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HOW TO: 6 Steps to starting a home business [Part 1]

My wife woke-up one morning, about three years ago, and announced, “I’m going to start a home business.” And sure enough, she did. Since its simple inception, our swim school has been able to generate more demand than we can handle. We now have a team of coaches and multiple locations where we teach.


I’m not saying any of this to brag, but to show that starting a home based business is much easier today than it’s ever been before. The Internet not only provides access to information, but it also gives you access to customers. The billions of searches on Google represent consumers looking for products and services.

The purpose of this post is to give you a basic overview of how to go about starting a home business.

Step 1: Generating ideas

Start by making a list of your hobbies and passions. You’ll find that business is much easier when you love what you are doing. Let me give you an example.

A neighbor of ours, Candice, tried to sell Mary Kay cosmetics and skincare. However, Candice doesn’t wear make-up or really care about make-up for that matter. Her only purpose in doing Mary Kay was to just earn extra money. The result – she failed. A few months later, Candice decided to open a business selling cake bites. The difference? She loves baking. Her husband has often complained that his spare tire around the waist is the result of always having baked goods in the house. This time, her business is going much better because she enjoys what she does. She’d make cake bites regardless of the business.

Once you’ve made a list of your hobbies, passions and interests, narrow the list down to some options where you think you can offer a unique advantage. Part of our success with swim lessons is because we are able to offer services not otherwise available in our area. There was a whole in the market and we have stepped in to fill it. So spend some time on Google and see what’s offered and not offered in your area or online.

Keep in mind that being competitive doesn’t necessarily mean offering something that no one else offers. But rather, a competitive advantage can be offering a product or service in a better way than anyone else or at a lower cost.

Step 2: Selecting your legal and taxable business type

Once you’ve decided what to do, you need to put a legal structure around your business. There are several options: sole proprietor, single member LLC, multi-member LLC, Limited Partnership,  S-Corp and C-Corp. Most home businesses are setup as LLCs. LegalZoom offers a brief comparison between LLCs and Corporations.

This is where you want to talk to a tax attorney or accountant. There are several factors that will affect the structure you choose, such as how much money you expect to make, how many people own the company, what are you planning to offer, etc. Spending a little money to set things up correctly from the beginning is worth the money.

The point is that you want to protect yourself and assets from lawsuits.

Step 3: Creating a legal, taxable business entity

There are basically three steps to creating a new legal, taxable business entity.

  1. What’s in a name?
    First, you need a name. More importantly, you need a name that is available in your state. Or in other words, a name that hasn’t been registered by another entity. You can check your state’s Business Entity Search to see what is available.
  2. Let the Feds know
    Second, you need to file for a Federal Employer Identification Number (FEIN or EIN). You can quickly and easily file online on the IRS’ website. You will need your FEIN before proceeding to the next step or setting up bank accounts.
  3. File with your state
    Each state’s process is a little different. Though you will be required to create your Articles of Incorporation, which are the rules that govern the management of your company. There are some standard clauses, such as who are the managing members and what is your business address, but you can create business rules or articles that cover just about anything you want (as long as it’s legal). For example, if you are going into business with friends or family, then an article describing dissolution (what happens to the money and assets if your company goes under) is a very good idea.

On a side note, consider other legal requirements, such as a food handler’s permit, that you may be required to file. For example, a Sales Tax Id if you intend to resale goods. Again, this is where a good accountant or attorney can help you make sure that you are filing everything you need to.

In Part 2 of starting a home business, I will cover the next three steps, which are setting up bank accounts, keeping your accounting records, and marketing yourself.

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