Beginning your business venture from the comfort of your own home is exciting. It allows you to work flexible hours, be your own boss, cut the commute and save money.
It also means you take on other responsibilities such as accounting, tax, and insurance which you may not have much experience of. We are here to guide you through the ins and outs of a business from home.
What is the definition of a home-based business?
When the official address of your business is the same as your residence, it’s a home business.
Once you’ve decided on what services/products your business offers, you need to consider the extra legal implications and responsibilities. Some initial things to get in order are:
- Tell your mortgage provider/landlord that you are running a business from home as you may need permission.
- Consult your local council if you are planning to build or restructure your home to accommodate a new workspace. They should also advise of any changes to your council tax bill.
- Acquire the correct certificates or permits for health and safety if you are providing services that require customers to come to your home.
Draw up your budget
To start trading you may need to purchase equipment, furniture or stock. In the case of laptops or computing hardware, you may already have a personal computer and you can always use these to save on start-up costs. Drafting up a budget for your start-up costs will keep your accounting and expenses organised from the start.
Items you may need to consider in these start-up costs are:
- Your workspace furniture and equipment
- Broadband and phone services that will accommodate your business needs (for example, if your home WiFi is not strong enough, you may need to change your package)
- Business cards or initial marketing materials
- A dedicated website and email address
- Do you need certain software to operate? Or would open-source software work just as well?
The items you need to start your home business can often be expensed when you fill out your self-assessment. Although the item’s cost will still be paid for out of your own pocket, you won’t have to pay tax on these purchases. Find out more about managing your operating expenses here.
Next, you should plan your costs across your first year – will you be travelling often? Will you need to replenish stock regularly? Do the subscriptions to software need renewing annually or monthly? And will you need to pay for professional fees, such as marketing or accountancy services?
Draft these costs into a yearly budget. Seeing it written up will allow you to focus on your business goals and monitor closely how much profit you’ll be making.
Writing a business plan
While not all small businesses have a business plan, it’s an important step to guide you as your business grows, as well as a crucial document if you want to secure funding later down the line.
Here’s what you should include:
Summarise your business idea – what is the service/product you are supplying, and what is the gap in the market you are occupying?
The current market
Gather information on your sector, both from data and your personal experience. Look at your competitors (big brands and local companies) and identify what makes your business different. Other areas to consider are:
- Who are your audiences and where can you find them (eg. online, local word of mouth)?
- Are there currently any market trends in your area of expertise?
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Try to identify these areas for your business, so that you are prepared for risks and chances to grow.
Financials and operations
Include the budget you’ve drawn up, banking details (loans or overdrafts) and other funding information. As you continue to trade, you will include forecasts and cash flow reports.
Operationally, you may need to include the ebb and flow of your stock levels. Detail the hours you will operate, if you need to employ support (eg. an extra tradesman for larger projects) and how you will market the business.
These bits of information will create a short and simple business plan that can help you stay focused on your goals for your initial months in business.
Register for tax
You must register as self-employed with HMRC to submit your own tax self-assessment. If you are a sole trader or partnership, you can skip the extra admin and will not need to register on Companies House.
Other tax registrations
You will not have to register for VAT until you are turning over more than £85,000 a year.
Business rates generally don’t apply if you are working from a computer in your living room but may apply if you are working from an area of your home that is not purely for domestic purposes, such as a workshop or therapy studio. If you build or remodel part of your home to create a dedicated workspace, this may qualify. You can find out more about business rates here
Secure business insurance
Standard home insurance will not include stock or specialised equipment, so check you are covered and update any existing policies for your building and contents.
Home-based businesses may require other types of insurance, such as:
- Public liability – if customers are visiting your home, you must be covered in the event of any injury or damage to customer property.
- Product liability – this protects you if goods you designed or supplied cause injury to a customer.
- Professional indemnity – if your business provides professional services, this is for a claim made against you where they cite negligence or error on your part.
- Employer liability – if you choose to employ another person this will become a legal requirement, in case of an accident or injury to your employee.
With the right insurance in place, you can rest easy knowing that your small business is covered against the unexpected. To bring five star Trustpilot-rated cover to small businesses like yours, we’ve partnered with insurance provider Superscript. Find out more here.
Keeping effective records with Countingup
When it comes to reporting and filing your taxes, it’s important to have a record of all purchases for your expenses and accounting.
The Countingup business current account and accounting app makes it easy to keep on top of your financial records. The app even nudges you to photograph your receipts, so nothing goes unrecorded, saving you hours of admin time when it comes to your bookkeeping. Find out more here.