Want to start a small business?

Many people dream of being their own boss, but making it a reality isn't easy. Here are the basics budding entrepreneurs must consider.

By MSN Money Partner Sep 21, 2012 6:54PM

By Glenn Curtis, Investopedia


Investopedia on MSN MoneyWouldn't it be great to be able to quit your job, be your own boss and earn a paycheck from the comfort of your own home? The good news is that with a little planning and some startup money, it is possible.


Let's delve a little deeper into how to start a small business from home and help you decide how much planning and money you'll need to be your own boss.


Creating the concept
Before quitting their jobs, potential entrepreneurs must first think of a concept, product or service to generate a steady income. And while that may sound easy, it's not. You should conceive a plan that puts your knowledge, experience and expertise to use, but in a way that allows you to make the most amount of your money.


When first thinking of some business ideas, start with areas where you already have a great deal of interest, equipment and materials. This will help cut down on the startup costs for your company and also let you hit the ground running when you do hang out your shingle. Also, peruse the local paper and advertisements to see what other types of businesses are out there. Are there similar businesses in your neighborhood, or is there a business type that is lacking?


Doing something you like isn't the only consideration. You need to get an idea of the prospects for your potential business. Is it a business with a market? Can you make money at it? This will require some research into the marketplace, as well as how similar businesses have fared.


Developing a work space
Your home is where you live. This means that its primary function is to serve as a dwelling for you and your family, not as a warehouse or meeting place for your business and its clients. Make certain that if you are considering entering the manufacturing business, for example, your garage or shed is large enough to handle your work -- without forcing your family and your vehicles outside.


Similarly, if your work will be computer-based, make sure you have the technology necessary to give your idea a fighting chance. In addition, make sure you have a dedicated area that's cut off from the rest of the house and can afford you some privacy.


Remember, hearing a barking dog or crying baby in the background when you are trying to work or meet with a client may not be ideal for you or your family.


Image: Care © Moxie Productions/Blend Images/Getty ImagesOutsourcing partners/employees
While it would be great to be the sole owner of your company and have complete control of every aspect, sometimes a lack of funds or experience make it necessary to have a partner. In this case, consider someone who will represent the company well and has some sort of expertise in the business you are developing, be it sales, marketing, bookkeeping or other financial matters.


Also, try to define the tasks that you and your partner(s) will be responsible for before opening up shop. That way, there will be fewer disagreements, and the business will operate more smoothly. Also, make sure that all partners are legally cared for by the company and that the proper forms are filed with the regulatory authorities. This may mean filing twice and paying for title changes if you need to find a new partner, but it will protect both of you in the long run.


Next, decide if you'll need employees, now or in the future. If so, put some thought into how you will get them and what you will pay them for their work. Also, think about how you'll do payroll and whether people will want to work from your home or from their own homes, or if you'll need to find a facility they can work in.


Doing your research
Some books on forming a small business suggest that after hatching an idea, an entrepreneur should just "go for it." However, this bold approach could land you in some shaky territory.


Instead, a good first move is to start asking family and friends what they think about your small-business idea. Consider asking them specific questions such as:

  • Would you purchase this particular product and/or service?
  • What do you think it's worth?
  • What is the best way to market the idea?
  • Is this something that you think is a fad, or do you feel it could be a viable business for the long term?
  • Is there anything you can think of to improve this idea?
  • What other businesses in this field have you heard of? Do you currently use for this product/service?

If you're married and/or have kids, you should also be asking your family members how they feel about your quitting your job and working from home. This will affect them on both a psychological and financial level. If any of their answers are negative, you should spend some time discussing their concerns and decide whether your goal is worth pursuing against their wishes.


After obtaining all this feedback, go back to the drawing board and see if the idea can be improved upon so your product or service can be differentiated from the competition. Remember, you want to hit the ground running and turn as many heads as possible when first starting off.


Finding funding
Once you have an idea and the approval of your family, you need to decide how you are going to finance it. Most businesses will need at least some startup money. This investment will hopefully help you break even after a year, but keep in mind that even successful businesses can run a deficit for the first few years. Because of this, you will want to tap into a few different sources of funding. Some of these include:

  • A small-business loan
  • Savings
  • Money generated from other investments
  • Family/friends who will act as investors
  • Personal loan from the bank
  • Home equity loan
  • Credit cards (as a last resort)

Seek capital that won't hamper your long-term security. In other words, try to avoid racking up costly credit card debt that could cost 20% or more in yearly interest fees. Also, try to avoid borrowing against your 401k or similar plans, as this may adversely affect your retirement.


Finally, one of the best things you can do before you take the entrepreneurial leap is to build up an emergency fund to fall back on if your company doesn't break even for a few months. Three months of living expenses is a minimum goal for a new business owner, but even more will help take the stress off of you and let you spend your energy on your company.


Covering your bases
All business owners should think about what would happen to the enterprise and the revenue streams being generated if health problems or other difficulties were to prevent them from being involved in the business. In other words, if the entrepreneur were to become disabled, who would take over? Could the business survive?


Consider these matters beforehand, and determine whether disability-income insurance makes sense, or if a partner could fill in during your absence.


Foreseeing the future
It's great to own a business, but eventually the entrepreneur may want to retire or move on to other challenges. With that in mind, you should create a business plan that discusses how you will transfer ownership, sell your company or close it. If your business depends on your unique knowledge and contacts, it may not be possible for another party to take it over.


Few things are more satisfying and rewarding than launching and owning your own home-based business, but before diving in, be sure you do your homework. Making a business work is not an easy task, but proper planning will help increase its chances of success.


More from Investopedia:





Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.



Quotes delayed at least 15 min
Sponsored by:


There’s a problem getting this information right now. Please try again later.
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] The stock market began the new trading week on the defensive note with small-cap stocks pacing the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.1%) displayed relative weakness, while the S&P 500 lost 0.8% with all ten sectors ending in the red.

Global equities began showing some cracks overnight after China's Finance Minister Lou Jiwei poured cold water on hopes for new stimulus measures. Specifically, Mr. Lou said the government has no plans to change ... More


There’s a problem getting this information right now. Please try again later.