3 crucial considerations before starting a business from home
Starting a business from home is becoming a more and more viable prospect for many Australians as the barriers continue to erode. With the internet becoming quicker, cheaper and more reliable and the availability of information, communication and software at your fingertips, the door of opportunity is widening. By taking advantage of modern channels to do everything you need to from your home computer, the reality of starting a business from your lounge room is very real.
It is not, however a free for all money machine, nor is it something to take lightly. To start and run a business you will have to display a large degree of organisation and self control. But that’s always the case is it not? According to the ATO, over 1 million Australians earn money from home and you can easily join the ranks. So what are some of the key considerations involved before you throw in your lot?
1) Seek those who know
First thing is first – you need to know exactly what you are getting into. To be blind is to fail so let’s start off with the lights on and our situation fully illuminated. To do this it’s best to start with thorough research of your own, supplemented later with a relationship formed with a bookkeeper, accountant or business adviser. Look to federal government pages and ATO publications to begin with as well as plenty of third party business advice. You will need to gather specific information on:
- Viability of your business model
- Business registration and ABN
- Tax responsibilities and applicable brackets
- Business restrictions relating your residence
- Budgeting and forecasting
- Home vs business insurance
This list could stretch to the end of your patience, but you get the idea. Know how your business will be classified, know how the taxation will work, know how viable your business model is, and whether it has a good chance of success. At the end of such deliberations, head out and find a local, trustworthy and competent business adviser. This person will then be your oracle and will impart their hard won knowledge, but its best to be pretty canny before you even walk in the door, this will save everybody a lot of time (and you a lot of money).
2) The right space?
Is your business viable from your home address? This question spans between legalities and whether the space is fit for purpose or not.
Some councils and even building strata can impose rules on whether a specific business is able to operate from a specific residential address. It’s easy to eliminate a few such as any industrial businesses in the wrong residential zones, but you should be making legal enquiries and taking the advice of your accountant or business advisor before you make concrete plans, or quit your job. State and territory governments provide kits and advice to steer you in the right direction here as well.
On top of legalities and restrictions you should also be well aware of the limitations of your space. Is this a service business? This means a well setup and separated home office will be in need so as to create a conducive work environment away from distractions. This is key – your kitchen table in front of the TV will produce less than stellar work and under performance may follow. You need to be strict with yourself and construct a space that will be solely your office. Introduce natural light, artworks and houseplants to your space as well as a great desk/computer/chair setup that is conducive to all-day work.
However if your business is perhaps retail oriented or related to physical stock you will have further considerations. Can you store your products in your home? Do you have space? Will you need to hire a storage unit? Do you have the facilities to pack and send from your home or will this need to be done offsite? Where? How? All of these considerations will be particular to your business but consider them you must. Be sure your space fits your business in more ways than one.
3) Separate your financials
Let’s say you have decided to start a freelance web designer/coding business. Great. You now need to ensure all financial activity is recorded and undertaken separately from your personal finances. This can become more difficult when at home and the line between business and personal becomes a little harder to see. Was that new mouse for business? Was that new screen for personal use? Perhaps a percentage of each? Are you storing work files on that new portable hard drive or personal photos? Be specific and be aware. Create records and keep receipts.
Start this separation by creating business bank accounts and business credit cards as necessary under your business name. Instead of attempting to tease business expenses from personal ones come tax time, you need everything separate from the start. This avoids mistakes, compliance issues and a heck of a lot of wasted time.
This also makes life easier as you go along. Bank data feeds from your accounting software (You absolutely without question need some form of accounting software!) will be precise and unambiguous. Your budgeting will be simple and your declarations will be without error. You will know at a glance exactly what your business is earning, owing and owed. Keep it simple and make sure all business accounts and finances are 100% separate from your personal life.