Steps to Starting a Home Based Business

woman with home based business

Starting a home-based business can be the most rewarding career decision of your life. It can also feel overwhelming and intimidating if you don't plan ahead. To minimize risk and stress, there are steps you can take to avoid costly mistakes and insure your success.

Step 1 - Choose the Best Home-Based Business for You

When starting a home-based business, deciding on the type of business that is right for you is vital to your success. There are three types of businesses:

  • Service-based
  • Product-based
  • A combination of the two

It's important the business you choose matches your skills, interests and experience. Also, be sure to choose a business that has the potential to generate the income necessary to meet your economic needs. There are many free career tests online you can take to assess how your skills, personality traits and interests match up.

Step 2 - Home-Based vs. Store Front or Office

Once you've figured out what kind of home-based business you'd like to start, the next step is to be sure working from home is the best option for you and your customers. The factors to consider are whether the business is service or product driven.

Permanent Home-Based Businesses

Usually when it comes to a service business, working from home is the most economical and practical option. Traveling to your customer for meetings is a likely scenario, and it's more convenient for your customer if you travel to them. Meeting a customer at a coffee shop is more common than ever. Advances in technology have also made service businesses easier to run from a home office.

Starting from Home and Moving Out

Conversely, running a product-based business out of your home might be a little more challenging. Sometimes running a business from home is not even possible, depending on your product and customer. How much inventory you need to keep, demographics of your customer base, and how you plan to market your product all have to be carefully considered before deciding to sell a product out of your home.

Often times, the solution for a product-based business is to start the business in your home, build up some capital, and then move yourself out of the house and into a storefront. Many well-known successful businesses, such as Mary Kay Cosmetics and Apple Computers, were started from home.

Step 3 - Assess Your Home Office and Family Life

Before starting any home-based business, you need to assess your home for working space, and then set some ground rules for your family. Having a dedicated, professional space can be crucial for the success of any small business. Even though you are working from home, you may need to set up a professional office.

The most successful business owners who work at home set up their work space with lots of natural light and a door they can close. A dedicated phone line and up-to-date office equipment is a must, along with a good desk. Working in the basement , in your bedroom or at the kitchen table can be a recipe for disaster. Your family members must understand when you are in your office, you are working.

Step 4 - Write A Business Plan

Your next step in this process is to write a business plan. A business plan is mandatory for any business. It can be very informal or very detailed, depending on your personality and style, but it must be solid. Writing a plan makes it concrete. A plan kept in your head is vapor, subject to the pressures and emotional challenges you'll face. Review your plan monthly to insure that growth and marketing are on schedule.

Full or Part-Time Venture

After writing up your business plan, you might find that the business of your dreams fits in perfectly with your personality, skills and qualifications, but it is not going to make sense financially. Consequently, you may need to start your business on a part-time basis. The amount of money you need to earn, and the length of time it will take for you to see a profit, are the two main factors which will determine if you can pursue a home-based business full time or if you need to start part-time.

Step 5 - Financing Your Home-Based Business

The next step after drafting a business plan is to figure out how to finance your business. For small businesses just starting out, there are three main ways to finance your business: loans, grants and using personal finances.


Obtaining a loan can be challenging to a new business owner who doesn't have any capital or history of success to prove the loan can be paid off. If you have a solid business plan, clearly illustrating how the funds will be utilized, and how you will pay the bank back, you can research your chances of getting a loan by looking at the results of the quarterly survey of senior loan officers. These reports, entitled Senior Loan Officer Opinion Survey on Bank Lending Practices, come out in January, April, July and October and will tell you how many applications are being approved. The Federal Reserve Board complies this information in a summary or if you prefer to see the full report, that version is available online as well.

You can also research loans secured by the Small Business Administration. These loans are secured through government funding, so they are dependent on the governments' spending plan.


Grants are another way of financing your business. Although the government rarely gives grants to small home-based businesses, your local Small Business Administration office will have information on what type of grants are available to you. Some states decide to give grants for very specific businesses, such as child care, innovative technology or environmentally-based businesses. Some states wish to promote growth within a certain segment of the population, so they supply grants to women and minorities.

Personal Finances

You can also consider using credit cards and borrowing money from yourself to finance your business. According to the Small Business Administration, carefully examine your personal finances before financing your business in this manner. You can go to your local Small Business Administration office and get financial counseling to help determine if this is the right path for you.

Step 6 - Set Specific Goals

The next step is to set very specific goals for your business. Most business owners start with the goal of being successful, which is important, but not specific enough. One of the most popular methods for drawing up business goals is the use of the SMART method. SMART stands for specific, measurable, attainable, realistic, and trackable.

An example of a SMART goal might be adding twelve new clients in three months, and you will charge each of those clients two hundred dollars for your services. The goal is specific and measurable (one client a week, two hundred dollars), and it is attainable, realistic and trackable. By using this method, you're more likely to turn goals into reality, by putting concrete steps in place in order to achieve them.

Step 7 - Determine Legal Structure and Register Name

Next you'll need to decide how to structure your business depending on how you will pay taxes, and report your earnings. Choose one of the following:

  • Sole Proprietorships are the best option for service-based businesses with only one owner.
  • Partnerships are best for two people going into business together.
  • S Corporation are best for larger businesses having numerous employees, and where the owner wants to have minimal personal liability.
  • C Corporations are also best suited for businesses with several employees and limited liability for the owner.
  • Limited Liability Company (LLC) is the best choice for service or product-based businesses with one or more owners.

Once you make that decision, you will need to find a name for your business and then formally register it with your state.

Step 8 - Tax Identification Number

Every business needs to obtain a tax identification number in order to do business. A Social Security number can be used to conduct business, but only if the business is set up as a sole proprietorship. If you prefer not to give out your Social Security number in order to conduct business, you must choose another legal structure.

Step 9 - Determine Your Market Niche

After you decide on the type of business and you've set your goals, the next step is to find out who you will sell your goods or services to. Marketing is vital to making a business profitable, and the first step in drawing up a marketing plan is to find out exactly who will need or want your goods or services. This is called niche marketing or target marketing.

Step 10 - Put Together a Marketing Plan

Knowing who to market your product or service to is only half of the solution to your marketing needs. The next step is to figure out how you're going to gain their interest and trust and want to purchase what you have to offer. The best way to start this process is to brainstorm any and all marketing ideas.


Networking will be the most cost-effective way to market your home-based business. Make it your goal to sell your business everywhere you go. Schedule time to attend chamber meetings and business functions. Tell people everywhere what you do. Exchange business cards, or give cards to those who may know someone looking for a company like yours. Business cards are a low-cost way to spread the word about your business.

Step 11 - Financial Planning and Management

Every business needs to have a financial plan. There are three main systems to help you keep track of your income and spending:

  • Accounting System - The big picture of the business (also called financial forecasting)
  • Bookkeeping - Daily record of money coming in and going out of the business
  • Budgeting - Weekly budgeting is key to a small business' success in order to stay on top of finances and ensure overspending and big financial mistakes don't happen.

Using all three systems will help your business stay afloat.

Step 12 - Manage Your Time

The final step in this process is to manage yourself. Perhaps you used to work 9-5 with a long commute. Now your office is at home, which is why you need to have superior time management skills. It is vital you set a schedule and manage your time or it can slip away quickly while you focus on non-priority tasks and interruptions.

Planning Your Business

Before starting any kind of home-based business, it is important you plan ahead and familiarize yourself with the steps you'll need to take as you get started on your business venture. Knowing exactly what you need to consider before you take the plunge will help minimize risk and maximize your chances for success.

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Steps to Starting a Home Based Business