Strategies for Successfully Running a Business from Home

Thursday, April 9, 2020

A woman works at home while sitting at her desk

The biggest trend in business has been flying under the radar for more than a decade. Home-based businesses now account for half of all U.S. businesses, according to the U.S. Small Business Administration (SBA). In addition, 69 percent of all startups are businesses run from the owner’s home, and 44 percent of home-based businesses cost their owners less than $5,000 to start.

Advances in technology and shifts in workplace culture have made entrepreneurship more attainable for everyone. Yet, successfully running a business from home requires overcoming formidable challenges in raising capital, marketing, record keeping and time management.

What Types of Businesses Can Be Run from Home?

Every successful business, large or small, begins with a well-thought-out plan. One of the first decisions home-based business owners must make when formulating their startup’s strategy is the type of business it will be. Whether to run the home-based business as a sole proprietorship, partnership, S-corporation or limited liability corporation (LLC) has important tax, accounting and management implications.

Sole Proprietorships               

Sole proprietorships are the simplest type of home business because no action is required to establish one, apart from applying for a local business license and filing a fictitious business name with the county if the business will use a name other than the name of the owner. Most home-based business owners choose to operate as a sole proprietor: Today, 60.1 percent of home-based businesses have no paid employees, and 86.4 percent of nonemployee businesses are sole proprietorships, according to figures compiled by the SBA. Sole proprietors bear full responsibility for all of the business’s profits and debts, which makes this the simplest form of business, but it also exposes the owner’s personal assets to risk for the operation’s liabilities.

Partnerships              

The two types of partnerships are general partnerships, in which two or more partners share all profits and debts equally, and limited partnerships, in which one partner controls the business’s operations and the others help fund the operation and earn a share of the profits. General partnerships are more expensive to start and run than sole proprietorships because an attorney is required to draft the partnership agreement. However, having more than one owner makes it easier to qualify for a business loan.

Freelance Roles

While not specifically a type of business, freelancing is an increasingly viable option for professionals in many fields who would like to work from their homes. The Balance Small Business describes freelancing as an intermediate step between employment and entrepreneurship. In contrast to starting a traditional business by devising a business plan and arranging startup funding, freelancers work for other businesses on a contract basis, although they often apply for a license from their local government to operate out of their homes.    

Additional Businesses              

S-Corporations, or S Corps, are similar to limited liability companies (LLC), partnerships and sole proprietorships in that the business isn’t taxed separately by the federal government. Instead, the corporation’s shareholders report profits and losses on their individual tax returns. 

In addition to avoiding dual taxation, S Corps provide business owners with the limited liability of corporations. However, owners must file articles of incorporation with their state, and they must hold meetings with shareholders and directors at which the minutes are recorded. S Corps are able to issue only common stock, they can have no more than 100 shareholders, and profits and losses must be allocated based on ownership percentages, among other limitations.

Tips and Tools for Running a Business from Home 

Once home-based business owners have determined their operation’s structure, they need to devise strategies that will help them start and maintain the business. These approaches serve as the foundation for many successful home-based businesses.

Find a Mentor               

Even the most talented and experienced home-based business owner sometimes needs the advice of someone who has faced and overcome similar challenges. AARP notes the importance of overcoming the isolation that working from home can cause. Establishing a mentor relationship often takes time and effort, but sometimes nothing beats the sage advice of a colleague who understands firsthand the challenges of running a business from home. 

Establish a Work Schedule               

Distractions are everywhere when trying to establish and maintain a business from home. Managing the inevitable unexpected interruptions begins by setting the times and days of the week in which the business will be conducted. Having a regular work schedule helps owners avoid burnout while ensuring sufficient time is available for family and other nonwork activities.

Dedicate Space to Run the Business               

Another technique for avoiding distractions is to find an area of the home that is dedicated to the business. Tax deductions are available for the total cost of a home office, including equipment and supplies. Indirect home office expenses can be deducted from taxes on a prorated basis; these include mortgage or rent payments, insurance and utility bills. To qualify, the area must be used exclusively for work on a regular basis.

Prepare to Pay Taxes               

The IRS requires that businesses pay their estimated federal income tax each quarter, and the business may also be subject to state and local income and business taxes. The IRS’s Self-Employed Individual Tax Center explains the tax obligations of self-employed workers, including the liability for various business structures and married couples who want to qualify as a joint venture.

Invest in the Right Equipment               

Adopting the right technologies can spell the difference between success and failure for a business run from home. To avoid wasting time troubleshooting technical problems, it is best to purchase equipment and services that allow you to spend your time and energy doing work that directly contributes to the business’s bottom line. For example, web-based meeting apps such as GoToMeeting or Zoom Meeting provide simple and effective solutions for holding remote meetings.

Track Paperwork               

In addition to the standard receipts, invoices and tax records, running a business from home requires that owners keep tabs on all necessary permits and licenses for the business. It’s important to get the operation organized from day one to avoid spending time trying to catch up on paperwork after the fact. Investopedia recommends maintaining client files that include all business agreements and contracts, as well as daily expenses, transactions and up-to-date financial records. Home businesses must also keep receipts and other records of business-related expenses that corroborate business income or tax deductions for what the IRS refers to as the “period of limitations.” Generally, this period can be as long as six or seven years for IRS claims of failing to report business income if the amount in question is greater than 25% of the business’s gross income for the period.

Additional Tips for Running a Successful Home Business 

There’s more to running a business from home than tracking the paperwork. As with any endeavor, the success of a home-based business relies on having a stick-to-it, can-do attitude.

Don’t Be Afraid of Failure               

A potential side effect of operating a business from home is the tendency to focus too much on what’s happening in the short term. Lesson number one in the how-to-run-a-business textbook is to think like a marathoner rather than like a sprinter. Once you have devised your strategy, avoid being discouraged by one or two (or three or four) small things that go wrong. It’s important to keep one eye on the here and now and the other fixed on the future.

Know When to Pivot               

Even the most carefully crafted business plan will require some tweaks as time passes and conditions change. While it is important to work consistently toward the business’s long-term goals, it’s also vital to anticipate that fundamental and unforeseen changes will occur in markets, technologies and business environments. Recognizing new opportunities is just as critical to the business’s success as having faith in the business’s original plans.

Pursue Educational Opportunities               

No one is born possessing all the business acumen they will need to run a successful operation, whether it’s an enterprise or a one-person shop. Just as it’s imperative to find and capitalize on all potential opportunities for the business, owners need to realize the benefits of gaining the management and technical business expertise that will boost their chances for success. In particular, business education programs are more accessible and more flexible than ever.

Learn Vital Business Skills via a Part-Time MBA Program 

One such management-education program is the University of San Diego School of Business’ Evening Part-Time Master of Business Administration (MBA) degree, which is geared to people who want to earn an MBA without having to quit their job. The program provides the same globally relevant and socially responsible business skills as those taught to students in the school’s full-time MBA program. The evening classes allow students to grow their professional networks while completing the program at their own pace. Students benefit from the program’s small class sizes and from close relationships with experienced faculty members, who also serve as business mentors and partners.   

Learn more about how the University of San Diego Evening Part-Time MBA program helps boost the careers of entrepreneurs and other business professionals.

 

Recommended Readings

10 Tips for International Students Who Want to Earn an MBA in the United States

Study While You Work: The Part-Time MBA for Working Professionals

A Hybrid Program for My “Hybrid” Life as a Student and Working Professional

 

Sources:

AARP, “10 Tips to Starting a Home Business”

Amy Northard CPA, How to Deduct a Home Office as an S-Corp

The Balance Small Business, “How to Get Started Working Freelance from Home”

Business News Daily, “How to Choose the Best Legal Structure for Your Business”

Forbes, “Understanding the S Corp”

Fundera, “9 Home-Based Business Statistics You Need to Know (2020)”

HubSpot, “Sole Proprietorship 101: The Easy Guide to Setting One Up”

Investopedia, “Best Record-Keeping Software for Your Small Business”

Investopedia, “9 Tips for Growing a Successful Business”

Nolo, “How Long Should You Keep Business Records?”

U.S. Internal Revenue Service, S Corporations

U.S. Internal Revenue Service, Self-Employed Individuals Tax Center

U.S. Small Business Administration, “Frequently Asked Questions About Small Business”

Contact:

Renata Ramirez
renataramirez@sandiego.edu
(619) 260-4658