Watch the video below or scroll down to read the recap
This class taught by Harold Patterson, a WV Small Business Development Center Certified Business Coach, walks you through all you need to know to start and run a business from the comfort of your home. This workshop was done to supplement the "Home-based and Freelance Business" module in BEDA's MyBluefield Entrepreneur's Bootcamp courses, with much of the information coming from that course.
BEDA Executive Director Jim Spencer opens the workshop up welcoming attendees and stating that a home-based business can be used to supplement your income or turn into your full-time job. Jim also gives an overview of BEDA's Entrepreneur's Bootcamp:
BEDA has partnered with My Own Business Institute (MOBI) of Santa Clara University to offer local and regional aspiring and current business owners 100% free online business training. The Bootcamp is self-paced and has two tracks: Starting a Business and Business Expansion. Enrollees can choose one, or both. Some modules include The Business Plan, Financing the Business, Accounting and Cash Flow, Communication Tools, Marketing, Getting your Team in Place, Achieving Lowest Expenses, Vertical Integration, Franchising your Business, Selling your Business, and much more. Upon completion, graduates earn a certificate from Santa Clara University. Since June 5, 2020, BEDA has had 107 enrollees and 18 graduates.
Anyone interested in learning more or signing up for BEDA's MyBluefield Entrepreneur's Bootcamp courses, click here.
Key Notes from Harold's Presentation:
The possibilities are endless with starting your own home-based business. Some businesses you could start from home include Accounting Services, Editorial Services, Childcare, Computer Services, Event Planning, Beauty Services, Personal Training, Marketing, and so many more. Harold reviewed a list from BEDA's Bootcamp "Home-based and Freelance Business" course which can be downloaded here:
Characteristics of a Home-based Business
They have few employees
Low Storage Needs
Provide or deliver services to a customer
Based on Specialized Skills
They have virtual sales transactions
Home-based Businesses: Freelancing & the “Gig Economy”
Freelance Business: a home-based business with only one employee (you) who takes on contract work for other businesses, organizations, and individuals.
“Gig Economy” is an economy in which temporary and flexible employment is common, such as a Home-based or Freelance business.
Advantages of Running a Home-based Business
No Commuting
Lower Overhead
Income Tax Advantages
Family Time
Flexibility
Help from Family + Friends
Leverage Resources within your Home
Lower Risk
Disadvantages of Running a Home-based Business
It's Not Allowed in Some Areas
It Might Not Work for You
Isolation
May Interfere With Family Life
Controlling risk and liability
Must ensure you have the right licenses, permits, and permissions
Must understand the rules for business expenses and deductions
Ensuring You're Ready
Harold covered a template from BEDA's Bootcamp "Home-based and Freelance Business" course which lists different questions you should ask yourself before starting a home-based business. That template can be downloaded here:
Should I Incorporate My Home?
Liabilities: If you operate a sole proprietorship, your business is not a separate legal entity. This means that any debts or other liabilities incurred by your business are yours to bear. On the other hand, corporations are themselves legal entities that are separate from the owners or shareholders. As a rule, your personal assets cannot be used to cover the debts of the corporation.
Credit: In a sole proprietorship, credit is extended based on your personal credit rating, so any defaults can affect your ability to secure credit for personal purchases, including buying a home or a vehicle. A corporation would be a separate entity and have its own credit rating. If the company is slow to pay its bills or winds up filing bankruptcy, this information will not appear on your personal credit report.
Raising Capital: A corporation can often find it easier to raise capital. Many financial institutions hesitate to lend money to individuals for business purposes, especially if the business cannot prove that it has been operating profitably for several consecutive years. Furthermore, corporations can raise money by selling stock. They can also use stock options to help them attract and retain high-quality employees.
Inheritance: Another point to consider is that sole proprietorship ceases to exist when the owner dies, but a corporation has a life of its own. Sole proprietorships are not ideal for those who want to leave a business for their children or spouses to inherit.
Is a limited liability company a better option? Limited liability companies offer most of the benefits of a corporation, including the separation of the owner and the business as legal entities. This protects your personal assets and credit rating. LLCs also offer similar tax advantages as sole proprietorships, but this can vary by state.
Registering Your Business
West Virginia SOS Business Startup Wizard - This is the Secretary of State's app that will help you discover what type of corporation your business should be registered as. (Sole Proprietorship, Limited Liability Company, S-Corporation, C-Corporation, etc.)
West Virginia One Stop Business Portal - Once you discover what kind of corporation your business needs to be, head to this portal to register your business with the State and the Tax Department. You will need a Federal Employer Identification Number, NAICS code, your social security number, and other personal information. This will take between 30-45 minutes to complete. At the end, you will have to pay registration fees. If you are unsure how to obtain a NAICS code, you can contact Harold.
The City of Bluefield, West Virginia Licenses and Permits - To open a business (even a home-based business) in the city of Bluefield, you must register and obtain the correct business licenses and permits. You can follow the link for specific instructions on how to do so. Note: You must FIRST obtain your State Registration before registering with the city. There is a $20.00 fee to obtain a city business license. Only residents who plan to operate their business within city limits or plan to do any work inside city limits are required to obtain a city business license.
Independent Contracting
Who are they? A self-employed person or entity contracted to perform work for—or provide services to—another entity as a nonemployee. As a result, independent contractors must pay their own Social Security and Medicare taxes. Some include doctors, dentists, veterinarians, lawyers, writers, software designers, auctioneers, actors, musicians, and many others who provide independent services to the general public. Independent contractors have become increasingly prevalent in the rise of the “gig economy.”
California’s "ABC test" defines an independent contractor as one who satisfies all three of the conditions below:
A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work;
B. The worker performs work that is outside the usual course of the hiring entity's business; and
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Developing a Marketing Strategy for Your Home-based Business
Where do you start? A Marketing Strategy outlines your overall game plan for finding clients and customers for your business. It focuses on what you want to achieve for your business and marketing efforts.
A good marketing strategy incorporates what you know about how your business fits into the market and the 5 P’s of Marketing to develop the tactics and actions that will achieve your marketing objectives.
Product – What Product or Service are you selling? Unique Selling Proposition
Price – What Price are you charging for your Product or service? Competition
Place – Where are your Products or Services being sold? Target Market
Promotion – How are you letting the potential customer know about your Product or Service?
People – Who are the People helping you in your business? New – Training, Experience, etc.
Creating an Online Presence: An important part of your home-based business is creating an online presence (through a website or social media). An online presence is an efficient way for you to connect with new customers, to describe your products and services, to authenticate your business, and to sell products.
Create a website for your business
Ensure your website has a transaction ability if you plan to sell products or services online
Create Social Media Accounts for your business
Tax Deductions for Home-based Businesses
Home-based businesses can take two types of deductions: the normal deductions every business can take, as well as other deductions that only home-based businesses can obtain.
In order to claim your full home-based business deductions, you have to consider several things.
Principal Place of Business: If your home is your only business location, it's easy to show that it is your principal place of business. You will need to be able to show that you don't have any other fixed location where you conduct your administrative or management activities, like paying bills, managing your business finances, and talking to employees, suppliers, and customers.
Regular and Exclusive Use: In addition to making sure your home is your principal place of business, you must satisfy both requirements for using your home regularly and exclusively for business purposes. "Regularly" means on a regular basis either daily, weekly, monthly, or every quarter, not just occasionally. "Exclusively" means that your home office space can't be used for anything else at any time. That includes storing your personal belongings there or using your family dining table for Thanksgiving dinner.
Note: you are not required to pursue these deductions, but they can be highly beneficial and you must follow the above guidelines if you wish to pursue them.
How to Calculate your Home Office Space Deduction
The IRS allows two ways to calculate the deduction for the space in your home that you use for business purposes: the normal method, calculating actual expenses, and a simplified method for small business areas involving a simple multiplication.
Actual Expenses Method: divide the square footage of the area used for your business by the total square footage of your home. This calculation method separates direct and indirect expenses.
Direct Expenses: are only for the business portion of your home, and you can include 100% of these expenses. Some examples are painting that area or buying supplies for your home office.
Indirect Expenses: are for your whole home; the percentage is applied to these. For example, if your home business space is 15% of your total home space, you can deduct 15% of the cost of utilities.
Calculating: Once you have the percentage of square footage you can then calculate and deduct a percentage of Excessive Mortgage Interest, Insurance Cost, Rent Repairs and Maintenance, Utilities, and Other Expenses.
Simplified Calculation Method: The simple method is best for smaller locations. To take this deduction, multiply the business square footage by $5 per square foot for up to 300 square feet, for a maximum of $1,500 per year. The advantage of this method is that you don't need to keep track of all your home expenses and run calculations to figure the percentage. You can't take a depreciation deduction when you use the simplified method.
Limits: If the gross income from the business use of your home is less than your total business expenses, your deduction for some expenses is limited. These limits apply to non-deductible expenses like insurance, utilities, and depreciation of your home.
Reporting & Claiming your Business Space Deduction: How you report your business space deduction depends on the calculation method you use. For the actual expenses method, complete Form 8829. Include this form with your business tax return. For the simplified method, calculate the deduction on Schedule C, Line 30, or on the appropriate section of your business tax return. Note: Seek the advice of a CPA!
Why you Need Home-based Business Insurance
While home-based businesses may operate on a small scale, they face many of the same risks as their larger counterparts. These include third-party claims, auto accidents, and damage to company-owned property. To protect themselves from losses, business owners must purchase adequate insurance.
Types of Coverage
Homeowners Policy Endorsement – Riders or Floaters. Added protection for circumstances in which a typical policy excludes or limits coverage. Liability Endorsement.
In-Home Business Policy - Offers broader coverage, Policies typically include business personal property and general liability coverages. Optional coverages like business income, valuable papers, and accounts receivable may also be available. Around $300 per year.
Business Owners Policy - Is a commercial package policy designed for small businesses. It includes commercial property, business income, and general liability coverages. Typically, around $1,200 per year.
Other types of coverage include Commercial Auto Insurance, Errors and Omissions Insurance – mostly for Professionals (CPAs, Lawyers, and Engineers), and Workers Compensation
Establishing Work-Life Balance
Create a specific space for your business
Set work hours & stick to them
Dress for Success
Set Measurable Goals
Take Breaks - Don't let your business activity overtake your home life
The Do's of Starting a Home-based Business
If possible, specialize in a single product or service.
Use the Home-Based Business Readiness Template to prepare. Download this document in the above "Ensuring You're Ready" section.
Understand the independent contractor laws in your area.
Create an online presence for your new business.
Utilize your existing resources for your home-based or freelance business.
Evaluate the characteristics of your business to decide if it’s a good fit for a home-based business.
Maintain a healthy balance between your work life and personal life.
Set daily or weekly goals to feel successful throughout your preparation process.
Make sure you have all the right permits, licenses, and permissions.
Understand the tax rules for home-based and freelance businesses.
The Don'ts of Starting a Home-based Business
Overlook a hobby as a potential home-based business.
Quit your job until all preparations are complete.
Compete with your employer.
Conduct business on your employer's time.
Overlook a small and humble beginning.
Overlook zoning and permitting requirements.
Be in a rush to get started.
Incur unreasonable liabilities in financial obligations and dealings.
Think it's too late to start.
Neglect the importance of selling, servicing, and finding new customers.
BEDA Executive Director Jim Spencer ended the workshop by allowing attendees to walk through BEDA's Bootcamp "Home-based and Freelance Business" course quiz. The attendees were provided the answers that are within the presentation. Jim also showed attendees how to navigate through the online Bootcamp module system.
Let's Get in Touch!
Harold Patterson, Certified Business Coach WV Small Business Development Center | harold.d.patterson@wv.gov | (304) 767-0532
Jim Spencer, Executive Director Bluefield WV Economic Development Authority | jspencer@bluewv.org | (304) 902-2332 x 1
