An online business is one that operates out of an individual’s home, or from wherever you are in the world with an internet connection, as opposed to a physical storefront (brick and mortar) or office building.Nonetheless, you must be aware of the legal and technical aspects of online business.
Online businesses come in all shapes and sizes, ranging from Etsy shops to virtual assistant businesses to profiting with affiliate marketing by recommending what you use and love. There are a wide variety of advantages to operating an online business, including lower overhead costs and the ability to work from the comfort of your home.
NOTE: Remember, I am not an attorney, CPA, or other financial expert of any kind. Be sure to connect with the professionals you need in order to facilitate the process of starting your online business.
Here are some more online business ideas to consider:
• Online coaching or consulting
• Clothing or accessory design business
• Food delivery or catering business
• Etsy Shop or Shopify Store selling handmade goods or artwork
• A virtual assistant business providing administrative support services
• Freelance writing or editing service
• Online tutoring business
• Social media management services for businesses and individuals
Establish a Proper Budget
A key section of your business plan should include a thorough budget. This will help you understand the various expenses that are associated with running a successful home-based business and will also help you set realistic goals for future growth. Unfortunately, a poor budget is also one of the many reasons businesses fail, so it’s important to get your budget as detailed and accurate as possible.
Some of the key items to include in your budget are:
- Start-Up Costs: These may include licensing fees, legal fees, equipment costs, advertising expenses, website development costs, and so on. Starting costs are simply the costs you will incur in the early stages of launching your business before generating revenue.
- Cost of Goods and Services: Cost of goods is the cost of any products or services you sell in your business. For example, if you run a clothing design shop and make all your designs, this would be the cost of materials, equipment, and labor to make the good. Some common costs of goods and services include raw materials, equipment, and tools, and a portion of the rent and utilities you use for your business.
- Monthly Operating Expenses: These may include utility bills, insurance premiums, office supplies, equipment rental fees, salaries and wages for part-time staff or contractors, shipping and delivery charges, and whatever else you determined. In addition, be sure to include a line item for miscellaneous expenses, as these may arise throughout your business operations.
- Marketing and Advertising Expenses: These may include traditional print, radio, and television advertising; social media marketing; online ads; mailers and flyers. You need to make room in your budget to get the word out about your business and attract new customers. Don’t launch your home-based business without devising a robust marketing and advertising strategy. With a proper marketing budget, you will skyrocket your home business sales in less time than you may have imagined.
- Taxes: You will also need to pay taxes on any income you make minus expenses. You will also pay state, local, and federal taxes on self-employment, property, and sales. Make sure you set up a quarterly tax payment plan so that you don’t fall behind on your tax payments and be subject to penalties. You must set up a system to make these payments on time.
With a clear budget in place, you will be better able to manage your finances and stay on track toward achieving your goals. Creating an accurate budget also helps you identify areas where you may need to cut costs or streamline operations as your business grows. Understanding how much it costs to run your home-based business helps mitigate any financial risks associated with starting out on your own.
Research Your Tax Obligations and Register Your Business
To legally operate a home-based business in most states, you must register with your local government and pay applicable taxes on your business income. Therefore, it’s important to familiarize yourself with the tax laws in your area and figure out how much to expect to pay each year. This will help you set realistic financial expectations for your business and plan accordingly.
Some of the most common taxes you will need to pay include income tax, self-employment tax, property tax, and sales tax. You may also need to pay a business license fee depending on where you live and your business type. These taxes are in addition to your individual tax obligations, so it’s important to set aside a portion of your business income to cover these expenses.
Here are some tips to make the process of registering and paying taxes as simple and pain-free as possible:
- Create a Business Name: Choosing your business name must be done first before registering your business. You may want to use your own name or select a name that best represents what you do or the results you provide. Check with the US Patent and Trademark Database to ensure that your business name is not already taken, as this will help protect your brand from copycats. Make sure the name is easy to remember and that you use it on all your marketing materials, business cards, and website.
- Select an Appropriate Business Structure: When registering your business, you have lots of choices. You can choose a structure like sole proprietorship, partnership, limited liability company (LLC), and corporation. Understanding all these options is imperative to select the best option for your situation and goals. If you are unsure which structure is right for your home-based business, it’s a good idea to consult an accountant or lawyer before making a final decision.
Many home-based businesses start as sole proprietorships because they are the easiest to set up and operate. However, you changing to another business structure at a later time is easy. To determine which business structure is right for you, you need to consider the advantages and disadvantages of each type. A sole proprietorship has many advantages, including filing your taxes on a schedule C form and not a separate business tax return. This will make it simpler and easier to manage your taxes as a home-based business. Some other advantages of a sole proprietorship include the following:
• Ease of setup and operation
• Minimal accounting and recordkeeping requirements
• Tax flexibility, including the option to report business deductions on your personal tax return
• Fewer legal and financial restrictions
• Limited liability protection for yourself
Although there are many benefits to operating as a sole proprietor, there are also some disadvantages that you should be aware of. For example, you will not have the same level of legal protection as other business structures. This is because all your personal assets, like your home and savings, are at risk if your business faces major financial trouble or is sued by a customer or vendor. Also, sole proprietors are responsible for all business expenses– including insurance, legal fees, and marketing costs.
Register Your Business
Once you’ve selected the business structure that works best for you, it’s time to register your business with the appropriate government agencies. In most states, this will include the state and local tax authorities – usually the secretary of state’s office. Registering your home-based business will give you access to all official registration benefits, including tax breaks and legal protections.
Contact an Accountant or Tax Professional
While navigating the complex tax laws in most areas is difficult, it’s often helpful to work with a tax professional to offer guidance and advice. In addition, many accountants or small-business owners provide useful information about common mistakes people make when filing their taxes for a home-based business, which prevents any penalties or fines from being levied against you.
Keep Detailed Records
Another important step in managing your tax obligations is to keep accurate records and track all your business income and expenses. This will make filing a complete tax return easier, which helps you avoid penalties for inaccurate or incomplete filing. Depending on the type of home-based business that you run, you may be subject to additional state and federal laws governing the industry. For example, suppose you are running an online store or operating a food or beverage service from your home. In that case, there may be additional regulations and safety guidelines that you need to follow. It’s always best to consult with a legal professional before starting a new home-based business to ensure that you fully comply with all local, state, and federal laws and regulations. Also, I decided to hire a bookkeeper early on in my business and she helps me keep detailed records.
Get an EIN
You will also need to register for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS). This is also known as a federal tax ID number and distinguishes between personal and business expenses when filing taxes. It’s important to note that even if you do not actively earn income from your business, registering with the IRS protects you in case of legal problems.
Understanding the legal considerations and tax requirements for a home-based business is overwhelming. In any case, it’s not something avoidable once you launch your venture. Paying taxes and registering your business is essential to protecting yourself and your assets. However, with the right knowledge and support, you will confidently navigate the challenges of running a small business from home.
Choose Your Merchant Account Provider
When operating a home-based business, you will need to accept customer payments. Therefore, you’ll need to choose a merchant account provider with the right payment processing services for your specific needs. When evaluating potential merchant account providers, look at their records with other businesses, fees and charges, customer support availability, and security features.
Some of the most popular merchant account providers for home-based businesses include:
• PayPal Business – PayPal Business offers easy payment processing and other business tools with no setup or monthly fees. You receive payments from customers with just an email address.
• Stripe – Stripe is a popular merchant account provider that provides secure payments, invoicing, and refund capabilities. It’s available in 25 countries and supports multiple currencies.
• Square Payments – Square Payments is a fast, secure, and reliable payment platform for small businesses around the world. With its simple mobile app, you will get paid quickly and easily.
• QuickBooks Payments – QuickBooks Payments enables you to accept credit cards and ACH payments in your QuickBooks software, offering convenience and control over cash flow.
• Stax Payments – Stax Payments is an integrated merchant processor that allows you to accept online payments from customers around the globe securely. With no contracts or setup fees, it’s a great choice for home-based businesses looking for cost-effective payment solutions.
When choosing a merchant account provider, consider factors such as the type of payments accepted, such as credit cards vs. online payments vs. cash, the level of security provided by the provider, and any associated fees or charges. The last thing you want to do is open a merchant account with a provider with high fees or charges or doesn’t have the security features you need to keep your customers’ information safe.
Ultimately, the right merchant account provider depends on your business type and specific entrepreneur needs. Please do plenty of research to find a provider that offers all the features you need at a reasonable cost, and read through all their terms and conditions before signing up to ensure that there are no hidden fees or charges. With the right merchant account provider, you will confidently accept customer payments and grow your home-based business over time without any financial stress or security risks.
Build a Website and Establish an Online Presence
A website is still an important asset when launching a business, even in our increasingly digital world and as more social media platforms are created. Unlike social media, this is because you own and control it. A website allows you to develop your brand and market your business the way you want. It also helps you to create an online presence that people will find more easily, which is essential for growing your customer base.
Here are a few tips to keep in mind when building your website and establishing an online presence:
- Choose a Domain Name First: Start by choosing a domain name that reflects your brand and is easy to remember. This will make it easier for potential customers to find you online and help with search engine optimization (SEO). Don’t use special characters or a unique spelling in your domain name that is hard to remember or type; avoid hyphens if possible. The more straightforward and niche specific your name is, the better.
- Decide on a Website Platform: Many different website platforms are available depending on your budget and technical abilities. Some of the most popular options include WordPress, Wix, and Shopify, which all make it easy to create an attractive website that will help you stand out from the competition. When choosing a platform, consider the functionality you need, your technical abilities, and the overall look and feel of the website.
- Set Up an Email Address: The next step is to set up an email address branded with your domain name, such as “firstname.lastname@example.org.” Not only does this help to build credibility for your business, but it also makes it easier for customers to contact you. Finally, consider setting up an email list to collect customer emails and send them updates about promotions, new products, or other news related to your business.
- Create the Right Social Media Accounts: While social media may sound overwhelming and time-consuming, it can also be useful for connecting with potential customers and establishing your brand online. Consider setting up accounts on popular social media platforms such as Facebook, Twitter, Instagram, and TikTok. First, however, find which platforms your customers use the most. This way, you ensure you reach your target audience easily. Then, when creating your accounts, choose a username that reflects your brand and is easy to remember. Also, be sure to use eye-catching and professional images that reflect your brand and highlight what you have to offer.
Not creating a website or certain social media accounts when launching a business will greatly impact your ability to succeed. They make it significantly easier to sell your products without relying on your local community. They also allow you to reach a wider audience and engage with customers in new ways. Creating a strong online presence will ensure you reach your target audience and grow your business.
I hope this information has been helpful to you. Remember, I am not an attorney, CPA, or other financial expert of any kind. Be sure to connect with the professionals you need in order to facilitate the process of starting your online business.
I’m Wall Street Journal and USA Today bestselling author, independent publisher, and serial entrepreneur Connie Ragen Green and would love to connect with you. If you’re new to the world of online entrepreneurship please check out my training on how to make your first income online at 3 Day eBiz (Use Code MAKEITHAPPEN for a Discount) and learn how to gain an unfair advantage when it comes to building a lucrative online business.