How to Start a Business from Your Home

One of the great features of owning a home-based business is the commute. Instead of spending hours in traffic, it takes me all of two seconds to walk from living room to my office. This combined with flexible hours, no boss and the great tax benefits of working out of the house are the reasons why I've been self employed for most of my adult life.

Few of us wake up one morning and decide to start a home based business. More typically, small businesses grow out of an idea we have for making extra money in the evenings or weekends. In these early stages, our focus tends to be on getting the work done and landing new contracts. Once it looks like our business has a real future, these five steps are next:

Register your company name. If your business name differs from your personal name, it must then registered with either the county or state as a "Fictitious Name" or "d/b/a" (doing business as). Registering your business name is important for many reasons; it puts other businesses on alert that this name is in use, allows you to legally enforce a contract signed under this name, and it will permit you to open a bank account under your business name.

Apply for an Employee ID Number (EIN). Small at home businesses with no employees can use their social security numbers. If you plan to hire employees or charge sales tax, you must have an EIN. These are applied for through the IRS using Form SS-4.

Obtain a business license. Some cities require business licenses, even for home based businesses. This information can be found by calling City Hall.

Check with local building codes. Home-based businesses that do not affect the neighborhood in any way are usually allowed in residential subdivisions. If your new business generates extra traffic or creates a nuisance, however, it won't be permitted under the local residential building codes. The Planning and Zoning Department has the final say on what type of home businesses are allowed in your neighborhood, which is why it's wise to check before getting started.

Carving out your office space. The last step is creating some office space to hold a desk, phone, computer and small filing cabinet. While your home office doesn't have to be in a separate room, it should be separated from the family living area.

From my own experience, lack of privacy is the only real drawback of a home-based business. Establishing a separate work area not only helps to keep work and home life apart, it's also easier to deduct at tax time.