4 Things to Consider About Your Home-Based Business Structure

structureBetty sells bras – nursing bras to be exact. Betty’s been doing it for about a year, and is making a pretty good go at it. She’s starting to expand her line, and has considered adding on to her home to enlarge her home office.

Jeff is a career coach. 6 months in and he’s tripled his client base in the past 2 months alone. He’s looking at forming some strategic partnerships, and already has several inquires about licensing his products.

Betty went the LLC (limited liability company) route from the beginning. Her friend and attorney recommend it for the ease and security it offered. Jeff never thought about a structure, and became a sole proprietor by default. Now he’s considering forming an S Corp.

Now, I’m using Betty and Jeff as composites of the many home-based business owners I’ve worked with and talked to (and both are based on real people) – but the issues are real, common, and involve…

How to Structure a Home-Based Business

There are lots of opinions on what is the best structure for a small business. Doing a Google search for “home-based business structure” returns about 1,620,000 hits, as of this writing. Most of it is confusing. Your attorney and tax advisor will tell you one thing, and successful peers will tell you another. So what do you do?

First off, I’m not a lawyer (I don’t even play one on TV). I’m just a guy who’s been doing this for 14+ years, and worked with lots and lots of other successful home-based business owners. With that in mind, here are 4 things you should consider (that often aren’t) when exploring the best structure for your home-based business.

1. Simplicity

The easiest and most common way to structure a home-based business is a sole proprietorship. Essentially, you just start working. You may need a fictitious name filing or a business license depending on what type of business you’re in, but it’s all pretty basic. A lot of folks get caught up in all the structure stuff before they’ve even thought out many of the other aspects of their business. Even if you plan to move to a more formal structure, it’s often best just to start as a sole prop to get up and going. I always vote for simple when you’re starting out.

2. Scaling Up, Scaling Back

An important thing to keep in mind is that it’s fairly easy (though possibly costly) to move from a sole proprietor to an LLC or S Corp. But going back is not. This is one thing I’ve heard consistently from legal and tax experts – that doing this can throw up lots of flags. If you decide to form an LLC or S Corp, make sure you think it through, and plan to stick with it.

3. Oh, That Veil Thing

One thing you’ll hear a lot about regarding the protection an LLC or S Corp offers is “piercing the corporate veil.” There is often some confusion from home business owners about the protection a legal entity offers. If you set one up, then do nothing to maintain it, you can still be personably liable. You need to run it as a corporate entity – meetings, minutes, records, annual reports – or you run the risk of getting pierced in the veil.

You are also liable for your own actions regardless. You can’t run over your neighbor’s prized begonias with your corporate vehicle and claim to be protected by your corporate entity. It’s not as all-encompassing as many believe. This is a simple, not a lawyer explanation, but you get the gist. Your attorney can explain it better (but maybe not as colorfully).

4. If You Need Real Advice, Talk to an Expert

Many of the folks I work with already have a pretty good idea of what approach they want to take. But if you are confused, please talk to a lawyer or tax advisor. I’ve met so many folks who got their advice from peer groups or online forums. That’s actually a great place to start. Getting advice from someone who’s done it makes sense. But because there are so many variables, and your needs may be unique, it’s worth it to talk to an expert.

Choosing a structure for your business seems like a monumental task, but in reality it’s not. I’ve found that it’s actually not that big of a deal at all. Starting off as a simple sole prop, or forming an elaborate corporate body won’t guarantee success or failure. The key to all of this is to actually do something. Don’t let all this structure stuff cause analysis paralysis. If you never get up and going, you won’t need a structure, anyway.

Committing to Your Home-Based Business

sort-of-momThere are a lot of things in life that are one way or another – with no real middle ground. Your dog can no more be “sort of” housebroken, then a woman can be “sort of” pregnant. Either he goes inside or he doesn’t – she is or she ain’t.

Earlier this week I talked about using a Nest Test as a trial run for your new home business. A test can be crucial to the success of a home-based startup. Not only do you get the opportunity to ease into it, you can get some early feedback on what works and what doesn’t. The problem comes when people continue to linger in the in-between stage where they consider themselves “sort of” in business. When they talk about it, they may talk about their day job, and then mention “this other thing” in passing. The apprehension over making the full leap creates a home-business purgatory, where you’re working, but not really thriving.

When it comes to your home business, there comes a time when you need to get serious. Pee or get off the proverbial pot (and for those who’ve been through potty training, HOPE that it’s done in that order, not the other way around).

So, are you in business or not? There are two main reasons that hold most people back from making a full commitment – fear and perfectionism. Let’s take a look at each and what you can do about them.

Fear – Just Look at Your Toes

Fear is a stupid thing. Really. Fear is designed to protect us against saber-tooth tigers, even though they’ve been extinct for thousands of years. Our fear-based lizard brain, that’s tucked inside our new-fangled mammalian brain, gets all the inputs first. And like most two-year olds, its first response is, NO!

By the time our rational, logic-based, and creative selves are able to think about something new, it’s been poo-pooed by Lizard-Boy (or Lizard-Girl). Change is seen as a threat, and it’s not good to threaten the lizard mind.

So what do you do about it? You look at your toes. Okay that might not make any sense to you if you never had diving lessons as an 8-year old in the late seventies. It describes a somewhat sadistic, yet quite effective technique to get a kid to dive off a board suspended 200 feet (this may be exaggerating, but is as I remember it) above the water. No kid is his right mind would just walk to the edge and trust a very large and scary woman not to push him off. So instead, the deal was that I’d just go to the edge and look at my toes. That’s it. So it did. And she pushed me off.

Now you’re not going to hear a lot of bellyaching about child trauma, because it worked. The next time, I went up and dived – and again, and again, and again. That small seemingly safe task of looking at my toes was enough to trick my lizard brain into overcoming the threat. Then my rational brain took over, and I kept on diving.

lizard-brainThe lesson here (there is one, I promise) is that you can overcome fear by taking small, seemingly safe steps to trick the fearful brain. One of my favorite books on the subject is One Small Step Can Change Your Life: The Kaizen Way. It explores how to use the Japanese concept of kaizen to make small changes to create lasting change.

You can use this approach as a way to help overcome the fear of committing to your business. For the next few weeks, expand your business actions a little at a time. Take small steps to make it ready to go full time. Then when you’ve proven to your fearful brain that you have what it takes to succeed, and are doing the work you were born to do, you have gained the confidence to dive in and REALLY be in business.

Perfectionism – Polished or Perfect

This one can be even a bigger pain, because it seems pretty rational. You can’t launch a business if it’s not perfect, right? You only get one chance to make a first impression, and the marketplace will judge you by your first outing. In a way, that’s true. But I have to tell you, it’s never going to be perfect. I know, I’ve tried.

Paraphrased from a comment I made yesterday, sometimes you just have to launch the thing. Like a piece of art, some things may never be “finished.” We may have to just go with polished. The important thing to remember is that polished doesn’t have to mean perfect. (Hat tip to Easton).

If you keep waiting for the time to be right, your marketing copy to be flawless, your Website to be pixel perfect, your eyebrows to grow back, or whatever else you think you need, it will never come. Get to polished, not perfect. Get to professional, not perfection. Get to refined, not ready. Then just launch the damn thing.

So, are you in business or not? At some point there comes a time when you need to make that final decision. You know in your heart whether it’s right. The best time to take the plunge is now. There’s no absolute safe time or perfect time to do it. But there is today. And it’s as good as any other time, don’t you think?