One of my favorite episodes of Seinfeld involves the “worlds theory”. Even if you’ve never seen Seinfeld, you’ll still be able to identify. George doesn’t want his friend, Elaine, to hang out with his fiancé, Susan. George asks Jerry if he’s ever heard of the “worlds theory.” He’s afraid of bringing his friendship world and his romantic world together – it could make for a catastrophe, an explosion when the worlds collide.
This is the risk behind running a home based business. You’ve got your home life. You’ve got your business life. Never the two shall meet, right? If you cross the boundary it could very easily be a disaster. God forbid a divorce or a complete lack of a life result.
But the benefits of running a business out of your home can outweigh the risks. You just have to run it right.
According to the US Small Business Administration, more than half of all small businesses in America are based out of the owner’s home. Apple, Hershey’s, Mary Kay, and Ford all started out home based. There’s a lot of precedent here, and because of new technology, it’s only going to get easier.
Home based business is not for everyone—it depends on the concept.
Is it for you? If so, here are some ways to avoid a “worlds collide” catastrophe and run your home-based business right.
Determine your status
There’ll be more on taxes later (yay!). But this is a good place to start. When you launch your business, if you don’t claim otherwise, you’re a sole proprietor. Sole proprietorship is easy and there’s not a lot of paperwork. But be aware the self-employment taxes are 12.4% of income for Social Security (up to an income ceiling, after which that number rises), and 2.9% Medicare.
If you file as an S Corporation or a Limited Liability Corporation, you avoid that self-employment tax. You’re not taxed on dividends that go to you as a shareholder. There’s more paperwork involved to be incorporated, but there are other benefits, such as less liability. I recommend you ask your accountant if this is a good option for you.
There’s something very Zen about finding balance to run your business at home. At the outset, a lack of balance could cause you to struggle and burn out quickly.
- Balance communication – Make sure communication tech is up to date, make sure to build your network and talk to contacts daily; but make time for “water cooler” conversation unrelated to work
- Simulate commute time – Before you sit down to work, set aside a time to clear your brain, a time away from the screen in which you’re mindful of everything around you
- Compartmentalize – Make your workspace completely separate from the rest of your home-space, and don’t use your computer for tasks that aren’t work-related; set up Do Not Disturb times of no distraction and let your contacts know when you will and won’t be available
- Create distractions – Designate times to purposefully distract yourself: every two hours get up for a breath of fresh air or a glass of water—these times are ripe for realizations
Consider value billing
If you’re going to be (or are) working with clients as you provide a service or develop a product, value billing could very well benefit you. First, figure out how much you’ll be charging the client within the given period of time for the basic service or product. Next, think of all the meetings and additional services that will add value to the relationship. Propose these additional values—the meetings and phone calls, the consultations—as part of your plan with the client.
If these extra values are what the client wants, calculate how much you want to charge for them, add it to the baseline, and divide everything into a monthly fee. Ask the client to commit to a six month contract. By doing so, you’ll earn what you’re really worth—not just what the product or service by itself is worth. Home-based business owners are particularly equipped to ‘go the extra mile,’ and that extra mile has value.
Take advantage of deductions
I told you I’d be talking more about taxes, didn’t I? Getting the tax deductions you qualify for is a cherry on top of the home-based sundae. The most obvious deduction is for your home office, and if your business is absolutely home based, you’ll definitely qualify for that one. With it, you can write off a percentage of your home’s utilities, including the internet. But make sure the home office is completely separate and dedicated to the business. In order to qualify for deductions, keep thorough records. This leads me to my next point.
There are plenty of options for cloud accounting software, as there are plenty of options for bookkeeping software. In terms of bookkeeping, Amsterdam Printing interviewed multiple experts who made the following points:
- Saving records on the cloud or specialized external server is a failsafe for computer failure
- Taking to the time to organize and back up records yields a better understanding of “where you stand with your business”
- Finding the right software solution or app for saving and tracking expenses will save you time and brain-power in the long run
In terms of accounting, you should make sure your software solution is:
- Easy to install and integrate
- Able to file taxes for you
- Able to back up your files
Delegate when necessary
If your concept is really taking off, or you plan on it taking off quickly, you’ll need to delegate tasks. For this, you don’t have to hire anybody. Rather, consider the gig economy. The millions of on-demand workers with whom you can contract are a boon to entrepreneurs. They’ll save you money and tax work. Contract work only requires you to send out 1099-C or 1099-Misc forms for tax purposes.
Especially if you’re growing fast and outsourcing a lot of tasks, it helps to take advantage of apps to streamline your partnership with freelancers. Social media and Craigslist are great places to recruit freelancers. There are also websites such as Upwork specifically designed for this purpose.
According to Northeastern University, people spend about 6.1 billion hours a year filing taxes, working with a tax code that has over 4 million words, while the IRS adds an average of one provision to the code every day. The complexity of the tax code is the number one reason people evade taxes. As an entrepreneur looking to establish a legitimate business, tax evasion is the last thing you’ll want on your record. Hire a CPA if taxes are overwhelming.
It’s in the details
I confess my dad was a successful CPA when I was a kid—what’s more, he had his own private practice. He was an entrepreneur with a home office setup where he tended immaculately to the details of his business.
Tend to the details that matter most—client satisfaction, production, innovation, current developments, networking—and you’re on your way to entrepreneurial gold. Delegate minutia and use tech solutions as best you can to alleviate stress, communicate, and save time. With this strategy in place, you will succeed with your home-based business.
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