Starting a Home-Based Business Part 1

What the wise do in the beginning, fools do in the end.

Do you own a home -based business, or are you considering owning a home-based business. Knowing the tax benefits may assist you in planning your move wisely, or preparing your taxes accordingly. 

Most home-based businesses are run as sole-proprietorships, where all business income and loss is shown on a IRS Schedule C of your personal 1040 tax returns. One of the benefits of owning a home based business is most losses you incur as a sole proprietorship carry through  to W2 income.

Example:  As a salaried professional making 75,000.00 a year, opens a small home-based business and has additional income from home-based business of $12,000.00 for first year in business, but the business also has a loss of $14,500.00. The $14,500.00 loss first goes against the income from the home-based business and then any difference will go against income from W2 wages. Thus reducing taxes normally paid on the W2 income. This is one reason many people venture into a home-based business is for the deductions. 

The home based business must be a legitimate business. The business must be run like a business not a hobby, and should show a profit some time during the first five years. I will explain in detail as we go through the process of becoming a legitimate home-based business.

Step #1: Plan Ahead. Plan before you commit. Having a plan and knowing what you want to do and how to do it is the key initial step any business owner should adapt. By having a plan to follow will insure a more successful outcome than those without a plan.

Failure to plan can cost you serious money and headaches in the future. Planning reduces financial risk as well as providing written proof if questioned or audited by the IRS that you are in business to make a profit vs. a business being worked as a hobby.  This will be discussed in detail later.

Planning involves the following questions, ask yourself:

What type of product or service do I feel comfortable marketing?

Everyone feels differently about products and services. We all feel strongly about those that we can identify with, those that we believe in. Look for a company that has products you may be familiar with or feel strongly about. 

Do I believe in the products or services?

Your conviction alone will help you sell. You need to believe in the product and the company, when you believe others will to!

How many others are marketing the same product/service? What manner are they marketing them? 

This is a two fold question, first is the market already saturated with marketers of the product/service, if so is the company you are looking at innovative with their marketing plans and concept. Do you think it is a marketable concept?

What is the start up cost?

As a new business you can deduct up to $5000.00 in business start-up costs such as license fees, advertising costs, professional fees (accounting, attorney and tax professionals), office supplies and market research. 

Will there be future start up costs or ongoing fees?

Cost for additional products, marketing material, training and/or inventory. Inventory is not a deductible start up cost. Marketing materials and training would be considered in the start up costs during the first year.

How will the above costs be paid?

Will they be paid out of future commissions, or are they to be paid immediately upon starting. Do you have the cash to put in to the business or will you need to use credit?

What type of working environment do you need?

Will a home office work, a cell phone vs. a land line. Do you need a standard office away from home? These are important questions to know the answers to before committing to a business. It gives you a better grasp as to the cost needed to get started.

What type of supplies will I need?

Examples of such supplies might be office furniture, a computer, a lap top, printer, fax, phone lines, supplies and such. We will discuss the use of Section 179 deductions for business owners, many of the larger items such as office furniture and new this year computers may be added to the Section 179 deduction. We will go into greater detail as we discuss deductions for business owners.

How much will my supplies cost?

Do I have the money now to invest to get started correctly? With the new computer deduction added to the 179 deductions it maybe the best time to purchase a new computer for your business.

Do I need to carry an inventory?

If so how much do I need to maintain my inventory on an on going bases.  

If I do need to carry an inventory what is the shelf life of the product?

Some examples, make-up with Mary Kay vs. an acai berry juice product, each have a different shelf life. Other products may have a timeless shelf life like jewelry products.

Can I afford to pay cash for these products?

If not is a credit card an acceptable means of starting my inventory.

If starting with credit have a plan in place to pay off the credit so you may use it again and the interest doesn’t eat into your profits.

Once you have a business you can identify with chosen you will need to consider what type of business entity do you want to b will be discussed in a future article. 

Invest In High Quality Packaging Equipment To Multiply Your Profits

Are you planning to start a delivery business anytime soon? Or do you already run a small business manufacturing and selling different products? Then how to properly pack the products before sending those out must be one of your major concerns. And that is with good reason, too. Packaging of a product adds to the value of it. A high quality product can only reach the customers in pristine condition if the packaging protects it from the elements adequately.

While you could take care of the packaging manually, it would be very difficult as the number of products increase with time. Besides, it would consume time and valuable manpower, which could probably be better invested elsewhere. This is why you should consider investing in packaging equipment. These will greatly speed up the packaging process, while requiring only a single person to operate the machine. Here are 5 types of packaging equipment that could benefit your business:

1. Stretch Wrapping Equipment: These are useful to wrap up products in stretched plastic wraps, in order to protect those from moisture. These can be used to pack up items that do not break easily, like books, strongly built toys, etc.

2. Shrink Wrapping Systems: Use these for wrapping up products with bubble wraps. These machines are useful when wrapping items that need to be somewhat protected against physical impacts.

3. Steel and Plastic Strapping Machines: You are likely to need these if you use thin steel or plastic straps to bind product packages. The binding will be done fast, and much better than even the most experienced employees can do the same.

4. Case Sealing and Case Erecting Equipment: If you pack and deliver large sized antiques, sculptures, or electronic equipment on a regular basis, then this might be the perfect choice for you. This type of machines work best with heavy items that need to be kept with the right side up at all times.

5. Bar Code Labeling Equipment & Software: Packaging the products is not enough to deliver those. In order to keep track of products supplied to retailers, you need to attach bar code labels to the packages and special kind of software to maintain a database about the products sent. This will simplify maintenance of records and also eliminate risks of possible mistakes.

Always purchase packaging equipment from reliable manufacturers that have been operating in the field for several years. You are bound to get high quality packaging equipment that way. If you manage to buy these on the internet, you may actually get good deals as well. Log on to right now to find some irresistible deals, right now.

In Tough Times, Innovation Can Fuel Small Business Growth

Small businesses need an abundance of innovative ideas in order to succeed in this difficult economy. It’s all too easy to blame the economy, but there are many ways small businesses can succeed through customer focused innovation.

The good news is: Periods of economic stress are usually followed by new innovative ideas, especially in small business. This stems from a basic business need to retain and attract customers with what the customer perceives as value. Small businesses understand this and are able to fare better in an economic downturn because they think fast. They are in a better position to move very quickly in terms of how they align their resources and address customer needs. That’s just the way they’re used to doing it, in good times and bad. It all stems from the passion they have for their business and their customers.

Innovation does not come without cost. In these times, small businesses must focus on the customer, costs and cash flow. To fuel innovation, small businesses need to re-evaluate their priorities, and their business model, in order to pinpoint problems and goals to provide innovations to products and service offerings. A Cash flow crunch can sneak up on a business if they are not prepared. It can adversely affect a company experiencing a slowdown as well as one that is rapidly expanding.

In order to stem cash flow, businesses should be sure to have cash reserves or arrange backup financing. Lines of credit, equity financing, or Invoice Factoring (also known as Accounts Receivable Financing) can provide a boost to cash flow that can fuel the innovations necessary to succeed.

Now is the time for business owners to innovate and make an investment in their business. To build up a customer base that can support their efforts in an economic downturn. What may matter most is the commitment to innovative change, the tolerance for taking risks, a sharp eye on cash flow, and management’s ability to lead smart.