ARE YOU DREAMING OF A HOME OFFICE?
The Current Growth in Home Offices and Self-Employment has Made Many Americans Consider That Approach. If That's You, Maybe it's Time to Ask Yourself a Few Important Questions.
By Patricia Tokar
Thinking of making the move from the industrial park to a home office or even to self-employment at home? The current rage gives us a fantasy-like impression of the home office. In reality, it can be a perfect move for you, but there are some realistic qualities you must have (or acquire) and some reasonable expectations you need to investigate before taking the plunge. This article assumes that you have already chosen a potentially profitable business. And that will help you decide whether you'll be a successful entrepreneur at home.
Here are a few questions to consider:
1. Are You a Self-Starter?--At home, no one (expect maybe your nagging spouse) is going to tell you what time to start work, how long to work, and which projects need to take priority. Sure, these conditions sound great, but if you are unable to start and finish projects, you will find yourself unable to collect any income.
2. Are You Organized With Paperwork?--You will need to keep all of your own records, including invoices, customer files, phone call records, business receipts, and research notes. And don't forget that you'll need to file tax returns. Your bank may even request financial statements. Excellent bookkeeping is a sign of a business owner who has a good grasp of the level of their expenses and income. In my experience, most of the businesses that fail have very poor recordkeeping systems. Sometimes I find that a client compensates for this by assigning the paperowrk and record keeping to a spouse. This can work beautifully, but only if the spouse is organized and willing. If necessary, consider hiring a part-time bookkeeper or secretary.
3. Do You Have Kids at Home?--For many, if not most, a home-based business combined with small children at home can be a sticky picture. Small children like to cry loudly in the background while you are on the phone. They empty drawers and boxes onto the floor while you work at your desk. They color on your client papers when you aren't looking (or worse, they spit up on them when you are looking). Older children suddenly need you every few minutes. You hear the call, "Mom!" or "Dad!" so often that it begins to echo in your mind while you work.
This is not to say that you can't mix a home-based office with kids, but you'll have more planning and scheduling of your time than a similar business sans kids. You should carefully consider the type of business you'll run from your home. Are unscheduled phone calls an essential part of the business? Will you need long, quiet hours to do detailed work? Will you need a space that is absolutely off-limits to the kids?
One solution may be to send the kids to daycare a couple of days a week, or to have a caregiver come in for certain hours each day. Another may be to get your kids on a regular schedule of naps and playtime. Whatever your plan, consider it carefully. You don't want to end up resenting your kids and you don't want your kids to end up feeling a fierce competition with your home-based business.
4. Do You Have Space in Your Home For an Office?--You'll need at least room for a desk, a phone, and a filing cabinet. It's hard to picture a successful home business being run from someone's knees while they sit on the couch. If you don't have a separate space for your business, you can encounter many detriments.
First, you run the risk of total disorganization. You may have phone numbers taped to the side of the refrigerator, customer documents stuck in the closet, or importnat files stacked on the end table. You may end up spending precious time getting everything out and then putting it all away each time you want to work. Another big danger is the lack of separation of home life and business. I find that the best-run home businesses have a degree of separation from the living areas. It may be in a separate room, in the basement, or an entire corner of the den. Just this much separation can give you a more serious attitude towards your business. More importantly, this attitude will rub off on your spouse, your kids, and your customers.
Additionally, if you'll need to meet with clients or customers at your home office, be very aware of the atmosphere you're creating. Most customers are very accepting of a home office, but will recoil at stepping over dirty laundry and toys and will probably not tolerate screaming kids or a constantly-interrupting spouse. Be sure your home office has a very professional appearance, possibly even its own entrance, if you will have frequent customer/client meetings at home.
5. How Well Can You Handle Money?--Running a home office will require management of expenses. This is doubly true if you'll be running your own business, rather than answering to a corporate-created budget. So, before you even consider a home office, take a good look at how you handle your own finances. Are your credit cards maxed out? Did you buy or lease the latest luxury car with a tiny downpayment and monthly megapayments? Do you often forget to pay the utility bills...or maybe you didn't forget, you just misplaced the bill and didn't find it until after the due date? Do you frequently have to pay the late charges on your monthly mortgage payment? Do you have little or no savings or personal investments?
If you answered "yes" to one or more of these questions, you need to do some serious thinking before you start a home business. Regardless of how good your product or service is, if you are unable to control your expenses, you're setting yourself up for disaster. Running a business requires the ability to manage cash flow--which means the ability to be sure you will always have enough cash on hand to pay bills as they come due. It requires the ability to manage debt levels.
A credit line or a credit card are both very useful tools for a small business, but they can be lethal to the business if they are mismanaged. I have consulted with clients who have charged $20,000 to $30,000 on multiple credit cards for their businesses--without planning ahead how they would pay for these charges and the high rate of interest they carried. Needless to say, most of these small businesses will have a very, very difficult time getting over this cash flow and interest expense hurdle. Running a business also requires the ability to manage expenses. Sure, it's great to sell a product for $10 that only costs you $3, but not if you only sell 1,000 of them and have run up overhead costs of $20,000.
Perhaps the most important cash flow item to keep in mind when starting a small business is the potential for Federal, State, County, and City taxes on your business profits and/or gross income. I call the self-employment tax combined with the federal, state and county taxes the "killer tax" because the rates are high and the small business owner absolutely must save and plan for the payment of these taxes. It's perfectly normal for a sole proprietor to generate a measly $10,000 in net income and find themselves with a tax bill of nearly $5,000 on this income. Be prepare, use tax planning, and make quarterly estimate tax payments. Meet with your accountant at least once in mid-year to try to project out your income expenses and the resulting taxes.
6. What is Your Social Need Quotient?--Running a home business, depending on the business you choose, can mean many quiet hours infront of a computer or at a desk shuffling papers or it can mean daily sales calls and meetings with clients (your place or theirs). Take a look at your current social life. Are compnay parties, office gossip, co-worker lunches, and other work-related activities the main part of your social life? Or do you prefer to work alone at your desk and most of your social activities are from your family or from a group of friends totally unrelated to work? Do you need to chit-chat on a frequent basis? Do you get a charge from meetings, sales calls, or other daily contact with co-workers?
Your answers to these questions will not necessarily give you a "yes" or "no" to whether or not you should start a home office, but they will definitely tell you what kind of a home office you should start. A chatty, outgoing, loves-to-be-around people type will probably wilt and fade in a home business that requires lots of solo work with little people interaction. In fact, they may find it difficult to even work, choosing instead to make multiple phone calls and run "really necessary" errands instead of getting their work done. The reverse is true of the person who prefers to work quietly and intensely with little interruption.
The moral of this section: Choose your home business wisely and base it on your own needs and type of work you love.
Patricia Tokar is a Certified Public Accountant in Elkhart, Indiana. She has been a sole proprietor for 15 years, concentrating on small businesses and estates. Patricia also is an owner of Simple Life Corporation, a publisher of SIMPLE LIVING and other nonfiction books. She has also written a cookbook, CLEVER AND DELICIOUS COOKING. If you're interested in adding this delightful cookbook to your mail order sales on a drop ship or commission basis, write to Patricia at:
Simple Life Corporation P.O. Box 1529 Elkhart, IN 46515-1529
or send an email to patti@simplelifecorp.com You may also visit her web site at:
http://www.simplelifecorp.com
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