How to start a business at home

Some of the biggest names in business were born in basements. Amazon, Microsoft, and Google famously launched from home garages. Yankee Candle got its start in Michael Kittredge’s childhood kitchen. Even Intuit originated at Scott Cook’s kitchen table.

Starting a business at home certainly isn’t a new concept, but it is skyrocketing in popularity. This is thanks in part to the economic effects of the COVID-19 pandemic. Shelter-in-place protocols meant spending more time at home than ever before, and mass business closures left a lot of employees looking for extra income.

The result was a surge of home-based, online businesses. You know what they say, “When the going gets tough, the tough get going.” According to a 2020 QuickBooks survey, 28% of those who already planned to start a business say COVID-19 accelerated their plans. Another 42% of those who started a new business or planned to start a business said they were finally taking their side gig full-time.

But here’s the best part: these new business owners feel overwhelmingly optimistic about their future prospects. 72% of new business owners are optimistic about their success in 2021 and beyond.

Starting a new business can be daunting, but it becomes less so when you can do it from the comfort of your own home (or garage). However, there are some pros and cons to consider before you dive in.

Pros and cons of starting a business at home

Starting your own business from home comes with lots of perks:

• Low overhead costs mean you can get your business off the ground for less. You can avoid overhead costs like rent for commercial office space, phone systems, and other vital services by making use of the space and services you already have.
• Being your own boss means you make your own hours. You can put in the work when you feel most motivated and inspired.
• Eliminating a commute allows you to trade the time you would normally be stuck in traffic for more productive minutes.
• Taking advantage of home office tax deductions can save you money and maximize your tax returns. These deductions are only available to businesses that operate from home.

There are some disadvantages to working from home you may also want to consider:

• The line between “work” and “life” can become blurry over time. When you live and work in the same space, it can be difficult to differentiate between the two.
• If you live in a residential area, your neighbors might not appreciate your entrepreneurial spirit. If clients will be coming to your house or you’re going to operate loud machinery, it may cause a rift in the neighborhood.
• Your home might not be the ideal space to operate your business. You’re limited to the space you have, and working from the garage can get old quickly.

Before you get started

If the pros outweigh the cons and you’re ready to take the home-based business leap, there are a few things to think about before you get started.

1. Nail down your business plan

If you're reading this article, you probably already have a home-based business idea. You took a look at your passions, your hobbies, and your unique skill set, and you said, "I can sell this." You're off to a great start! But when it comes to starting a great business, you need more than just a business idea.

Nearly 70% of seasoned business owners recommend writing a business plan before you start a business—and home-based businesses are no exception. A business plan clearly communicates what you’re going to do and how you’re going to do it. More importantly, it answers the question, “Can this business realistically be conducted from home?” Selling digital art online can easily be done from a home office, but a catering business can quickly outgrow your home kitchen. A business plan serves as your roadmap for growth. If you're not sure where to start, a business plan template can take you through it, step by step.

2. Do your research

No matter what you’re selling, you’re going to have some competition. Identifying and analyzing your competitors gives you valuable industry insight and helps you build better business strategies. You should know what they’re selling, how they’re selling it, and who they’re selling it to. The “who” part is important: they’re your target market. Understanding your target market helps you build effective marketing strategies and attract more customers. Social media is a good place to start your analysis. Check out what your competitors are posting and how their customer base reacts to it. Conducting this research early on will help you build your business plan.

3. Think about funding

It’s possible to start a business with no money, but almost every new business comes with some amount of startup costs. Registering your new business, applying for business permits, and purchasing equipment or software all come at a cost. It’s a good idea to calculate your startup costs before you start and consider how you might fund them. If your costs are low, you might be able to pay out of pocket. If you need additional funding to get your business up and running, there are a few options to think about. Crowdfunding, appealing to angel investors, or applying for small business loans are common ways to secure funding. If you're not ready to take the financial leap, working part-time or focusing on your new business during evenings and weekends can bring in some income while you get on your feet.

Set up for success

You’ve written your business plan, conducted a competitive analysis, identified your target market, and calculated your startup costs. Now it’s time to hit the ground running. If your life was a sitcom, this is the part where you might say something like, “It’s really happening!” Here are a few steps you can take to build a successful home-based business.

1. Dedicate space for work

Your kitchen table works as a desk for a short time. If you’re serious about your business and want to maximize productivity (and save your lower back), you’ll need a more permanent space to work. Plus, separating your workspace from your living space can keep the line between work and life clearer. For some, that might mean your home office ends up in the garage or the basement. If that’s the case, you’re in good company. Remember, Jeff Bezos and Bill Gates both started their multi-billion-dollar businesses in garages.

2. Get a business bank account

Good financial recordkeeping is key to starting a successful business. Opening a business bank account is an easy way to track and record business expenses. Keeping expenses separate from personal finances protects your personal assets. It can also help you take full advantage of tax deductions and credits available to small business owners. But it’s not just a good idea. If you decide to register your business as a Proprietary limited company (PTY) Ltd or corporation, you’re required to have a separate bank account for your business.

3. Put financial systems in place

More than 60% of experienced business owners say the first thing you should get help with when starting a new business is setting up your financial systems correctly. According to the QuickBooks survey, these business owners wish they’d invested in things like expense tracking and invoicing sooner. Learn from their mistakes. Now is the time to invest in financial bookkeeping or accounting software for your business or recruit the help of an expert (like a bookkeeper or accountant).

Make it official

Now that you’ve made space for your business in your home and opened your bank account, it’s time to officially bring your business to life. This is the not-so-fun and kind-of-daunting part. There are a few things you need to do to comply with legal requirements and tax laws. It’s a good idea to enlist the help of an expert as you prepare to tackle these steps. Business consulting from The Small Enterprise Development Agency (Seda) is always free. 

1. Check local zoning laws

In some residential areas, local zoning laws prohibit all types of businesses. Residential zoning laws often allow small, home-based businesses to operate as long as the home is primarily a residence and business activities won’t negatively impact neighbours. It’s a good idea to check your Local Authority’s Municipal Planning By-Laws (which in turn are informed and governed by the Land Planning and Ordinance Act) before you launch, just in case. If you live in a neighbourhood with a homeowner’s association, you’ll want to make sure they don’t impose restrictions on home businesses. And if you’re renting, you’ll want to read your lease agreement. Your landlord might not support your pet sitting business.

Additionally, your business may need permits to operate. You may require a sign permit if you choose to display a sign in your yard or in your house. If you plan on renovating your home to accommodate your business, you might need a building permit.

Depending on the type of business you open, you may need additional permits. For example, if you're planning to open an in-home daycare, you might need a health permit , insurance or a Certificate of Compliance for Food Preparation.

Here’s the fun part: you might not be able to obtain all the permits you need in one place (or even know where to start). A business expert, like an Early Childhood Development centre , can help—or, at the very least, point you in the right direction.

2. Register your business

If you’re planning to operate as “self-employed,” you’re not required to register your business. But you run the risk of missing out on tax benefits and personal liability protection if you don’t. If you decide to register as self-employed (or as a “sole proprietorship”), you’ll report your business income on your Income Tax Return (ITR12). Sole proprietors enjoy some of the lowest tax rates but, because you and your business are the same entity, you can be held personally liable for business debts. As always, there are pros and cons for every business registration. Choosing how to register your business can be tricky, but your local Seda can help you choose the right business structure and register correctly.

Outside of registering your business, you might also need to apply for a business license if your operation includes the sale or supply of meals, if you offer health or entertainment services, or if meals are being hawked. A business license allows you to establish a particular business in a specified area. The license also ensures that your business and the business premises meet all of the building regulations, public safety and health requirements.. If you’re operating as a sole proprietor, you might not need a business license, but it’s always a good idea to double-check. If you’re going to collect sales tax, you may need a VAT registration certificate . Get more information from your local Department of Revenue (SARS).

Finally, you’ll want to apply for a company registration number . This number is assigned by CIPC to identify your business. A company registration may vary between R125 and R475 (R125 for a private company, R475 for a non-profit company registered without members). If you choose not to register your business, registering for a Personal Income Tax (PIT)is still a worthwhile step.

3. Invest in business insurance

It’s a good idea for any small business to think about general liability insurance. This type of business insurance policy protects you if someone makes a claim against your business for injury or property damage. It also protects you if you accidentally damage someone else's property. For example, if you start a housecleaning business and accidentally break something, you're covered.

You might need to reassess your homeowner's insurance as well. Your policy might not cover the costs related to operating a home-based business. If something happens to your home, you’ll want to make sure you can recover the losses from your business as well.

Go big and go home

Remote work was on the up-and-up long before the pandemic hit, but 2020 saw a rapid shift. Businesses we thought could only operate in person found new ways to thrive in a virtual landscape. 28% of small businesses say they started selling more products and services online in 2020. Nearly all of them said the COVID-19 pandemic influenced that change. Looking forward, 87% of new small businesses say they will operate online to some degree. And nearly a quarter of these businesses say they will operate 100% remotely (in most cases, from home).

Today, starting a business at home goes far beyond dog walking. E-commerce sites like Shopity , bidorbuy , and Takealot make it easy for any business to sell products online without building a website. Innovative apps like Asana and services like QuickBooks Online make it possible to manage growing teams from afar.

There may come a time when it makes sense for you and your business to expand into a physical location or commercial workspace. For now, starting a business at home is a smart way to test the waters, maximize your productivity, and chase your passion.

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