A HOME-BASED BUSINESS
So you are thinking about starting a business from home. What do you need to do to get started? What equipment do you need? As someone who has carried on a business from home for over 16 years, I hope to pass on some good advice.
The reasons for wanting to start a business from home are many. Perhaps you have been retrenched and you want to carry on with your previous job from home but on a self-employed basis or perhaps you want to start a new occupation. Or perhaps you felt cramped in your previous job and you felt you could do things better if you were your own boss. Perhaps you are a woman with young children. A home-based business will be your only option in such a case. Perhaps you are a woman whose family has grown up and you want to return to the work-force but on a self- employed basis. Or perhaps you are one of those independent-minded folk who cannot stand being bossed around.
One can classify those operating from home into certain broad categories. The biggest category are the professionals such as doctors, dentists, physiotherapists, vets, solicitors, accountants, architects etc. The next category comprises tradespeople such as carpenters, plumbers, electricians, sign-writers, pest-control, gardening, maintenance, cleaning etc. This category does the actual work at the customer's premises. Another group comprises secretarial agencies, employment agencies, model agencies, book-keeping services, computer programmers, writers etc. Another group may be termed "out-workers". They work on a subcontract basis for a larger organisation e.g. garment workers, toy makers, envelope stuffing etc. This category has developed something of a bad reputation for sweat-shop conditions.
The advantages of working from home are obvious. You are your own boss. You can work at your own pace. You can have flexible hours. There is no morning and evening rush-hour travel to and from work. Overheads are low. You cannot be given the sack. There is an absence of stress and tension. You have a more pleasant working environment.
The disadvantages are equally obvious. The main one is loneliness. The next one is possible absence of motivation. It takes a disciplined person to start work each day at the same time and keep on working. Persons who do not have a reasonable head for business will not succeed either. Sometimes the business will interfere with family life and will be resented by other members of the family. Likewise, interruptions by members of the family can interfere with the smooth running of the business. Businesses run from home sometimes suffer from a poor image. Prospective customers may have difficulty in accepting them as efficiently run.
The first requirement in running a business from home is, obviously, premises. You should have a separate room set aside for the business. If your house is situated on or near a main road, you are lucky. The same applies if you are near a shopping centre or a central business district. Potential customers will be loath to go searching for you in the backwoods of suburbia.
You must now consider the zoning for your premises. Town Planning authorities divide each city and town into a number of zones. These zones are usually Business, Industrial, Residential and Recreational. Homes are not permitted in Business, Industrial and Recreational areas. Likewise, businesses are not permitted in Residential areas. You can find out the zoning for your house by contacting your local council. You will most probably find that your house is in a Residential Zone. Consequently, no business is allowed to be carried on from it. However, that is not the end of the matter. Most often, if you apply to the Town Planning Authority, you will be granted permission to carry on a business from home. Sometimes, this application can be a lengthy process. Often, when the permission is granted, they will impose conditions. These conditions typically include 1) no employees to be employed in your home, 2) no disturbance to neighbours, 3) adequate parking to be made available by you for customers and 4) no outside signs permitted or, perhaps, only a small one. If you live in a Housing Commission house, you will probably find that the Housing Commission will not permit a business to be carried on. Mortgage agreements sometimes forbid the carrying on of a business in a home. This is very often the case if the mortgage loan has been received from a Government agency. If you live in rented accommodation, the landlord's permission must be obtained. Some home-business owners never bother to apply for zoning permission and carry on business without it. Some get away with it for a long time but they are always vulnerable to having their businesses closed down at short notice. Some professional organisations impose restrictions on practising from home. Special permission must be obtained from the professional organisation. Often they impose conditions such as having a separate entrance for clients. The professional organisations for accountants and estate agents are examples.
It would be advisable to have a separate entrance for clients if you can manage it. This may involve structural alterations. Needless to say, the entrance and business area should be at ground level. The customer area should be carpeted. Install sufficient shelving around the walls of your office for storage of books, documents etc. All your lights should be fluorescent. Do not forget to have an electric doorbell installed. Have the phone connected. If allowed and you think it suitable, place a sign near the roadway. In the northern half of Australia, you will need to install an air-conditioner. In the southern half, you will need a reverse cycle air-conditioner/heater or something similar.
You will need to carry out certain registrations. I have already mentioned zoning regulations and installing a phone. You should also consider registering a Business Name. You can do this at your State Business Affairs Office. You should also rent a Post Office mailbox. Do not rely on your residential mailbox for important documents. You must also open a bank account. If the bank account is to be carried on under the Business Name, the bank will want to see the Business Name registration certificate. You may also decide to take out some insurances. A first priority would be Public Liability insurance. This would cover you against any accidents to customers while they are on the premises. Another policy would be personal accident and sickness for yourself. Most professionals now take out professional indemnity insurance. You would be well advised to take out private superannuation. You may require a licence or practising certificate to carry on your trade or profession.
Now for equipment needed. At the present day, most businesses will have the following.
You will need a computer system. You will also need a printer. You should also buy a modem. A modem will allow your computer to send messages to and receive messages from other computers. Nearly every business these days has a fax machine. You can either use your existing phone line for the fax or you can rent a separate fax line from Telecom. It depends how much use you intend to make of the fax.
When it comes to addressing envelopes or filling up forms, an electric typewriter is more efficient than a computer. This will cost you about $300. You will also want a photocopier. You would be well advised to purchase a push-button 16-memory phone with external speaker. You will need a phone-answering machine. You will need a desk. This will cost about $300. You will need one or two filing cabinets at around $300 each. You will need one or two bookcases at $190 each or some shelving. You will need a fluorescent table-lamp at $30. You will need an adding machine at $100 and a good solar calculator. You will need a couple of clients' chairs. You should also obtain a gas-lifted adjustable typist's chair for yourself. Depending on your proposed activities, it may be desirable to buy a thermal binding machine. If, for example, you are an accountant or engineer and you will regularly be giving your clients 20 or 30 sheets of printed material at a time, then a thermal binding machine will come in very useful to bind the sheets together. This will set you back about $450.
Next, you will want software for your computer. Your number one priority will be a word-processing package. If you intend to use your computer to crunch numbers, you will need a spreadsheet. If you want your computer to store lots of information such as hundreds of names and addresses, then you will need a data base package. You may also want an invoicing package.
Your stationery requirements will be few if you are using a computer system. You can save the cost of having letterheads printed by using your word-processor to create a letterhead. You store this letterhead on disk for future use. You will need two boxes of computer stationery, one in use and one in reserve. Buy a box containing 2,000 sheets. Have some spare ribbons for printer and adding machine handy. Also, keep a spare toner cartridge and standby paper for the photocopier. You will need a stapler and some pens. Have some business cards printed. Have a few rubber-stamps made.
Advertising and marketing are very important for a home business. You do not start with the advantage of a shop-front in a busy shopping centre. Start by paying a business rent for your phone. This enables you to advertise in the Yellow Pages. You will find the Yellow Pages one of the best sources for new business. Take at least a small block advert describing your services. You may find it advantageous to advertise under a number of categories in the Yellow Pages. Next, have some business cards printed and distribute them. Do not forget to contact all of your friends and acquaintances and tell them you have started up in business. Have a few thousand "fliers" or handbills printed by a printing shop. Distribute these in your catchment area. You can either distribute them yourself or have it done by Australia Post at cost of $7.40 per 100 or use a commercial delivery service. Be sure to place them on all notice-boards in shopping centres, supermarkets, clubs etc. Have a sign-writer paint a sign to be placed at the roadside or to be attached to your front-door. Also, consider getting the sign-writer to paint your details on your vehicle. Place an advert in the local paper on start-up. Be sure the advert has a short heading stating what service you provide.
You will need to keep records to run the business efficiently and to claim all of your tax deductions. The pillar of your records will be your bank account. Open a cheque account. Get a large duplicate deposit book from the bank. Get a cheque-book containing not less than 50 cheques. Bank all moneys received irrespective of whether they are cash or cheques. Pay all expenses by cheque. Small cash amounts can be paid from petty cash. Keep a record of these. Keep all invoice and receipts obtained from suppliers. Draw a cheque weekly for your own "wages". Raise an invoice promptly for all work done. Send out Statements at the end of each month for unpaid accounts. If any account is unpaid, say, at the end of six months, put it in the hands of a debt-collector. With regard to vehicle expenses, keep a log-book for a period of 12 weeks to satisfy the Tax Office requirements.
The Tax Office will allow you deductions for expenses incurred in running your business. They will allow a proportion of the following, dependant on business use: rates, lighting, heating, phone, vehicle expenses, mortgage interest. The full amount of the following can normally be claimed: advertising, accountant's fees, bank charges, cleaning, insurances, stationery, depreciation of equipment.
As you will be aware, employees have tax deducted from their wages before receiving them. This does not happen with self-employed persons. Self-employed persons have to pay their yearly tax in one king- hit on the first of April each year. However, for the first year or part of year that you are in business, the Tax Office will not know of it. Consequently, you will have two lots of tax to pay on the 1st April in the second year of business. This will be tax for the first financial year and tax for the second financial year. You MUST save up for this! You should try to forecast your net income for both for your first and second years of business. Then ask your accountant to calculate the amount of tax payable on the 1st April in the second year of business. It is a good idea to open a savings account at a bank and pay an amount in each month to cover your anticipated tax liability. The amount to be paid in to cover the anticipated tax liability will vary from business to business. However, as a rough estimate, you should pay in 20% of each amount received. Many businesses go out of business when they find that do not have sufficient funds to pay the tax on the 1st April.
You should also be aware that if you carry on a business from home and you later sell your home, you will be subject to capital gains tax. The family home is normally exempt from capital gains tax. However, if a business has been carried on for a period in the home, then a proportionate part of the capital gains tax must be paid.
You must also keep a record of your time spent on each job or each activity. This will form the basis for invoicing your customer. Most home businesses base their charges on an hourly rate. When fixing this rate, bear in mind that it must cover the following: 1) your own wages and 2) all expenses to be paid by you, such as those mentioned above when dealing with tax deductions. Remember that your charge-out rate must include holiday pay, sick pay, Workers Compensation insurance and superannuation.
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