasons. For one thing, home-based business owners don’t have to rent office space, and they usually don’t hire employees. These features make working from home a compelling business option for people transitioning into retirement, according to the SBA report, and for people who need to be at home for family or other reasons.

The different types of home-based businesses reflect the expertise of their owners, and range from consultants to trade contractors to bed-and-breakfast proprietors.

Of the countless types of home-based business owners, many are professionals, such as accountants, architects and computer experts, who can work in a consulting role. Consultants, as a separate category, earn an average of $42,000 in net income, which is higher than the net income of all home-based businesses averaged together – $22,569, according to the SBA report.

Do your homework

But regardless of what type of home-based business is decided upon, doing the necessary homework is an important step.

• One of the first steps in starting a home-based business is to identify your financial needs. List the kind of equipment, space and inventory that may be required, and consider sources of financing. This is the start of a sound business plan, which may protect you from endangering your family’s financial security or straining personal relationships, according to a 2006 report from Score – Counselors to America’s Small Business.

• Consider enlisting the help of a professional financial adviser, who can help you evaluate how the costs of your home-based business fit into your overall financial plan. If you find that you need startup cash, you may want to investigate different types of loans, including those from the SBA and from commercial banks.

Using personal savings or tapping into retirement accounts may not be your best option; a financial adviser can help you examine the consequences of withdrawing money from these accounts, which may include penalties and fees.

Tracking expenses for tax time

You can deduct expenses related to your business from your taxes – but only those costs related to the part of your home used exclusively and regularly for business. Deductible expenses may include a portion of your mortgage or rent, utilities and furnishings.

For more details, consult a financial adviser or Internal Revenue Service Publication 587, Business Use of Your Home, which is available at www.irs.gov.

Some homes may require refurbishing to make them ready for business. You may need to add electrical outlets, heat or air conditioning ducts or telephone access. Keep track of these expenses, including costs for hiring labor, which also may be tax-deductible.

Making it work

With a home-based business, you can avoid congested commutes and cramped cubicles. But to gain the time and efficiency of a home office, organize your space before you start.

Choose a room with good lighting, ventilation and storage. Dedicate the area to your business, and make sure kids and pets know it’s not the playroom. Keep household records and belongings separated from business items.

Measure your space and choose furnishings and equipment that fit your room and your budget. Browse catalogs, Internet sites and stores. A desk chair that looks good in the showroom may not be practical for a home office.

Organize your files and avoid moving them out of your home; find extra storage in a closet or basement so you’ll have them when needed.

Having a home office means you may be able to save on rent and labor costs associated with running a business elsewhere. Because of this, home-based business owners typically earn a higher return on gross revenues (36 percent) than owners who operate outside of the home (21 percent), according to the SBA.

Running your own business is a part of the American dream and can be your ticket to more flexibility and freedom.

Paula Dougherty, CFP, ChFC, CLU is a Certified Financial Planner with Ameriprise Financial in Springfield. She may be reached at paula.j.dougherty@ampf.com.[[In-content Ad]]