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10 Steps Before Starting a Small or Home Business

Step 1: Decide What Products or Services Your Small Business will Offer

The first of the steps of how to start a home business is to carefully consider these questions:
  • What do you have to offer?
  • What makes you an expert?
  • Do you have all of the education and skills you'll need to compete successfully in the marketplace or will you need to do some brushing up or retraining first?
  • Does the product or service meet a need?
  • Is this a seasonal product or service, or can you market it all year long?
  • How sensitive is marketing this product or service to general economic conditions? When the economy is weak, how do you think your business will be affected?
  • Will you be energized by going through the steps of how to start a home business - is it something you'll love to do or sell - or are you just going through the motions of starting a small business to try to make some money?

The saying, "Do what you love, love what you do" should not be taken lightly. How to start a home business is going to be your livelihood - you should have a good time doing it. If not, it will be difficult to get motivated at times.

If you are excited about how to start a home business, your customers will notice and it will be easier to get them excited, too. Plus, completing the steps to starting your small business will be fun and much more enjoyable.

Step 2: Know Your Market and Your Competition

When you are starting a small or home business, understanding small business marketingconcepts, like getting a handle on the potential market for how to start a home business will have to offer and the value proposition of your small business is very important. Here are a few things to consider:

  • Who is going to buy your product or service?
  • Will you market to businesses, to consumers, or to both?
  • What traits do you think your "typical" customer or client will have?
  • Is the need for your product or service not currently being met or is it already saturated?
  • Is there something about what you have to offer that will allow you to beat your competitors?
  • How will you differentiate yourself from your competition?
  • What is your value proposition? What is your competitive advantage?

More on small business marketing basics and on Internet marketing.

Step 3: Make Sure You Can Do the Tasks Needed Before Starting a Small Business

Before starting a small business, you need to understand and carefully consider how to start a home business and also that you'll have a lot of daily tasks that will need to get done. If you can't do them, who will? If there's no one to take care of these tasks properly, is it worth starting a small business?

Answer this question honestly. Can you handle the day-to-day general tasks that starting a small business requires, like:

  • setting appointments
  • ordering supplies
  • bookkeeping
  • marketing
  • filing
  • answering the phone
  • checking and replying to e-mail

If you'll have help, great. If you can afford to pay someone else to do some of these tasks for you, all the better. But a great majority of home businesses are a one-person operation starting on a shoestring budget, and most other small business are not much larger and don't have substantial budgets to hire help. That means there's a good chance you'll have to do everything or it just won't get done.

You'll want to think twice about how to start a home business if you are going to be run rugged with the mundane tasks to the point that you won't have adequate time to do the things you love that will make you money.

Step 4: Make a List of What Needs to be Done to Prepare Your Home for Business

Prepare your Home Office Photo by Bryan Fenstermacher

Create a Home Office

Bryan Fenstermacher
With the product or service you have in mind, can you handle the business from your home the way it is right now? If not, what do you need to do to get it ready?
  • Will you need space for inventory, supplies, records and/or equipment?
  • Do you already have an area you can use for your office or will you need to bargain with another member of the family to give up some space?
  • Is the nature of your inventory or equipment such that special climate needs must be accommodated?
  • Do you need to add a room, enclose a patio, convert a garage or basement, or stake out the attic?
  • What kind of power needs will you have and will you have to make any alterations to accommodate them?

As you determine how to start a home business, what you'll need, keep track of your estimate costs because you'll need them later in this exercise.

Handy Tools to Consider

Related Articles on Your Home Office

Step 5: Understand Legal Barriers to Starting Your Business

Check your zoning laws before starting a small business.

If you live in an area that is subject to the rules and regulations of a homeowners' or community association, check for restrictions. Find out what, if any restrictions exist on how to start a home business in your home and how you might work within them before you invest one cent in how to start a home business.

If you plan on starting a small business in your home, you may not be able to do so if you welcome clients or customers into your home, if you will be operating machinery, storing or working with hazardous materials, making noise, etc. These and other issues surrounding the nature of your small business may all have an impact on what you can and cannot do and can prevent you from starting a small business at entirely.

Will you need a special zoning exemption? Will getting one be a difficult and drawn out exercise? Is it even legal to operate the business you're planning? Will you need to secure a license before starting your small business?

Are your products and services potentially subject to patents, trademarks or copyrights?More on understanding patents, trademarks and copyrights...

Step 6: Review Your Small Business Insurance Needs

When you go into business, you'll potentially be exposing yourself, your home and your family to a variety of risks. You need to think about how you'll manage those risks and find out if you need small business insurance to help handle them before it's too late.

Consider this:

  • Will you need health insurance? If so, how can you get it and how much is it going to cost? When one spouse is still working, the ideal situation may be to get the other included on the working spouse's health insurance coverage if you can. If not, either the cost or the lack of availability, or both may prevent you from how to start a home business.More on health insurance...
  • If you're carrying inventory, need equipment or are storing hazardous materials what kind of property insurance will you need to avoid suffering financial hardship? Will you need a small business insurance policy for this purpose and how much will it cost?
  • Will you need liability insurance? Where can you get liability coverage under a how to start a home business insurance policy and how much is it going to cost? Will you need errors and omissions coverage?
  • What about your auto insurance? Will you be using your car for business?

Remember, your homeowners' and auto insurance policies weren't designed to cover your small or home business. Your best bet is to shop for small business insurance that can help you manage your exposure to loss, so do your small business insurance and health insurance shopping ahead of time to save aggravation and surprises later.

Small business insurance can be a major expense of how to start a home business, but some coverages like General Liability may be quite reasonable depending on the nature of how to start a home business.

Record any small business insurance cost estimates for this step - you'll need them to determine  how to start a home business, specifically your startup and operating costs.

Step 7: Learn the Risks and Benefits of the Legal Forms of Business Organization

Before you start a small or home business is the time to understand the various legal forms of business organization. Will you operate your business as a sole proprietorship, alimited liability company (LLC), an S corporation, a partnership, or a full blown C corporation?

You'll want to research issues surrounding how to start a home business and the legal form of business organization carefully now, because your decision will affect your startup costs. It will also affect your tax situation and your personal liability for the actions and debts of the business. Take advantage of the IRS for free tax information on the various legal forms of business organization.

Finally, your decision on how to start a home business as well as which legal form of business organization you will use will largely determine what steps you need to take in order to set up your business when you're ready to do so.

Step 8: Determine Your Startup Costs

Calculate your how to start a home business by looking at your startup costs - the amount of money it's going to take to get up and running. At this point, many of your items are going to be nothing more than estimates, but do the best you can.

By completing the previous steps you should have a much clearer picture of how to start a home business and your startup costs than before you started this exercise. Here are some additional questions that may help you not to overlook something:

  • Will you need to hire specialists, like a lawyer or an accountant?
  • Will you need to buy some office furniture or equipment?
  • What supplies will you need on hand for Day One? Do you need to purchase a beginning inventory?
  • Are you going to buy a business or franchise?
  • Will you have construction costs, and if so, how much needs to be done by professionals and how much can you do yourself?
  • What can you do to lower your costs?

Take your time with this step of how to start a home business. Do some price checking and look for legitimate bargains. You're bound to think of things and adjust your estimates all the way up to your opening day.

The closer you get to opening day, the more accurate your estimate will be.

Step 9: Consider Your Break Even Point, Your Cash Flow and Your Funding Options

There are several issues questions you need to consider with this step of how to start a home business:
  • How much will you need to pay your bills until the money starts coming in from your home business?
  • Will you be keeping your full-time job or is there another breadwinner in the family that can help you until you develop an income stream?
  • What will your continuing outlays be for items like equipment, salaries and/or inventory?
  • How many products must you sell or how many hours of service will you need to provide before you reach the break even point?
  • Where will the money come from? Will you need to borrow or draw down a savings account or sell some investments and/or assets?
  • Will you need a silent partner to help provide working capital, especially until you reach your break even point and being making a profit?
  • Are you willing to use your home equity to finance your business?
  • Have you checked into SBA loans from the U.S. Small Business Administration?
  • Is there any possibility of getting a grant to start your business?

Knowing these answers will help you decide how to start a home business and if you can act now. If not, it can also help you to plan to secure the money you need and help you set a target startup date.

Step 10: Gauge Your Family's Support for Your Home Business

Hopefully you won't leave this step for last, but doing so won't diminish its importance.

Members of your family, at least those still at home or any family members who may need to make sacrifices or lifestyle changes in order to accommodate your business, need to know what you're up to and how it might affect them. If you have a spouse or significant other or children living with you, how to start a home business will be a big part of their lives too.

Communication is key to helping them understand how to start a home business. Ask for their support – you'll find that's much more effective than demanding it. Try to understand where they're coming from. If they have questions, issues, or objections, discuss them openly. Caring and open discussions now help you avoid problems later.

Couples who plan to operate a business together need to have a pretty good idea in advance of how to start a home business. It's a good idea to discuss who will be responsible for specific tasks. If you can't agree on this now, there's a very strong likelihood you won't agree on it later.

Don't let your business damage your family relationships. We all need an occasionalgetaway and we all need to keep our priorites straight.

A strained family situation is bound to show in your business activities - work hard to keep everyone happy!

What's Next

If you've decided to stay with your home business and give it a go, you'll want to read my 8 Steps to Creating a Business Identity: Hanging Our Your Shingle.