There's more to home businesses
than an office in the den
By Ellen Forman • Bankrate.com

An open spot in the den that's just right for a computer. A garage workshop where that craft everyone admires can be turned into cash. It's a popular dream these days: A business of your own under a roof you are already paying for.

The availability of technology, and the growth in popularity of home businesses, puts those goals within reach of an increasing number of people.

"The financial issues are overwhelmingly in favor of home business," says writer and entrepreneur Robert Spiegel. "You're paying your mortgage or rent, anyway, so you're getting free overhead and a tax deduction."

The financial comforts of home
How much money does it take to start a business at home? That will depend on the type of business it is and where you shop. Superstores are a good place to start.

If it's a service business that doesn't require heavy supplies or equipment, it probably can be done for a couple thousand dollars. Your main costs will be for a computer and printer, business cards, letterhead and licenses. Careful shopping will likely produce a desk for $100 or less. Different home and family situations require additional expenses, perhaps a separate phone line, fax, or answering machine or service.

The most important investment in most businesses is the computer. But nowadays, most come with myriad software programs, meaning it won't require too much customization. For a few dollars more, add an office accounting package; in the long run it can save the cost of hiring clerical help.

Tax benefits of home work
Home office deductions also increase the allure of setting up a home-based business. A percentage of the mortgage and home expenses for the part of the home used solely and exclusively for the business can be deducted.

For example, if you're running your business from a 100-square foot bedroom in a 2,000-square foot home, you are using 5 percent of the home's total floor space for the business and may be able to deduct 5 percent of the mortgage interest or rent and household expenses.

There are rules that govern what qualifies for a home-office tax deduction. Spiegel works in a corner of the family room that's off-limits to everything else and deducts a piece of his mortgage as a home-office deduction. On the other hand, Martin Zients of the Small Business Development Center at Florida Atlantic University's College of Business in Boca Raton, Fla., advises people against commandeering the family computer and setting up shop in the middle of the den.

"In order to make it tax-deductible, you must have a separate space," he says.

A tax professional should assist with the decision whether to deduct for a portion of the living room, or a home office with a door. But having a business at home may be ideal for someone who wants to check out a business idea without investing too much cash.

So is this truly for you? Is that part-time hobby something that can translate into a moneymaking endeavor? Should the commute and the job be abandoned to work in the comfort of home, close to the kids and the schools -- and the dirty laundry and the refrigerator?

Experts and veterans say that, among the dozens of issues any startup business faces, there are a handful of factors that help determine whether a home will be the right site for the dream business.

What will the neighbors think?
Is it practical -- and legal -- to start a business in the home? That depends on what is intended and your locale's business regulations. Is there enough room in the apartment to store the needed supplies? If the home is in a quiet, residential neighborhood, will the business draw added foot or car traffic, produce unpleasant smells or noise to offend the guy next door? Or is the work invisible, inaudible and inoffensive to all who live on the block?

"If you're going to do bookkeeping, it's one thing," Zients says. "If you're going to do furniture refinishing, it's another."

Zients has found that most service businesses are invisible and, therefore, not a problem. And the tide of home-based businesses has led many suburban communities to reconsider laws on the books that were once highly restrictive of home-based endeavors.

"If you have a quiet business, most neighbors approve, because someone's home in the neighborhood," Spiegel says.

Still, in the name of protecting property values and neighborhood aesthetics, some municipalities restrict the types of businesses that can be operated out of a home and limit the number of employees or customers allowed to come through the door.

Before making the leap, make a call or visit to the city's zoning board. It will have the answers to the legality of opening a home-based business. Experts caution that while some people open businesses in their homes in spite of the laws, it's an especially bad idea if any aspect of the business will offend the neighbors in any way.

No time for children
One of the primary appeals of starting a home-based business is the ability to keep an eye on the children while minding the store. But it's wise to go into the arrangement with realistic expectations.

While people are becoming accustomed to home-based businesses and the interruptions they generate, it's still important to remain professional. Someone trying to discipline the children while speaking to customers may not be portraying the desirable image. Many home-based business owners teach their children when they can or cannot be interrupted, complete with a "do not disturb" sign.

Even more likely than children interrupting a business, is a business that interrupts a family, says Spiegel, who works at home with three school-age children.

"During the first six to 12 months (of a home-based business), it's, 'I'm done with dinner, I'm going to check my e-mail,' and you don't see the person for the next four hours," Spiegel says. "The entrepreneur who's anxious to make sure the business is successful has a hard time stepping away from work."

Ellen Forman is a freelance writer based in Florida.

-- Updated: March 25, 2004