During the Covid-19 pandemic, many people got their first experience in running a business from home. Workers of all stripes, from the salaried employee to the independent contractor, had to learn new ways to manage their time, communicate with their business partners, optimize their resources, and establish boundaries between the personal and the business-oriented aspects of their lives. In 2022, some may be looking to make the experience of operating a business from home more permanent and more official.
Data from the US Small Business Association (SBA) suggests that home-based businesses account for more than half of all businesses in the country (if businesses without employees are included). That share is likely to increase further this year, with the Covid-19 pandemic accelerating the shift of many workers into the virtual and non-office realms.
Not every work-from-home worker has (or needs) a home business, but some will certainly benefit—and everyone who’s working from home needs a plan. To learn more about how to start, maintain, and grow a business from home in 2022, read on.
The differences between working from home and operating a home business are narrow but significant. For the purposes of this article, we keep them in a singular category: both need business plans, organizational structures, and reviews at regular intervals. But some home businesses do require more structured planning, and more paperwork, than others.
So when should you look to start a formal business? Generally speaking, if you have any employees, then you have a business and you need to register as one.
But even without employees, there can be several reasons to incorporate. Reliance on supply chains, business expenses, and/or other additional physical components may make it more profitable, and more streamlined, to operate as a formal business.
If you’re working from home as an employee or a freelancer, and you aren’t employing anyone else, then you probably don’t need to go through the process of officially starting your own business. Freelance writers, designers, and tutors will file their taxes as self-employed individuals, but additional business structures often aren’t necessary.
That said, there can be benefits to establishing oneself as a business, particularly if they’re looking to expand in the future. And many of the steps one takes in starting a business from home will be useful to the self-employed worker, too.
Whether you’re working from home, starting a home business, or just curious about what options are available for you, check out our step-by-step guide below.
The first step in starting a business is to find your market. This step requires three separate assessments: in an introspective sense, you need to establish what you’re capable of; in an extroverted sense, you need to establish what people need; and in a business sense, you need to understand the landscape of the market you’ve chosen.
You can contribute to all of those assessments by conducting some basic market research. Some key factors to consider when conducting market research include:
Once you’ve picked your market, you’ll need to develop a business plan. Business plans generally fall into two categories: traditional business plans and lean startup plans.
A traditional business plan is like something you’d show to a loan officer at a bank. It follows a generally agreed-upon format and includes detailed information about the business and when any investments can expect to be recouped.
A lean startup plan is more like something you’d share with a friend. It’s a short, to-the-point summary of what the business is and how it’s going to work. Lean startup plans are important for the would-be business starter, but traditional investors will often ask for more detail.
Whether you choose to make a traditional business plan or a lean startup plan, it’s likely to be something you return to and amend throughout the course of your business journey.
Once you’ve completed your business plan, it’s time to decide on the business entity that works best for you. This is an important step, as what business entity you choose will determine how you (and your business) interact with local, state, and federal governments. It will also impact the cost of starting the business, as well as your personal liabilities with it.
There are four business entities to choose from:
After choosing your business entity, you may need to register your business. The requirements for doing so and the process will vary from state to state; you’ll want to contact your local Secretary of State or Chamber of Commerce with any questions. Generally, you’ll only need to register your business if you’re forming an LLC or C-corporation.
Regardless of your business’s structure, you’ll likely want an Employer Identification Number (EIN), even if you’re not required to have one. EINs come with a number of added benefits, allowing you to hire employees, open a business bank account, and simplify tax filing. You can apply for an EIN online with the Internal Revenue Service (IRS).
After registering your business, you may need to obtain a business license. The requirements for doing so and the process will vary from location to location and industry to industry. Licenses for home-based businesses generally fall into one of three categories:
After you’ve officially created your business, you’ll need to create a split between your personal finances and the finances of your business. Creating a business bank account can help set financial boundaries and also streamline accounting practices; a business credit card can be a benefit, too.
Even in a very basic, home-based sole proprietorship, you’ll need to be diligent about recording the taxes you owe. As the owner of your own business, there’s no one else to withhold the amount you owe for you. Separate business accounts, along with reputable accounting software that takes into consideration the needs of business owners, can be a big help.
Keeping track of what’s a deductible business expense is a part-time job in and of itself. The rules for deducting some business expenses such as your home office are strict. A trip to the store for office supplies could mean some tax-deductible gas spent getting there, but it might not if you stop to get your dry cleaning along the way.
Figuring out what counts and what doesn’t, as well as what’s worth the time to track and claim and what isn’t, is part of the process. It can all feel a little like you’re splitting your personality, but when tax time comes, you’ll be glad you did.
After you’ve got your business up and running, you need to find ways to grow your business. In some ways, this means going back to steps one and two: conducting more market research and revising your business plan.
With a functioning business in place, you’ll be able to incorporate customer feedback and the advice of new partners. New marketing plans and new employees might be needed, and it’s possible you’ll even need to reclassify your business as a new type of entity in order to let it grow to its full potential.
It’s unlikely that you’ll get everything right the first time. But that doesn’t mean you’ll fail. Creating a successful business is an iterative process that requires one to revise, optimize, and improve continually. And there are more resources than ever before to help you do just that.
Whether you’re running a business from home already, or you’re looking to start one in 2022, you don’t have to do it alone. To connect with others in the home business industry, check out some of the resources below.