There are people who work from home but are employed with a company, and those who work from home and are self-employed. This article is for the self-employed working from home.
Self-employment is not for everyone. Not because you see other people enjoying the benefits of self-employment means that you will also experience the same thing if you decide to be self-employed. And, if you work from home, that in itself will be another challenge that you need to plan for and think about.
I’ve been self-employed and working from home since 2010. Prior to that, I was self-employed with a separate office outside of my home. Before I became self-employed, I was employed. My employment experience helped me to be more effective in my self-employment decision.
There is great value in experiencing how it’s like to work with an employer before jumping into self-employment. Therefore, if you are fresh from school wanting to be self-employed, my advice is for you to first get a job and stay there for a number of years.
If you’ve been employed for several years and are now thinking of being self-employed, I want you to bear in mind that there is a transition that you need to plan for. This is where I made a big mistake, and which has cost me a lot of money.
The time you launch a business to the time you have your first significant sale may take six months at the very least. This is not to mention the steps you need to take in setting up your business.
Let’s talk about the things you need to establish first so you will have a good foundation.
It’s all about the brand. If you don’t make this the very foundation of your business, it will take a long time for you to take off. Take it from me. This is where I failed.
Ask yourself these questions:
What am I good at?
Who are the people drawn to me?
What am I passionate about?
Your answers to these three questions will give you a clear picture of who you are. Who you are is what your brand should be.
The biggest mistake that people do is create the brand around the products or services. They come up first with what they want to sell or make money from. They then lose their identity, which is the brand, along the way.
If you create the identity first, meaning who you are and what you represent, this becomes your brand. Your business name, product, service, theme, color, logo, and everything else connected to your business promotion should emanate from this.
How I wish I had known this from the beginning. So, if you’re like me who has been self-employed for a while and need some refreshing, it’s never too late. I did things in the reverse, which is actually benefiting you now because I can talk from experience.
Your Business Entity
I want to focus on small home-based businesses since this is where my experience lies.
Below is a list of the different types of business entities to choose from.
Sole proprietorship is one of the most common form of a business structure because they are simple to form and are a very cost-effective way of legally organizing your business. A sole proprietorship means just that — a business with one owner. If there is more than one owner, you will not be able to qualify for a sole proprietorship. The sole proprietorship and the owner will be legally considered the same entity.
Some of the tax benefits of forming a sole proprietorship are that the business files its taxes as an individual, receives a pass-through tax, and is able to deduct business expenses from personal tax returns. The sole proprietorship does not have to pay payroll taxes and does not have to withhold income tax. However, you will have to pay a self-employment tax.
Limited Liability Company (LLC)
A limited liability company is regulated under state law and must be registered in that state where it conducts its business transactions. An LLC provides a business owner or owners with the liability protections of a corporation and the tax benefits of a partnership. Under an LLC, the business owners and the business are considered two distinct entities. Thus, as opposed to a sole proprietorship where the owner can be held personally liable for the business’s actions, a business owner of an LLC is afforded greater protections that shield his or her personal assets from the reach of creditors.
For tax purposes, an LLC is not considered a separate entity from the owners, and the LLCs profits and losses are “passed through” to the LLCs members. This means that the members must report the business’s income and expenses on their personal tax returns.
An “S corporation” simply got its name from Subchapter S of the IRS code. It is a type of corporation that protects its shareholders from personal liability in the event that the corporation engages in some sort of misconduct. Unlike an LLC, however, an S corporation provides certain tax advantages that an LLC does not. For instance, LLC members are required to pay taxes on the business’s entire net income. Shareholders of an S corporation are only required to pay income tax on their share of wages.
I advise that you do a thorough research on each of these business entities before you make your final decision. Do a list of pros and cons for the type of business you want to start.
Your vision-mission is the foundation of your business. This is the soul, your heart and mind.
In my book, Simplify to Intensify, I defined vision as what you envision yourself to be; and mission as what you intend to do. I gave a few examples, one of which is the vision-mission of Tesla.
To accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.
The vision is “to accelerate the advent of sustainable transport”. The mission is “by bringing compelling mass market electric cars to market as soon as possible”.
Never, ever start a business without a vision-mission statement.
Finances and Income
Few people have the luxury of time to not initially worry about a business income because they have either money set aside or they have other people providing for them. And even if you have money to sustain you for a year or so, that money is going to run out. Without a business income, there is no business. It will be treated by IRS as a hobby.
Again, let me remind you of what I said earlier: that it takes at least six months to make a significant sale, after you’ve launched your business. Add the preparation phase to that and you may need a year or two years’ worth of income as a cushion or safety net. How much you will need depends on the type of business you have and what you intend to do. This is something you need to plan for.
Begin to list down your pre-operating expenses for your home business. This includes business and name registration, patents (if needed), marketing tools (I will discuss this shortly), equipment, furniture, gas expense, etc. Your biggest expense will be in marketing. After you’ve listed everything down (be as detailed as you can), write down the corresponding fees. Separate the one-time expense from a recurring expense such as your utilities or subscriptions. If you will use your credit card to pay for any or all of these, count that as a recurring expense unless you want to pay for it in full. Once you have your pre-operating expense, list down your operating expenses. These are business expenses on a regular basis, which includes transportation, supplies, utilities, advertising, etc.
You need to consider your pre-operating and operating expenses, and how much personal money you need when deciding how much income you have to make. This is another aspect of the business I didn’t realize until I felt the pinch. You have to treat your business as your employer, even if you own it. You need to look at it as the company paying you a monthly salary. Whatever money you make should cover your salary plus all your other business expenses.
Let’s say that your desired salary plus business expenses is $10,000/month. This is your end-point, and where you should begin. I always suggest planning from the end to the beginning.
The next questions now come into play.
How many clients a month translate to $10,000?
How many projects or how much merchandise translate to sales of $10,000?
What do I need to do to get that?
Then, you have to consider how much time it will take to start making the $10,000. If you believe you can hit that goal in three to six months, then you can make your projections from there.
Sometimes, it is better to make projections on a yearly basis, because businesses can be erratic, more so if you’re offering services. A yearly basis projection will also include the monthly projections but you can at least spread it out over a one-year period.
A business plan serves many purposes, two of which are: to have a good foundation for your business that will serve as your guide; and to have something to present to lenders.
Everything I’ve already discussed here falls part of a business plan. Its main purpose is for you to lay out everything about your business. You’ll be surprised how much you will discover while creating a business plan. All of a sudden you will see things that you won’t normally see unless you write them down.
A business plan consists of these main parts:
Executive Summary (which you actually do in the end)
Company Profile (nature and entity of business, location, date established, people behind the business and their bio, how it started, and vision-mission)
Products/Services (description and pricing)
Market Research (comparative study with other similar businesses)
Competitive Edge (demographics, strengths)
Marketing (tools, description)
Financials (3-5 years sales projection, expenses)
The nature of your business will determine how simple or extensive your business plan should be.
Register your Business
When I started my home office in 2010, I didn’t feel the need to register it. Besides, the kind of business I have does not require registration in the city where I lived back then. It was a client who requested for my business license that changed all this.
Even if you’re just doing a little home business, I recommend that you register it with your state and your city if it is a requirement. If what you plan to do is simply a hobby and you’re not sure if you’re going to make any money, then wait until you start earning something. However, people won’t normally trust you unless you are a legit business. I was privileged to have my credentials back then even if I didn’t have my business registration.
Registering your business will help you create a more professional image right away for your clientele.
This is the most important part of the business after you have established your foundation. Without this, your business will not run.
There are different marketing tools that you can choose from. Decide what to use based on the type of business you have.
Below is a list of marketing tools you will need, regardless of your business.
Social Media sites (choose two at the most that you can regularly manage)
Google business listing
Marketing is about getting your business name out there, for people to know. And if you don’t focus on what tool to use, you can get overwhelmed not only with the options but with people offering you their services.
Keep researching for options. If you have a limited budget, there are lots of freebies. I started with a free website, free online marketing ads, and free social media exposure.
Now that I’ve helped organize your thoughts (I hope I did) on what to start with, let me go back to “working from home”.
Why work from home?
The first reason is how more economical it is. You can actually get business write offs for using a portion of your house and utility bills for business.
The second reason is how practical it is, more so because we live in a day and age where people would rather do business online.
I do all my work from my home office, including responding to emails, talking to prospects and clients on the phone, online marketing, and working on projects. When I need to see clients in person for consulting or coaching, I meet them at a local Starbucks.
If you have a small house with little children running around, I will not advise working from home.
So … the big question is … ARE YOU CUT FOR IT?
Are you the type of person who will succeed in self-employment and having a home-based business?
What do you need to succeed in this journey?
Working from home requires a lot of self-motivation. Nobody is there to watch you. You look to your right and you see the kitchen … to your left is the TV… and straight ahead is your bed.
One thing that has helped me to stay highly motivated is to create a real work environment. I don’t work in my PJs and I’ve decorated my office to look like a real one.
You need to be creative in order to break the monotony of your day-to-day routine work at home. I mean, your home is where you eat, sleep, and relax. If you are there every day you may just get burnt-out staying at home. This can be more challenging if you are working from your bedroom. You can really get sick of staying there.
I don't advise working from your bedroom. However, if that's the only place you have at home, make a separate distinction between where you sleep and where you work. If you need to put a divider, do so.
For you to succeed in this venture, you should have a good track record of working independently. This means that you work very effectively with little or no supervision.
Working from home can surely make you feel so at home, which can be distracting, more so if you have kids. You need to have the ability to keep focused despite all the distractions.
Drive & Persistence
Working from home can give you an erratic income. Some days can be better than other days. You have to be driven and persistent enough to continue working hard even if you don’t see any results.
Persistence requires commitment. Focus requires commitment. You can’t start working from home and quit after a year. You have to stick to it, no matter what. You have to do all your planning before you even start instead of starting without a plan and then quitting.
One great thing about being in a work environment where you have co-workers is the interaction with other people that it offers. When you work from home, you are alone most of the time. This means that you have to be the type of person who enjoys solitude. Of course, there are a lot of ways to be involved with other people such as meeting your clients and networking.
Discipline & Organization
You need to be very organized to succeed in this venture, most especially with your time. Since you are just at home, you may feel like you have all the time in the world, which is why you have to follow a strict schedule for yourself.
You need to be tough with yourself if you want to succeed in this endeavor. You need to set high goals, and stick to these goals. You need to be able to calculate how much work you need to do or render vis-à-vis how much you want to earn.
WHAT AM I DOING WRONG?
If you are already self-employed and working from home, use these tips and guidelines I gave here to assess where you are. As I’ve said earlier, I had to learn things the hard way.
If you need more help in setting up your home business or in making your existing home business succeed, click the button below.