SUCCESS SECRET #16: Know the legal requirements of your home business.
It is well-worth your time and money to consult with an accountant and lawyer specializing in small business matters when setting up your business!
ILLEGAL HOME BUSINESSES
It is very important that your should be aware that some kinds of home businesses may be illegal according to local, state, or federal regulations. For example, many home sewing businesses are in violation of the Fair Labor Standards Act. Check with your local authorities, your state’s office that handles small businesses, and the U .S. Department of Labor for the current laws regarding home workers before your start up your business.
Zoning Matters
Your first step is to know the zoning restrictions of where you live. Pick up a copy of your local governments laws and read it thoroughly. If you need a permit or license, find out the specifics and if you can work within the parameters set down.
Most of the women I interviewed were told by their local government officials as long as their business did not cause their neighbors to complain or caused undue traffic or noise into the neighborhood, they could do business and would not even need a zoning permit.
Here are some additional tips to avoid zoning conflicts:
*Be considerate and do not annoy the neighbors. As long as your business (noise, excess traffic, fumes, etc.) does not interfere with your neighbors’ lives, they should leave you alone. (One street in my community of row houses had six women with different home businesses!)
*Keep your business within bounds. If you begin to expand and need a building or more storage space, you may want to consider renting in another location.
*Meet with clients at their offices or rent office space by the day or as needed from a member of the Executive Suite Association.
*Move to a less-restricted or more home business “friendly” neighborhood!
*Write the laws! Join with other home business owners in helping to have some input in any of the ordinances to be made regarding home businesses.
How to determine your Legal Structure (which form is best for your business)**
You will need to decide under which auspices you will operate. There are a number of legal structures each with guidelines but these three are probably the ones with which you will most likely have.
Sole Proprietor- This is the most common form of business structure for micro-businesses and those just starting up with hopes of expanding.. With this form you keep all the profits but are responsible, too, for all the losses.
General Partnership- This is an oral—but preferably written—business agreement between two persons defining the ownership interests of the partners and other important matters. Unfortunately, many partnerships eventually break-up due to conflict of direction, or the division of business duties, or life changes.
Corporation- With this structure, the corporation becomes an entity unto itself and is separate from your personal life. It must have officers and profits and losses are reported separately. The advantage is that if you incur debts, your personal assets cannot be taken.
Additional Legal Matters
*Check also with your state and federal regulations regarding your specific business. Jane Mitchell who creates specialty cheesecakes needed to pass an inspection of her kitchen before the state gave her a license to bake from her home kitchen. Many other states do not permit commercial cooking from home.
*Obtain a Federal Tax ID number—with sole proprietorships it is your Social Security number, but many business forms require a federal Employer Identification Number (EIN). Contact your accountant, Small Business Development Center or your local IRS for the form.
*Learn what taxes you will be required to pay such as local wage, income taxes, state sales taxes, Social Security, etc. Consult with your accountant from the beginning and she can advise you about your tax requirements, quarterlies, etc.
*Consult with an independent insurance agent for advice about your business’ insurance needs: health, liability, disaster, disability, etc.
*Insist on having contracts with suppliers, independent contractors, and with your customers. Also have your lawyer write a waiver if you fear any lawsuits could result from the type of business you do.
*Legalize your name - If you do not want to concern yourself with a fictitious name, you can use your legal name in the designation of your business. If your name is Jane Smith, you can title your business Jane Smith Janitorial Services. However, you call your business Executive Janitorial Services, you will have to register your name with your state’s business office and county clerk’s office.
This business registration requirement is also called “doing business as” (DBA) and will be printed in your paper so people will know you are conducting business under another name. Your state will also let you know if that name is already registered. You can go to your local courthouse and register the name yourself or you can have your lawyer do it.
Choose your name carefully, because it will be a constant marketing tool. Here are some considerations in choosing the best name for your business:
*Your business name should tell potential customers who you are and what advantages they will have by patronizing your business. Names like “Smith Enterprises” or “ABCD Specialties” do not really describe what service or product you provide or how it will benefit your customers. Jane’s, “Sweet Endings,” aptly describes her mouth-watering, specialty cheesecake and desserts business, as does professional organizer, Shawn Kershaw’s “Time Matters Organizing Services.”
*Avoid names that are associated with well-known corporations to avoid confusion and even lawsuits.
*You can include the geographical location, town, county, etc. of your potential customers in your name. If your customers are across the country or even the world, you could include such terms as American, United, Pacific, National, State, etc., to express the extent of your business market.
*Add a tagline, a short sentence summarizing your services or products, to your business name in five words or less. Two examples, “Computer Medic, The Housecall Specialists,” “The Cruise Palace,” Personalized cruise travel service,” have taglines which imply their customers are going to receive a little extra service than competitors like “Smith’s Computer Consulting,” or “Smith’s Tours & Cruises.”
*Make a list of names you like and then compare them to your competitors and ask others’ their opinions.
The ideal name is the one that will help your customers associate better quality and service over your competitors.
How to determine who is an Independent Contractor
As many home-based business owners work as independent contractors, it is important that you understand who is and who is not an independent contractor. The IRS has a list of criteria defining this type of employment status. Basically, the factor between who is an employee and who is an independent contractor is one of control. If you are in control of your hours and business operations you are an independent contractor; but if your client sets the guidelines of your business time and procedures, then you would consider being an employee. Talk to your accountant and/or an IRS representative before you ever sign your first contract as an independent contractor!
** It is advisable to consult with a lawyer specializing in home-small business legal matters before and after your business is established.
-30-
