Despite the presence of Covid-19, it is predicted that the growth of a new home business is going to skyrocket in the foreseeable future. The reasons for this are simple: Small businesses no longer want to expend precious overhead on leasing space particularly where the business landscape is so uncertain over the next few years. Moreover, people are looking for greater control over their life and finances in this era of layoffs, terminations, and furloughs. With that said, you should consider the following steps to ensure your move home is both legally compliant and economically beneficial:
1. Finding the right business structure to support your business. I have addressed this issue in previous blogs but the appropriate business structure is the first thing you need to consider before you open your home business. At present, many home businesses operate as sole proprietors. This simply means that the individual running the business is the one who files Schedule C. Depending on the particulars of your business, you may want to consider whether an LLC, partnership, or corporation is the right path for you to take. To determine this, it is best that you talk to your attorney and accountant to see what business structure works best for your enterprise both now and in the immediate future. This inquiry will, of course, take into consideration whether your business operates a fleet of vehicles, has employees, and/or is engaged in a trade or commerce where the liability risks are greater.
Additionally, if your business involves more than one owner then a sole proprietorship is probably not the business structure that fits best. For any business structure other than a sole proprietorship, your enterprise will be required to get a federal tax identification number. In many cases, getting a federal tax identification number will allow you to protect your individual privacy by not having to give your social security number to either vendors or customers for their records.
2. Acquiring a business license. This requirement will be governed by the laws of your local municipality. To find out if a business license is required for your business the fastest and easiest route to get that information would be through the local municipality website. There you will be able to determine whether any license requirements apply to your business. Additionally, and in certain cases, licensing requirements can be waived for individuals based on income and other factors. If you are not ready to incorporate and choose to run your business as a sole proprietor then file a "DBA" certificate. This is particularly important because if you plan on trademarking the name of your business at a later time the national trademark office looks to see if you have, in fact, been using the name in the course of trade.
3. Develop a plan and get training and counseling. In the current environment, in particular, establishing a specific plan of action has never been more crucial. Two great resources for this are the Commonwealth Small Business Development Center and the Small Business Administration. Both agencies offer detailed questionnaires to find out if your business plan is on the right track. Both agencies offer other services to new businesses such as small business counseling, business mentoring, financing, and information regarding access to grants and financial assistance.
4. Obtaining the right license or permit. The license or permit requirement is entirely dependent on the kind of business you plan on operating and keeping in mind that some businesses cannot be operated from home. The Commonwealth's business resource center can instruct you as to what permits and licenses are required. Certain businesses will require federal, state, and municipal licenses so it is imperative that your business check all three resources in advance. In certain unusual cases, your business may be required to obtain an inspection and permit from the local fire department. The fire department will also know whether an additional permit is required on the state level. Sign permits are also, in some cases, required. In most cases, the use of signs in residential areas is going to be highly regulated and strictly enforced not to mention any requirements by neighborhood associations. Some businesses such as child care are highly regulated and require their own licenses and permits to operate.
5. Compliance with local zoning ordinances. In many instances, this requirement goes overlooked. You do not want to have to unwind your new home business because you failed to take the proper steps at the beginning. Make sure you check with your specific local municipality to find out if your business can or cannot operate in the specific zoning district where your house is located. The other layer to consider is whether your particular neighborhood association has any limitations or requirements regarding the maintenance of a home business.
If for some reason your business does not meet the requirements of the local zoning ordinances or neighborhood association requirements it might be possible to obtain a variance or special permit from your local municipality. To do this, it would be extremely beneficial to hire an experienced local attorney to assist you in this effort. A competent local attorney not only knows the law but presumably has established connections with local officials on various boards which can help make the process run more smoothly and more quickly.
6. Protecting your business name. Even for a small, home-based business, it is critical that you not overlook this item. What you name your business is important. If you plan to trademark your business' name then utilize the national trademark office's website. There are a number of companies that do the search for you on a fixed fee basis. The last thing you need as a new business is to have to change your name while operating your business. This should not happen if you do your due diligence.
7. Preparation of contracts and agreements. At the outset and along with everything else you will need to do to make your home business successful, you will also need to focus on getting the right contracts and agreements prepared so they are ready for when you open your business. This is not something you do down the road. It must be done before or at the time you turn the lights on in your home office on day one.
8. Getting the right home business insurance coverage. More often than not, your standard homeowner's insurance policy will NOT cover your in-home business activities. While there is limited protection for your business under a homeowner's policy that policy will not offer certain liability protection to cover you in the event of lost data or income. Now, whether you choose to increase your coverage by purchasing an umbrella policy or in amending your current policy will be a conversation you need to have with your insurance agent. An in-home business policy provides more comprehensive coverage for business equipment and liability than does a standard homeowner's policy endorsement.
Costs and coverage are going to vary among the different insurers so do your homework to get the best deal for your company. At the same time, you may want to think about carrying a business insurance policy particularly if you plan on having clients/customers come to your house. The standard homeowner's insurance policy will not cover this kind of loss. A separate business insurance policy will also give you added protection for your business equipment above and beyond the basic in-home business policy.
There is a lot to consider when opening up any business but, if you do it right, it might just be the best move you ever made. Please contact us at the Katz Law Group to find out how we can help you in your quest to build a sustaining and viable home business. We can be reached at 508-480-8202 and we are open from 8 a.m. to 8 p.m. Monday through Friday.