Setting Up Business At Home Requires Discipline, Planning
While most of us believe that “home is where the heart is,” a growing number of Americans are convinced that home is also the best place to locate a business.
Q: I plan to start a one-man business in the very near future. Since office space could cost me up to $500 a month, I’m considering establishing an office in my home, which would be convenient as well as economical. What should I consider before I make the move?
A: Depending upon whose statistics you believe, between 25 and 40 million workers have decided to set up shop in their homes, and the number is growing by 5 percent to 10 percent a year. About half of these are full-time entrepreneurs like you.
A home-based operation can make a lot of sense, if you are mindful of a few “guidelines” that can help you get the most from both your business and your home.
Check you local zoning ordinances. Make sure your neighbors don’t have the right to prohibit commercial traffic to and from your residence. Parking and signage might also be limited by prevailing regulation.
Build a “fence” that divides the turf. Don’t spread your business affairs into your living space. Your work space should offer you an undisturbed, well-organized professional setting.
You should still “get dressed and go to the office” everyday. Don’t allow yourself to wander to the kitchen or other “comfortable” space during the work day. Maintain a separate phone line and even stash office “snacks” separately.
Buy the right equipment. Use only the most cost-efficient, reliable equipment. Budget at least $5,000 and don’t try to scrimp here.
An up-to-date personal computer is essential. A fax machine, copying equipment, and a high-end telephone answering machine are equally important. A computer table of proper height and an ergonomically correct chair will be among your most important purchases.
Separate work surfaces for “in-process projects” should also be on your list. The right shelves, bookcases and filing cabinets can help keep order and conserve space.
Buy additional insurance. Your homeowner’s policy probably won’t cover lost or damaged office equipment. You’ll also want liability insurance that will protect you if a customer, vendor or part-time employee has an accident on the premises.
You could be personally liable for claims that arise because of misfortunes occurring at your office-residence. Consider at least a million dollars of coverage. It might be cheaper to expand the coverage of your existing homeowner’s policy than to buy a separate policy for the business.
Keep your network alive. It takes personal interaction to keep your creative juices flowing. Stay in regular contact with your peers and other important sources of advice, information and stimulation.
Being “home alone” can create some negative feelings of isolation, and can easily allow you to become preoccupied with small problems and trivial matters.
Be prepared to keep regular hours. Typical household chores, time with the kids, and personal visits should not find their way into your daily office schedule. It takes discipline to wait till five o’clock to fix that leaky faucet, but don’t allow yourself to do anything during the workday that you wouldn’t do at a fancy uptown office.
Remember the words of Thoreau: “…it was morning, and lo, now it is evening, and nothing memorable was accomplished …”
Q: I own all of the shares in my corporation. Can I lend myself money from time to time to avoid the taxes that I’d pay on bonuses?
A: By all means, if you need money for just a short time, borrow it from the company. But make sure you do it in a way that keeps the IRS from claiming that the transaction constituted a dividend payment. Dividends are not deductible to the company and are taxable to you.
To avoid this double whammy, document the loan in writing, using a standard note format that is signed by a company officer and by you as the borrower. Have it notarized and keep it with your company records.
Charge yourself a market rate of interest (probably a couple of points above the prime rate). Finally, establish a repayment schedule as part of the note and stick to it.
While the IRS frowns on using a company as a private piggy bank, a loan - if executed properly - can be an excellent way to get ready cash for personal reasons.
xxxx Paul Willax is the Sandifur Distinguished Professor of Entrepreneurship at Eastern Washington University.