It’s been called “the new American workplace.” That’s because businesses based at home are booming. In fact, some studies suggest that if current trends continue, most Americans will work at home in the 21st Century.
Advantages of home-based business include flexible hours and no dress codes, says Lynn Sykes, a business counselor at the Mississippi Small business Development Center (MSBDC) at the University of Mississippi.
“These are also the disadvantages in that you do not have a reason to get up and be anywhere and no reason to get out of your bathrobe,” Sykes said.
She is seeing a trend towards more home businesses especially for dispatching and service industries such as trucking delivery, and cleaning and janitorial businesses.
Sykes advice for people is to set a time to work. When that time is up, close the door until the next day. Don’t turn into a workaholic.
“Take a vacation,” Sykes said. “Do not let this business consume your whole life. Keep the business and personal lives separate.”
Cutting out the time and expense of a commute to work, spending less on clothes, and perhaps being able to do a load of laundry while waiting for a return call are all perks of the at-home office. But the biggest bottom line advantage of the home-based business is low overhead costs, says Katie Drewry, business counselor with the MSBDC at the University of Mississippi-Booneville.
“A traditional business has the large expense of either buying or renting a building,” Drewry said. “When you eliminate that expense by starting at home, there is much less financial pressure, and a greater percentage of profit.
“Another important advantage is that many home-based businesses are flexible enough to be operated ‘on the side,’ or as a supplement to the owner’s regular income. This again reduces financial pressure because the owner can slowly build the business while retaining the steady income and benefits of a full-time job. Some home-based businesses eventually develop into a full-time business, and some are always a supplemental income.”
Another key point is there is often less risk in starting a home-based business than a traditional business. Statistics show approximately half of all start-up businesses fail within the first year. Drewry said because home-based businesses can start with less money, and can often allow the owner to also work a full-time job, there is much less risk involved in starting a home-based business than a regular business.
“There is definitely a trend toward more home-based businesses,” Drewry said. “Many entrepreneurs today need the flexibility of a home-based business due to their family responsibilities. Some good examples include mothers with small children, single parents, retirees and people caring for an elderly parent or family member. Working from home can give these people the opportunity to earn income while still being available their families.”
On the negative side, probably the biggest challenge for a home-based business owner will be the potential for burn-out. Home-based business owners can’t ever leave their work at the office because it is always with them. Drewry’s advice to avoid that is:
1. Set up a clearly defined area that is only for work, such as a home office or an outdoor building. Don’t work out of the living areas of the house.
2. Be very careful to maintain the balance between work and family. Even when you are working from home, have certain hours that are dedicated to work, and certain hours that are for family time only.
3. When starting a home-based business, look for a business model that is well-suited to operating from home. Service providers can usually operate easily from their home, while retail businesses usually need a separate location. Talk with your local MSBDC counselor to find out the legal regulations and requirements, and to develop a business plan that will be effective for you.
Why the popularity?
Christie Sledge, director of the MSBDC at Delta State University, said there are a number of reasons that home-based business are increasing in popularity
“The trend of owning a home-based business is increasing, which is in part due to parents bringing back family time into their homes,” Sledge said. “By operating a home-based business, parents’ time is more flexible and allows them to attend their children’s ball games, help with homework and prepare family dinners.”
Sledge advises that when running an effective home-based business — like any other small business — entrepreneurs should make sure there is designated office space to run the business, set and maintain a schedule, make certain proper tax laws are followed, create and follow a business plan and change the plan as needed to ensure a successful future.
Dave Philo, district director for the Service Corps of Retired Executive (SCORE) in Mississippi, stresses the importance of a business plan.
“The first thing, whether the business is home-based or not, is to do a business plan,” Philo said. “That is absolutely the first thing. Let them totally evaluate what they are going to do and if it is financially viable. If it is, make a plan to operate. If you need to borrow money, you will need the basic papers any lender is going to ask for, and that is the business plan. It really does take as much thought to do a home-based business as it does a store front. You just have a different set of circumstances to look at.”
While he agrees a home business cuts down overhead considerably, Philo recommends being very careful about what business expenses are claimed on tax returns. The IRS has specific rules about how much you can write off. For example, you need proof a certain room in the home is used for a business.
It used to be considered less professional to have a home office, but many of those prejudices have fallen away as telecommuting makes it increasingly easy for a number of professionals to work at home. The advisability of basing a business from home can depend on the type of business.
“Running a construction business out of a home might create a perception of a fly-by-night operation,” Philo said. “But if you are doing a computer-based operation, there is nothing wrong with it as long as you are able to do it within the current zoning laws. People don’t think about that very often. Most cases, it isn’t a problem. If you are running a computer-based business out of your home, most times no one knows about it. But it may be against the zoning ordinances.”
A downside to home businesses can be distraction such as young children and visitors. It can be helpful if there is a quiet, private place for the business separate from general family activities.
Philo’s advice for people starting any kind of business is to have a passion for what you are doing. That includes developing a business plan and sticking to it, then reviewing it periodically and making any adjustments that are needed. And it can be very valuable to take advantage of the free assistance available from sources such as SCORE and the SBA.
Developing a plan
Developing a business plan is important because it gives you a road map of where your business is headed, and it will give you and potential investors an indication of the chance of success, says Dr. Albert Myles, economist and extension professor, Department of Agricultural Economics, Mississippi State University.
“Starting a business can be an exciting, rewarding and challenging experience that can provide the owner with financial wealth and personal satisfaction,” Myles said. ‘“However, many small businesses fail each year because of a lack of resources, owner inexperience, lack of commitment and unrealistic expectations. If you’re thinking about starting your own business, you need to ask yourself some important questions before you invest a lot energy and time in pursuing your idea.”
Contact MBJ contributing writer Becky Gillette at email@example.com.