U.S. Small Business Administration

Paul and Sarah Edwards have been called "the gurus of the work-at-home movement."  They provide information and advice on self-employment and home businesses on CompuServe and the Business Radio Network, as well as in Home Office Computing magazine. The Edwards, who also give speeches, seminars and workshops on successfully setting up, operating and expanding a home office, work from their house in California. This article is adapted from their best-selling book, Working from Home.

Start-Up Strategies

1) Don't Doubt the Viability: Take a Home Business Seriously

If you're seriously considering working from home, you're not alone. Some 45 million Americans are currently doing so, compared with six million in 1984, according to the National Association of Home-Based Businesses. By the end of the 1990s, it is estimated that as many as one of every two workers will be engaged in a full- or part-time business or doing salaried work at home.

For single parents and many women, this alternative facilitates juggling family and career. For fathers, it can lead to spending more time with their children. Working from home can provide the means for stretching a tight budget or finding a new career for those displaced by corporate downsizing. For the retired or the increasing number of people considering early retirement, it becomes a way of contributing, of staying alive and vibrant by not allowing their professional skills to atrophy.  And for many with handicaps, it's the door to self-sufficiency and a productive future.

2) Don't Speculate: Choose Something You Enjoy and That People Will Pay For

Selecting an appropriate home-based business for yourself requires tuning in to the most popular radio station in the world: WPWPF ("What People Will Pay For"). And simple market research will help you do just that. Begin by asking prospective customers what they need. Go to trade shows and get feedback on your potential product or service. Find out who is in that business now and what advantages you might be able to offer over your competition.

If you are having trouble finding the ideal business, here are four possibilities:

• Turn what you most enjoy into a home-based venture, such as a favorite hobby or interest.
• Utilize existing skills from your salaried job.
• Solve a problem that people are willing to pay someone else to do for them.
• Use technology and resources you already have around the house, from your van to your computer.

3) Don't Be One of Hundreds: Define Your Niche

It is much easier to market yourself as a specialist serving a particular niche. This helps you stand out from the competition, and also allows you to charge a decent fee because you are more than a general "worker" people can hire as an employee or from a temp agency.

There are four primary ways to define your niche:

• WHO you serve -- e.g., a computer consultant who works only with women; a public relations firm that specializes in assisting environmentally-conscious companies; a caterer who handles parties and weddings for the Hungarian community.
• WHAT you provide -- e.g., a computer consultant who works only with Macs; a public relations firm that specializes in doing publicity book tours for authors; a caterer who prepares health food that looks and tastes decadent.
• WHERE you work -- e.g., a computer consultant who focuses on the east side of town; a public relations firm that specializes in getting media coverage in foreign countries; a caterer who has attained renown for servicing a variety of outdoor events.
• WHEN you are called upon -- e.g., a computer consultant who is available for weekend and after-hours calls; a public relations firm that specializes in crisis communications for companies involved in scandals or tragedies; a caterer who can be counted on to handle even last-minute dinner parties with aplomb.

• How much is your product or service worth in concrete terms?  Value, like beauty, is in the mind of the beholder to a certain extent. There are several ways to ascertain the value of what you offer to prospective customers. Can someone currently obtain this product or service elsewhere? If so, how much are they paying for it?
• What will people actually pay? Perception can be as important as the actual value of the product or service being offered. If potential customers perceive your price as being too high, you'll end up without a sale. By comparison, if buyers perceive something as being too cheap, they'll worry that it may be inferior in quality.
• Above all, be careful not to sell yourself short. Consider following this commonly-used pricing formula:
  
  
  • Direct Costs + Overhead + Profit = Your Price
  • Direct costs refer to costs you incur in doing your job: gas, telephone calls, postage, printing and your time. Calculate your salary -- including fringe benefits -- into your rates.  Remember to add enough to cover the hours of unbillable time you spend marketing and administering.
  • Overhead refers to the general costs of doing business:  equipment, software, utilities, office supplies, advertising and marketing expenses, and administrative costs. Most home businesses multiply their hourly wage by two or three to cover overhead.
  • Profit is an amount calculated over and above direct and indirect expenses; many experts advise adding 15 to 20 percent or more.

Operational and Marketing Considerations

5) Don't Create Problems: Find the Right Place for Your Office

Ideally, the space you select for your office will match your personal work style and budget, qualify you for tax benefits to which you're entitled, and fit in with your household environment.  To work effectively at home, most people need these basic work areas:

• Space for a desk and chair, where you can work with a computer, phone and other frequently-used equipment.
• Conversation space with chairs or a couch where you can collect your thoughts or hold meetings.
• Storage space for filing cabinets, books and reference materials.
• Shelf space for supplies and infrequently-used equipment.
• Large work space for activities such as assembling materials and doing mailings or shipping.

If you don't have a separate room that can be designated for your office, choose a location where you will be disturbed the least. For example, partition off a section of your living, family or dining room. Alternatively, convert or remodel a space such as your garage, attic, basement or porch.

6) Don't Lose Control: Organize Your Work Space for Success

Keep those things you most frequently use near your desk, based on this simple formula. On a scale of one to seven, rate the item you're storing or filing in terms of how frequently you use it.  Give items you use every day a one; those you use once a year, a seven. Place items in the following locations according to how you rate them:

• 1: Place all these items within arm's reach of your desk area.
• 2-3: Keep these items within your immediate range in files or cabinets, on countertops or on shelves.
• 4-5: Store these items in nearby cabinets or closets, or on shelves outside your office space.
• 6-7: Store these items in remote locations such as the attic, basement or garage.

• Clarify any zoning restrictions on your running a business from home. Make sure you can operate a business from your residence and, if there are problems in doing so, get a separate mailing address or apply for a use permit or variance to your zoning laws.
• Open a business bank account. Keep your personal and business affairs distinct from one another.
• Get a separate phone line installed in your home for business calls. A separate line helps you manage your personal and business lives more easily, and gives you a more professional image.
• Maintain regular business hours. Nothing annoys customers more than not knowing when and if you are open for business.
• Select a memorable name that fits your business image. A dull, confusing or inappropriate name for your business can result in clients overlooking you or not specifically understanding and appreciating what you have to offer them.

8) Don't Go Halfway: Create a Thoroughly Professional Image

A marginal business image leaves the impression that your home-based venture is not a truly professional one. So in setting up your enterprise, pay attention to key image components other than your business name that do not necessitate a big budget, but rather attention to detail. Here are some suggestions:

• Communicate quality with a custom-designed logo; avoid choosing one from a standard catalog.
• Apply this logo in a consistent way to give your company a professional and identifiable image on business cards, stationery, invoices, faxes and any other visual communications elements.
• Choose paper that looks and feels top quality for letterhead and business cards.
• Select professional locations for meetings with clients.  If clients come to your home, avoid having them walk through personal or family areas, or schedule meetings at outside sites such as restaurants or hotel lobbies.

9) Don't Be Passive: Utilize Word-of-Mouth Marketing

Word-of-mouth marketing refers to two highly effective practices:  networking and referrals.

Networking, the most popular way to start and build a home-based business, refers to using face-to-face contact to establish relationships that can generate leads. It's based on talking with people about what you do and listening carefully to find out how you might serve them. Consider joining a networking organization, often called a "leads club," which is set up specifically to generate business leads for members.

Once a business is established, word-of-mouth marketing means getting referrals from satisfied customers. Let your customers know you genuinely appreciate their referrals; by so doing, you multiply the number of mouths talking positively about what you have done or provided.

10) Don't Jeopardize Business Opportunities: Make Sure People Can Reach You

Research shows that people working from home spend more time talking on the telephone than on any other single activity. As a result, you need to be sure clients can always reach you so as not to jeopardize any business opportunities. Fortunately, a variety of sophisticated telephone equipment and services is available to ensure ongoing communication, as the following useful options demonstrate:

• Use voice mail to take messages when you're out of the office or unable to answer the telephone. Voice mail can be obtained from your phone company and other providers, or you can purchase an answering machine or add a voice mail system to your computer. Professional answering services and forwarding calls to the home of someone you hire are more expensive solutions.
• Use call forwarding to receive calls when you're out of the office. Other alternatives include purchasing a cellular phone, a 700 number or a pager.
• To handle incoming calls while you're on the telephone, get call waiting or voice mail that picks them up so people never get a busy signal.
• To prevent unnecessary interruptions, subscribe to your local phone company's VIP alert so only desired calls come through during the time periods you designate.
• If you are running short of phone lines, get distinctive ringing that gives you two phone numbers on one line, or double up on one line by purchasing a combination fax/phone/answering machine that automatically recognizes when a fax is coming through.

Business Technicalities

11) Don't Get Caught Under the Table: Make Your Business Legal

Operating a home business on a full- or part-time basis may require taking certain legal steps to protect yourself and your venture, including the following:

• Get an employer's ID number if you have employees or are incorporated or in a partnership.
• Obtain a federal license if your job is covered by federal laws, such as those who are investment advisors or firearms dealers; similarly, make sure you have any required state and local business licenses.
• Obtain the trademarks, copyrights or patents needed to protect any products or services you have created.
• Incorporate or form a limited-liability company or a partnership if you are not a sole proprietor and are working with other people.
• Find out if you are required to collect sales tax for your product or service. If so, register with the state agency responsible for collecting sales taxes.
• Register your business name if you are using a name other than your own or a variation thereof.

Consult a lawyer or the appropriate government agencies in your city and state if you're not sure how these requirements may apply to your business or locale.

12) Don't Be Intimidated by the IRS: Claim Your Deductions

Whether you live and work in a house, apartment or condominium, you can deduct the cost of operating and maintaining that part of your residence used for business if you meet the basic criteria established by the IRS for a home office.

According to the IRS, the portion of your home you wish to claim as a tax write-off must be used exclusively and regularly for business.

In addition, the portion of your home you use must be either your principal place of business or a location where you meet with customers or clients in the normal course of business activities.

If you qualify for a home-office deduction, you can deduct a variety of expenses such as your mortgage payments and capital improvements, pro rated for the portion of your residence used as an office.

As a self-employed individual, you can also deduct numerous ordinary business expenses, from the cost of operating your car to dues you pay to professional and trade associations. However, be sure the IRS considers you a self-employed individual or independent contractor rather than an employee. The rules on this issue and on expense deductions can be tricky, so it's wise to consult your accountant for clarification.

13) Don't Take Risks: Get Needed Insurance

Many home-based firms don't realize that their homeowner's or apartment dweller's insurance may not protect them against three basic business contingencies:

• Home/apartment insurance usually doesn't cover business property. Consider purchasing business property insurance to cover your computer and other office equipment and furnishings.
• Home/apartment insurance usually doesn't cover liability for accidents or injuries to customers or business visitors.  Consider purchasing a rider to your policy to cover anyone who comes to your home on business.
• Standard auto insurance usually doesn't cover damaged or stolen business property. If you use your car for business, be sure to indicate that on your policy and pay the additional amount required.

Finally, depending on the nature of your business and the level of risk you want to assume, you may also wish to purchase any of the following:

• Malpractice or errors or omissions (E&O) insurance to cover you against claims that your product or service harmed someone or caused a business loss.
• Disability insurance to cover you against loss of income should you become disabled.
• Partnership insurance to cover you against suits arising from the actions of any partners you have.

Financial Issues

14) Don't Risk Financial Ruin: Have an Entry Plan

Depending on the nature of your business, it can take from six months to a year to get underway, one to three years to turn a profit, and three to five years to become self-sustaining.  This means you must have enough money to cover your costs of living and doing business during this start-up period.  Consider these five entry plans as options:

• The Moonlighting Plan. Keep your full-time job and develop your business as a sideline until it takes off and you can rely on it entirely for your livelihood.
• The Part-time Plan. Work a part-time job to provide a base income while you're building up the operation.
• The Spin-off Plan. Turn your previous employer into your first major customer or, if ethically possible, take a major client from your previous job to help launch your fledgling venture.
• The Piggyback Plan. If you have a working spouse or partner, reduce expenses so you can live on one salary until your business gets underway.
• The Have-Your-Clients-Finance-You Plan. If you have sufficient stature or expertise in your field, obtain retainer contracts with a few clients for one year so you will have an assured source of revenue.

15) Don't Let Lack of Money Stop You: Arrange for Start-up Funds

Fortunately, most home businesses do not involve extensive start-up costs. As a result, most people can "bootstrap" their fledgling operation using money from the following sources:

• Credit cards. You can put many business expenses on a credit card. However, try to limit charges to items that will pay for themselves by generating income relatively quickly.
• Personal loans. If you or a spouse has an existing job and a good credit record, banks will usually give you a personal loan more readily than a business loan.
• Home equity loans. If you own your home, refinancing it is one way to obtain a reservoir of start-up capital.
• Character-based microloans. The U.S. Small Business Administration and a variety of private foundations offer microloan programs for very small businesses to handle loans ranging from less than $100 to $25,000. These loans are not based on a person's assets but rather on good character and proven management ability. 

• Get deposits, retainers or partial progress payments as often as you can.
• Get payment up front for expenses or arrange to charge them to your client's account.
• Bill immediately upon delivery of a service or product, instead of waiting until the end of the month.
• Take bank cards instead of extending credit.
• Use a check guarantee service so you can accept checks safely.
• Offer discounts of two to five percent for receipt of payment within 20 days from the date of invoicing.
• Act promptly on overdue accounts. The longer the account is overdue, the less likely it is to be paid.

Time Management

18) Don't Let the Day Slip Away: Develop a Momentum

It's tempting to sleep late or spend extra time reading the newpaper when you work from home.  But since you're your own boss, you need to get started promptly and keep working on a regular schedule.  Here are several suggestions:

• Take action. Sit down at your desk, make up or review a "to do" list, and then begin with the most interesting task on the list.
• Set a deadline for yourself to complete a given project by a certain time.
• Bribe yourself by promising a reward if you accomplish a specific task.

Once you get started, your work can develop a momentum that keeps you going all day. We've also found, however, that taking a break every few hours contributes to an increase in productivity and creativity.

19) Don't Allow Disruptions: Set Specific Boundaries

Even the most carefully constructed plans are vulnerable to interruptions and distractions. The most common ones you are likely to encounter fall into these three categories:

• Household responsibilities. Don't let errands and household activities become a regular part of your workday. Cultivate the attitude that even though you are physically at home, you are mentally at work.
• Family and friends. Talking to your spouse, children or friends can potentially consume much of your time. Instead, work out a clear plan with your loved ones and get their support. Let them know when you will be working so they will avoid disturbing your concentration.
• Losing focus. Don't interrupt yourself with office minutia or extraneous phone calls. Set up your environment to help you stay focused on the job at hand. Put temptation out of sight as much as possible.

If disruptions continue to be the bane of your workday, consider relocating your office to a different area of the house or changing your office hours, perhaps working after the children are asleep or early in the morning before other activities have started.

20) Don't Become a Workaholic: Make Time for Your Private Life

As your own boss, it's also easy to become a workaholic and inadvertently neglect your personal life, family and fun. Follow these recommendations to avoid burnout and depression from undertaking too much work:

• Set up a firm schedule. Establish a fixed stopping point every day and do not compromise on this except for emergencies. If needed, develop a closing ritual such as a walk around the block or taking a class to make sure you get out of the office at a set time.
• Protect your free time. Make sure clients know your work hours, and do not take calls or allow business visitors to "drop by" at any hour.
• Establish minibreaks. Set aside five to 15 minutes a day to "do nothing." Spend that time doing something you enjoy such as gardening, playing with a pet, or sitting in the sun.

If you tend to overwork, it is crucial to develop new values that support a healthier and more balanced, productive and secure life. Never underestimate the therapeutic effects of relaxing on a regular basis.

21) Don't Do It the Hard Way: Use Technology to Streamline Your Operations

Home-office technology can streamline many of your most time-consuming administrative tasks -- and save you money. Here are a few examples:

• Use the templates that come with your word processor for standardized documents such as fax cover sheets and invoices.
• Learn to rely on the spell checker, grammar checker, dictionary and electronic thesaurus features that are part of many software packages to enhance the accuracy and quality of your business documents.
• Scan names, addresses and phone numbers directly from business cards into your computer using a card scanner.
• Use special preprinted papers from companies like Paper Direct (800/APAPERS) and Queblo (800/523-9080) to produce attractive customized flyers, business cards, presentation folders, brochures and newsletters quickly.

In addition, many kinds of technologically-advanced equipment are available that enable you to speed up daily tasks.  These include programmable telephones, high-speed printers, electronic postage scales, electric staplers, letter-opening machines, letter folders and dictation equipment.

Personal Satisfaction

22) Don't Try to Do It Alone: Call in Experts as Required

We believe success is always a joint venture. You can't do it alone -- and you don't need to. Seeking out help when you require it is basic to success whatever you undertake professionally. In fact, research shows that those who are most successful on their own are willing to pay for needed information and expertise. They also hire experts to help them carry out aspects of their business they know little about or are too busy to handle.

Here are a few guidelines that show when you can actually save money by bringing in outside assistance:

• When the time you could spend on business matters exceeds the cost of the hired help. An example would be hiring a computer consultant to solve your hardware problems so you can take on an extra project.
• When the cost of hiring someone is self-liquidating. An example would be paying someone to produce a newsletter that generates more business for you.
• When you have more to lose through lack of knowledge than the cost of someone else's expertise. An example would be hiring a public relations specialist to obtain publicity for you rather than trying to do so yourself if you have no experience in this field.

• Join community organizations and professional, technical or trade associations.
• Read specialty publications such as newsletters, professional and trade journals, and magazines to keep you informed about what's happening in your field.
• Attend relevant workshops, seminars and courses.
• Take an electronic coffee break using your computer and an on-line service such as CompuServe, Prodigy or America Online.
• Schedule regular breakfast, lunch or dinner meetings with peers.
• Set up or join a networking group that meets on a regular basis.
• Affiliate or form joint business relationships, or start a partnership.

Whichever options you choose, don't neglect the importance of personal and professional friendships.

24) Don't Compromise Your Values: Choose Rewarding Work

One of the best things about self-employment is that you can tailor your work to fit your own values, priorities and lifestyle. If you want to put your family first, for example, you can select work hours and a vocation that let you devote more time to them. If you want to pursue artistic endeavors, you can pick a career that enables you to utilize your creativity. The key is finding a match between what you desire from life and what the world needs and will pay for.

The message here is to clearly define your goal and determine how you can utilize your skills to achieve that goal.  As you will see, the most amazing thing about being self-employed is that the more closely the work you do fits who you are, who you want to become and how you want to live, the more successful you'll be.

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Indexer Emphasizes Importance of Discipline

After working as a social security administrator in Baltimore, Maryland for eight years, Ted Laux and his wife decided to move to Ithaca, New York -- which he describes as an "alternative community" well suited to their vegetarian lifestyle and desire to home school their two young children. Laux, who had always liked electronics and was looking for something he could do from home, spent the next 10 years in the television repair business.

"For the last several years in that endeavor, I could see the business heading straight down," he recalls. "I'm a numbers person and I tracked the trends. Due to the decreasing cost of televisions and their increasing reliability, we were heading for the pits. In fact, I was working for less than minimum wage. So I began considering other ideas and kept my eyes open for anything."

It was Laux's wife who found the answer. After seeing an advertisement by someone offering indexing services, she urged him to do further research on this promising possibility -- especially because Laux had purchased a computer years before ("six months after they were out on the market for the first time") and was currently in the process of indexing his extensive collection of computer magazines.

"I signed up for a course offered by the American Society of Indexing, and soon began sending out resumes," says Laux. "My first big break came with an assignment from a computer publisher who was doing a series of books on electronics. This was followed by a project indexing computer books, and here I am nine years later."

According to Laux, the best part of having a home-based business is that "there is no commuting -- I can roll downstairs and be at work." In addition, "I can control my time, and do other things if needed."

The temptation, Laux confesses, is that "often I would rather be doing something else than working, but I know I have to put in so many hours to make the business viable. If you procrastinate, you probably won't do well," he advises.

"Because you are your own boss, and no one is making you do anything, you need to have discipline," emphasizes Laux. "It's really a pretty simple equation -- if you don't do the work, you don't get paid."
                                                                                                                     

Entrepreneur Expands and Builds a Company

"Working at home has personal, professional and financial benefits," notes Jan Moore (center at left), founder of Direct Options in Middletown, Ohio." My 30-second daily commute is one of the more tangible."

Moore, who used to travel 75 miles each way to his office, formerly headed a direct marketing division for a 10-city advertising agency, and started his own home-based business two years ago. "The concept behind Direct Options was to accomplish what larger agencies cannot," he explains. "We provide fully integrated marketing communications encompassing every discipline from general advertising to public relations, sales promotion and direct marketing in a logical, coordinated fashion." Clients now include a retail food specialty company that distributes its products in 14 states, Cincinnati Bell Directory, an electric utility, a bank and one of the best-known brands of U.S. golf clubs.

"When I started, I lacked a clear focus on where I wanted to go," admits Moore, "so the first year was devoted to survival.  Then I had to decide whether to simply create a job for myself, or expand and create a company. I chose the latter, and haven't looked back."

To achieve his goals, Moore knew he needed to bring other professionals on board. He began by hiring a clerical person, who subsequently assumed client-contact/research responsibilities. He then hired a programmer (who is also a CPA) to write database programs for clients and help manage the growth of Direct Options.

"Initially, my most difficult challenge was to let go and trust others to do their jobs," Moore recalls. "I'm fortunate that the people I've hired have a strong commitment to building the business as well."

The three-person team works from a 1,500-square-foot converted space in Moore's basement -- complete with private offices and a separate entrance. This accessibility "gives me the option of going to work at 3 a.m., which I frequently do, or taking time during the day for a nap," he says. "I'm able to utilize my time much more productively this way."

Moore is quick to point out that "if my wife weren't so supportive -- when, for example, dinner is interrupted by a client phone call -- it would be far more difficult. At the same time, she serves as a reality check to ensure we maintain a private life."

*Excerpted with permission from "Small Business Success" magazine, Volume 9, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration and the Partners for Small Business Excellence.