How to start a small business from home
Legal considerations are among the factors to consider if you run a home-based company.
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Nearly one million Australians run a business from home. Amid the rush and excitement of suddenly becoming your own boss, it's really important not to lose sight of all the costs, legal concerns and other practicalities that can set you up for success.
Use this guide to learn what you need to know about starting a small business from home.
6 steps to starting a small business from home
1. Be clear on the definition of a home-based business
The government defines a home-based business as one where, "your home is also your principal place of business – that is, you run your business at or from home, and have a room or space set aside exclusively for business activities".
To use your home as a workplace you'll have to meet any particular state, territory and local government regulations. Start by checking if any local council guidelines apply in your area, such as how to comply with any zoning laws.
You might even need to get official approval for your home-based company, depending on the type of on home-based business you run. You may need special permits relating to zoning, signage, noise levels or health issues.
As a home-based business you'll still need to register for a business name, Australian Business Number (ABN) and any necessary business registrations and permits. Read more on this in our guide to starting a small company.
2. Secure your workspace
If you've committed to a business venture from home, it figures that you'll want to make your workspace to be as comfortable and as productive as possible in order to set you up for success.
Try and dedicate a specific area of your home for the running of your operations. This can even just be a desk in a dedicated room. By segregating your business area from other parts of your home, it'll help to limit any distractions and help you to maintain a healthy work/life balance.
3. Create a business plan
Your business plan should guide the way you run your business. A robust plan will outline what actions you need to take to deliver ongoing success and can help to show your business' best face for a range of future stakeholders. It's also a great way to keep track of its progress and growth.
A traditional business plan will include the following:
- Executive summary. A one-page overview of your business that acts as an introduction to your plan.
- Company description. The key details about your company and how it works.
- Product research. Outline the product and service that your business provides.
- Market research. Describe your target market, along with your main competition.
- Sales plan. State your strategy for increasing sales aimed at your target market.
- Financial analysis. Include the financial details of your company. List out your funding sources and where that money needs to go.
- Projections. Give three years' worth of detail on projected sales, planned costs and estimated profit.
Read more: How to create a winning business plan
If your business is too new to write a full traditional business plan, you may still want to have a shorter plan that distils your startup for any potential investors or lenders. You could even use this in a starting point for when the time comes to create your full business plan.
The government has developed an online resource that can offer assistance for when you with the transition required if your business outgrows your home.
4. Get your legal structure (and documents) in order
As a starter, you'll need to decide on the legal structure of your business. One common legal structure is a sole proprietorship, which means the business is owned and run by just one person, and isn't identified as a separate entity from the owner by the government. Meanwhile, Limited Liability Corporations (LLCs) are more complex business structures and can include individuals, corporations, and other LLCs as associates.
Fortunately, the internet makes it easy to get access to a wide range of legal documents and templates and can support you on a range of legal issues as you develop your business.
Get access to online lawyers, legal documents and templates
5. Be clued up on costs - including business insurance
There are likely to be a number of costs to consider when you're starting your home-based business. For example, you'll want to ensure you meet any hardware requirements (like a laptop and a comfortable office chair) along with any software (such as project management or email marketing tools) that can help you be more efficient as your business grows.
Ream More: Find out how you can grow your business with a suite of email marketing services.
It's also crucial to get the right insurance in place. Be sure to inform your insurance company if you intend to run a business from home, as this may have an impact on your policy. You may need to shop around for more specialist business insurance cover to address a wider range of risks.
If clients will visit your home, such as if you're a masseuse or a medical therapist, then you'll want to think about public liability cover. This type of business insurance can offer protection in case a client is hurt or damages their property and decides to sue.
If you keep a lot of your business products or stock at home, you may not have enough coverage with a typical home contents insurance policy. Other types of cover you may want to consider include professional indemnity (if you provide advice to your customers) and product liability (if you manufacture products for the public).
Compare business insurance for your home business
6. Don't forget about tax
If your home suddenly becomes your office, you'll have to think about the tax implications. You may need to register for: a tax file number (TFN), Australian business number (ABN), goods and services tax (GST), pay as you go (PAYG) withholding and fringe benefits tax (FBT). Learn more on these tax obligations by visiting the business.gov.au website here.
Broadly, the ATO has indicated that business owners may be able to claim deductions linked to the following business expenses:
- Phone usage
- Use of printer consumables (for example, cartridges)
Additionally, in areas that have been set aside in your home solely for business-only activities, you may be able to claim some tax relief on 'occupancy expenses'. These could include costs linked to:
- Mortgage interest
- Insurance premiums
- Council rates
Want to know more about claiming expenses? Read out working from home guide.
However, the ATO adds that unless the area has the character of a place of business (such as a catering kitchen or a recording studio) and is "not suitable for domestic use", you can't claim such expenses.
On the other hand, The ATO may require landowners who run a home-based business to pay:
- Capital Gains Tax on the sale of the building where the business operates
- Land tax (ongoing)
Given the increasing numbers of people who are claiming work-from-home tax deductions, it's likely that The Australian Tax Office (ATO) is going to monitor this area with a great deal of care in the future.
So, it's a good idea to get advice from a tax expert to get help when it comes to identifying the tax implications of operating a business from home, including any deductions based on your specific set of circumstances.
Compare online accounting software
Online accounting software can take some of the hassle out of your everyday bookkeeping overheads.
Frequently asked questions
What different types of home-business are there?
There's a huge range of businesses that are run from home. Example include baking, web design, beauty or medical therapy, handyman services, business consultancy, accounting, vlogging, translating, data entry, podcasting, copywriting, online dating consulting, brewing and events planning.
What tips should I keep in mind to look after my wellbeing?
Try to stick to a regular work schedule where possible and set boundaries for when you'll clock off. You may want to set yourself other rules, such as going outside each day for some fresh air and you could also break up your workday by visiting a local cafe or exercising periodically.
What insurance do I need if I hire staff members who work from home?
If you have other employees who work from home, you're still responsible for making sure they have a safe work environment and will need suitable insurance too. Workers compensation insurance is a legal requirement for all Australian employers and will pay-out if your employee is injured while working from home.
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