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.

Escape the “Job” Mentality When Starting a Business

tip-guyPamela over at Escape from Cubicle Nation offers some great ways to get out of the “job” mentality when starting a business.

The first item on her list “Start with What kind of work am I meant to do?, not What kind of business should I start?” is one of the most valuable pieces of advice when you begin the process of searching for the ideal home-based business:

This is a very important distinction that I want you to stop and really think about for a minute. It is related to your greater purpose for being on earth, or if you wish to frame it in corporate terms, your personal mission statement. When I spent some time reflecting on the work I am meant to do, I realized that it all has to do with promoting personal freedom, joy and expression through work.

Most of the folks I talk to that have such a struggle are those that settled for some home-business in a box thing, rather than basing their venture on their unique gifts.

I know I tend to harp on this a lot, but it’s the foundation for everything else. True success comes from doing the right “work” for you. Knowing what that is, and how to put it into action, almost guarantees success.

Yeah-But Rebuttals: Computers and Software

yeah-butt-headThis is the second in a series of periodic posts on rebuttals to common “yeah-buts” that I hear from people wanting to work from home.


“Yeah, but, I don’t have a computer I can use.”

The Rebuttal

Along with the excuse of not having a place to work, people often think they need some super powerful computer to get started. Others don’t have a computer at all. Though eventually you will have to get a fairly recent computer to run newer software (or better yet go open source – but that’s for another day), you don’t need anything fancy to get started. In fact you don’t even need a computer of your own.

I have known several people who have used friends’ computers, library computers, or a school or church computer lab to start a home-based business.

One young mother used her local library’s computers while her sister took her son to reading time. I also had the privilege to talk with a homeless artist who used a local church’s computer to check email and collect email addresses of potential customers. He didn’t even have a roof over his head most days, but was working on getting an art business started using freely available computers.

So no computer is no excuse. There are excellent, easy to use Web-based tools and programs you can use that can be accessed from any computer anywhere that has internet access. The need for personal desktop software is no longer essential to get started running a home business. Once you’ve been established, you can choose to upgrade, but you my find that the freedom Web-based tools offer is too good to give up. Here’s some I’d recommend to get you started:

The need for a new computer with lots of expensive software use to be a major cost of entry for the home-based business. Now, using your own older computer or others you may have access to, along with Web-based software, you can get up and going with as little investment as possible.

Self-Employed Budgeting Tips

tips-to-considerSamuel Peery over at the Getting Finances Done wrote a great post last week with some excellent tips on “Budgeting on a self-employed or irregular income.” The info he outlines is some of the best advice I’ve seen for those working from home or looking to make a go at it:

Use cash for out-of-control categories – Since you may not know when your next paycheck will be, it’s more important than ever to keep a tight grip on variable expenses that tend to get out-of-control.

Build up a short-term emergency fund (STEF) equivalent to four weeks of expenses – A STEF will help smooth out the bumps inherent in an irregular income

Determine the timing and priority of expenses ahead of time – Planning the order in which expenses must be paid and allocated will relieve a ton of stress. You’ll know exactly where your income needs to go before you even get it.

Create a sample budget as a reality check and baseline – A sample budget helps to ensure you are not only living within your means but also achieving your high-level, long-term financial goals.

There’s a lot of valuable advice and good planning tips. Well worth a read.

Finding Your Genius

genius-bookA couple of weeks ago, I mentioned the book “Is Your Genius at Work?” while referencing an interesting post by the author, Dick Richards. Genius is a phenomenal book that brings a valuable and unique approach to discovering your unique genius and purpose. The core principals of the book are summarized as:

You have a genius that is inevitably linked to your work and career.

Your genius was a source of success and satisfaction in work that you have done in the past, and it can be a source of success and satisfaction in work that you do in the future.

The first step toward recognizing your genius is acknowledging that you do have a genius.

The primary method for recognizing your genius is to give it a name.

I discovered the book last year after reading about it on several of my favorite personal development blogs. As an avid reader, I’ve read hundreds of success and personal development books. Most have little or no lasting impact. Genius was different. Here, almost a year later, I can trace many key life decisions and changes back to discovering my genius with the help of the book.

Shortly after reading the book the first time through, I wrote to Dick, which became a guest post on his blog:

As I began to study the book and complete the exercises, my interest intensified. Though I had been through hundreds of personal development products over the years, I never felt the need to write an author. But after my first time through “Genius,” I was compelled to email Dick to express my enthusiasm regarding his work. His methodology was such an authentic and fresh way of approaching that “inner something.” What I found even more appealing is that the process is not an easy, quick-fix. If I had read the book once, done the exercises, and had my genius, I don’t know if it would have had the same impact. The fact that I had to continue to search within to articulate my genius, made the process even more compelling.

The exercises in the book are both fun and engaging. They can also be frustrating:

After several weeks, I had not found my genius and began to get frustrated. I saw glimpses and flashes as I struggled to grasp hold of the underlying thread that was trying to reveal itself. It was like desperately trying to remember a dream that you know has significance. The more I tried to uncover the details, the murkier it became.

It took time and work, but I did find my Genius. Now, close to a year later, I feel that the discovery helped me to better understand who I am and why I do things. It also gave me a much needed wake-up call about what I wanted to do in life. There is amazing power in clearly knowing who you are and what you want. “Is Your Genius at Work?” can help to find that clarity, and provide some valuable insight into the real you.

More Resources

  • Chapter 1 is available for download from Dick’s site.
  • Lots of folks have had similar experiences with the book. You can find more stories on the Come Gather Round blog.
  • There is a companion Google Group that might be helpful for those going through the exercises and looking for some help.