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Lecture 01

Lecture 02

Lecture 03

Lecture 04

Lecture 05

Lecture 06

Lecture 07

Lecture 08

Lecture 09

Lecture 10

Lecture 11

Lecture 12

Lecture 13

Lecture 14

Lecture 15

It all begins with an idea. At this point, you probably have at least a little idea of what you might like to do in a home business. Of course, you should not feel limited by this idea: by the time you finish this analysis, your idea may have changed a dozen times, or it may have evolved from its original notion to one somewhat more complex or simple than you originally envisioned.

Before you just run out and start a business, you must do your homework. The five "environments" that were examined earlier in this lecture represent a major part of the planning you need to do now.

All businesses, be they home-based or large corporations, must engage in planning, which begins with a SWOT Analysis. The SWOT stands for strengths, weaknesses, opportunities, and threats.

This analysis requires your very honest appraisal of each of these four factors. Dishonesty on any one of them may cause you to plunge head-first into something in which you will be hard pressed to survive.

Begin with a careful analysis of your strengths. What can you do? What particular skills do you possess? What can you do better, faster, cheaper, etc., than anyone else? Maybe it is a special attention to detail that makes you better than anyone else. Or, perhaps it is your ability to work well with people that is your strength. Your strengths may not always be obvious, nor will they always be tangible. Even abstract strengths can translate into profitability.

Next, you must carefully assess your weaknesses. This is often the hardest part, because people are often reluctant to discuss their own shortcomings, even to themselves. If you are not a "people-person," or on a limited budget, or live in a very small house, you should not consider home businesses that require contact with lots of people, or a lot of capital, or are space-intensive.

Once you have assessed your own strengths and weaknesses, you need to examine all the opportunities and threats facing you. In this part of the analyis, you can start by assessing all of the environmental variables that are discussed above, and then add your own assessment of other companies' strengths and weaknesses.

If you detect a common weakness of your competitors, then it may well be an opportunity for you. Maybe all of the other large businesses cannot offer the personal service of which you are capable, or perhaps they cannot offer job completion at the speed you will be able to offer.

Of course, you must be careful to fully recognize the size and/or number of your competitors as a significant threat. Even if you are competing only against other small home-based businesses, if there are already 15 of them in your community, you should read the writing on the wall. There may not be an opportunity left.

More than anything, when doing a SWOT analysis, you must be careful to not overstate your strengths and opportunities, and understate your weaknesses and threats. Make certain you make a totally honest appraisal of your abilities, and of those who will be your competitors. It is often too easy to gloss over your shortcomings, and magnify a few strong points. Be careful to not fall into this trap!

Once you have carefully assessed everything about yourself and the market, and have decided on a specific type of business, you are ready to define your mission. Known as the "mission statement," it is the all-purpose defense of your business: why you are in business, what you will be doing, and whom you will be serving.

Why do you need a mission statement for something as innocent and unpretentious as a home business? Because it is your guide for all business activities ahead. It establishes the scope of your business, what is and what isn't within your domain. You should strive to always live by your mission statement; it is your creed.

When writing your mission statement, be careful to not write it so that it is too limiting; conversely, do not select a mission that is too ambitious for your abilities. Finally, do not write a mission statement that is identical to what someone else is doing. Strive to be different and unique.

Your mission statement should be no more than two or three sentences in length. It should not read like an advertisement or public relations statement. Rather, it should be written for yourself, and no one else. It is simultaneously your guiding force, and a reminder of what it is your are trying to do.

This does not necessarily mean that mission statements, once written, cannot be changed. All businesses change over time, as do the environments within which you operate. You can change your mission, but you must use the same caution then as you do when you originally define it. Remember: don't jump into something in which you have absolutely no business.

The next task you face is selecting a name. You should exercise caution here, while simultaneously being free to exercise a great deal of creativity. More than anything, your name should be unique, but it should be clear to customers exactly what it is that you do.

Stay away from company names that use only letters. While IBM, TI, HP, IBP, 3M, and others can get away with it, you must remember that they all started out with full names, and then shortened them once they became industry leaders with widespread recognition. But if you launch your new business with just a handful of letters thrown together, people are not going to know who or what you are. In other words, stick with a real name.

The name you select should convey to the public the exact nature of your business. It needs to communicate as many aspects of your business that you can possibly squeeze into a name. And by picking something that is unique, you lessen the chances that the name is already being used elsewhere. This could be critical in case someone else holds a trademark on a name.

Next, you must decide how you want your business structured. You have three basic options: sole proprietorship, partnership, or corporation. There are advantages and disadvantages to each.

A propietorship means that there is a single owner. You alone are in charge, as well as responsible. Taxes are simplified under this arrangement. There are no opportunities for squabbles with malcontent partners. Unfortunately, though, a sole propietorship can serve to limit your business; your business is entirely limited by your resources, skills, available time, etc. In other words, the size and growth of your business can be handicapped by this type of business structure.

A partnership brings with it the resources and skills of two or more persons, allowing the firm to often do much more than it could than with just one owner. Of course, there is always the potential for disagreements. For this reason, detailed partnership agreements should be in writing before the business is established, which should contain a breakdown of ownership interests as well as duties.

Both of the above business structures have the disadvantage of liability. There is no corporate veil to protect the individuals or their assets (as determined by tate law, of course). As your business grows, you may wish to consider the third type of business structure, the corporation.

A corporation generally is not appropriate for small home businesses, nor for those just starting out. But, once the company begins to grow, it can offer many advantages. For one, it separates the assets of the stockholders from those of the company. There can also be numerous tax advantages.

There are two basic documents that should be filed: sales tax ID number, and certificate of assumed name. The first one will allow you to collect sales taxes for whatever you sell (assuming it is taxable), while the second one will register your business name with the county in which your business will be located.

The sales tax ID number is obtained quite simply, and at little or no charge (it is free in Texas). Simply visit the local office of the State Comptroller, and complete the form. Remember that you will need to have signatures and driver's license numbers of all persons involved in the business. You will be issued a tax ID number on the spot, and given a small certificate that is to be displayed prominently wherever you conduct your business. You will also be asked to describe the nature of your business so that you can be assigned an SIC code, which serves much like a ZIP code for businesses.

Even if you know with certainty that little, if anything, of what you sell is taxable, a tax ID number can be a handy thing to have, because it legitimizes your business in the eyes of any suppliers you might have. Of course, having the right to collect sales taxes also brings with it the responsibility to pay those taxes to the state. The local office of the State Comptroller will determine at the time of your application the frequency of your tax payments, depending on the projected sales. In Texas, for example, if you have $1000 or more in sales tax-only collections, you will be required to submit it no less than quarterly (e.g., if the tax rate is 6.25% and you collect $1000 in taxes, this means you had roughly $16,000 in taxable sales).

Three important points should be made here. First, all sales originating out-of-state will not be subject to state sales tax (although this practice has been coming under fire of late). Second, if you take your business "on the road" to flea markets or other such public venues where the local tax rate may vary, you will have to keep track of those sales, and collect and pay the appropriate sale tax. Third, in some cases the decision over what is taxable and what is not is often made difficult by fuzzy tax laws. For example, food that is ready to eat is considered taxable (like soft drinks and candy bars and other snack items), while other food is not considered taxable (this may vary by state). But how do you figure the tax burden on a PowerBar, the energy bar that is sold in both health food stores and groceries? It is not a candy bar, although it is wrapped like one. Often stores will, when in doubt, go ahead and tax the item, partially to avoid criticism from the state, as well as to simplify their operations.

Next, you must file a certificate of assumed name with the county clerk in the county where your business will be based. This duly recognizes the name and existence of your business, and is now a requirement in Texas for opening a business bank account. (Also, some banks require this certificate in order to apply for a merchant credit card account). In Randall County, Texas, this certificate costs $8 (which is a tax-deductible expense). Please keep in mind that, although you have this certificate, it does not certify that no one else in your state is using this name. In order to achieve this status, you would have to have an attorney do a trademark search, and then file to have your name trademarked. In the absence of this, you may find, to your surprise, that someone in your own county is using the same business name as yours. If someone wanted to get theirs trademarked, all they would have to do is show that they came first. Or, if the other firm is much larger than you, their mere size could determine the outcome of any name battle. Essentially, this certificate is a required document that does little or nothing for you except establish your business with your local government.

At this point, you should begin collecting sources of information that you may need in developing your business. There are a variety of public sources that are available that can provide a big help for your business.

Perhaps the best local source of information is the Panhandle Small Business Administration, located at 1800 S. Washington Street in Amarillo (I-40 at Washington). Headed by Don Taylor, the PSBA provides a variety of services to small businesses, including assistance in business planning. Although they cannot provide one-on-one consultation, they can point you in the right direction. If you reside outside of the Texas Panhandle, check in your local phone book under "Small Business Administration."

Other information can be obtained at local libraries or book stores. A wealth of titles are available exploring the concept of home businesses. A text book on small business management would be a good place to find an example of a partnership agreement, for example.

There are also many public sources of information that can provide you with a variety of market research data useful for your firm. For example, Sales and Marketing Management's annual survey of buying power examines the top 300 cities in the USA and ranks them according to buying power, as well as retail sales per household, per capita income, population, and a variety of other useful statistics.

The State Comptroller's Office can also provide sales tax data for any SIC, broken down quarterly by city, MSA, county, or state. If you want to know the market size for a certain category of businesses (say, for example, sporting goods), you can request the sales tax data for sporting goods stores. The office will tell you the amount of sales taxes collected; you simply "work backwards" mathematically to determine the net sales. Of course, you must remember that, because of today's "scrambled merchandising" practices, sporting goods may in fact be sold by many other retailers that are not listed as sporting goods retailers (e.g., a discount store). Thus, the data are often obscured, and may understate the true market size.

Next, you can utilize local government sources of information, like the Chamber of Commerce, your local economic development corporation (if one exists), City Planning department, etc. These entities can tell you about traffic patterns, the number of businesses in a certain category. etc.

Finally, you can take advantage of local firms that collect information for a variety of purposes. The local shopping mall regularly does a profile of the Amarillo market so that they can provide these data to prospective tenants. Th electric company does likewise, in their attempt to lure companies to locate here.

Essentially, there is an enormous variety of information available; the only limitations are in knowing where to find it, and in how to use it.

Establishing an office in your home has never been easier. The proliferation of high-quality, relatively inexpensive office equipment and computers has made it possible for anyone to run a very professional office right in their home. Below are the essential items you should consider owning:

Fax Machine

While faxing can certainly be done on a PC, it is convenient to have a stand-alone fax machine for documents you may not have on disk. These units can be purchased for well under 300. Once you have a fax machine for a few weeks, you will wonder how you ever managed to get by without one all these years.

Personal Computer and Related Peripherals

This is a must have item. You can perform most of your important office tasks on the PC, such as written communications, desktop publishing, bookkeeping, database management, and more. It is important to buy one with enough RAM to be able to run all of the sophisticated software you'll need. You should also have a CD-ROM, and a large enough hard drive to store your files. A companion laser printer is necessary to make your communications look professional. A ZIP-type drive or other external device is nice to have for back-ups. An inexpensive scanner can be very helpful for paperwork reduction.

Voice-Mail System and Dedicated Phone Line

You will need to have a separate phone line for your business, in order to keep your personal calls from interfering. This will give your business a more professional air from the instant you or your voice-mail system picks up. Your voice-mail should have a professionally-sounding message, and, if necessary, multiple mailboxes. Digital answering systems that have three or more "mailboxes" are available for a little over $100.

Filing Cabinet(s)

Admittedly, this is pretty low-tech, but if you don't have a way of storing your paper files, you will wind up with a mess in your house.

Work Station

This can be as simple as having an 8-foot table (about $40), or as elaborate as having a nice desk, credenza, and leather executive chair. The point is that you need to have some dedicated space where you will work. The kitchen table is not a good place to have as your firm's world headquarters.

 

 

Shelving

If you carry any kind of inventory, you will need to dedicate a space in your home for merchandise, and you will need some uniform shelving to get the stuff out of boxes and off the ground. This will add order to your business, and also make your firm more presentable in case clients call on your home.

Laptop Computer

Although these can be expensive, if you have the occasion to conduct business on the road, they are a necessity. Plan on spending $1500 to $2000 for a good model.

Digital Camera

This is a nice optional piece of equipment. If you do any illustrating of products on the computer or the Internet, you will need one of these. It makes your texts and websites very attractive. Base models can be purchased for under $400.

 

 

The best advice I can give regarding financing is to pay-as-you-go; in other words, use cash! You will probably find it pretty difficult to secure bank financing as a home business, so it is best to rely on personal and family resources. Unless you are prepared to put other assets at risk for the sake of your business, I would recommend staying away from debt financing. For many people, the home business is a side-line, meaning they have other forms of employment. It would not be prudent to borrow heavily for something that may only be a part-time endeavor. By all means, do not use personal credit card debt to finance your business! With interest rates over 20% in most states, you will wipe out any profits you might have just in interest alone.

I also advise shying away from credit lines with suppliers. You will have to bare your soul in credit applications to be able to get 2/10 net 30 status. I prefer to have everything sent COD. Even though you pay nearly $5 for this privilege, it is well worth the cost because you will be able to avoid revealing your personal financial status, plus it will reduce your bookkeping and bill-paying tasks. As an added bonus, some companies can be persuaded to give you a discount for cash purchases, so it can be fruitful to be a cash-paying customer.

In order for your business to grow, you may find it necessary to be able to accept credit cards. Home-based businesses will probably find it difficult to find a bank that will allow you to open a merchant credit card account. Many banks require the applying business to have a storefront, meaning that mail-order and home-based firms have a distinct disadvantage. When you do find a willing bank, expect to pay 4% commission on each sale, plus 25 cents per transaction. But is it worth it? It sure is. Customers are more likely to purchase from you with their credit card, and are also more likely to spend more than a cash- or check-paying customer.

For your home-based business to prosper, it is imperative that you communicate with your publics. I will assume at this point that you know who your intended audience is--this is your target market. You should next determine how you can best reach your target market. Not everyone uses the same media, so what works for one target market may not work for another.

Advertising can be expensive if you are not careful. It is highly likely that your advertising budget will be very small. Thus, you will have to try to get as much "bang for your buck" as you possibly can. The advertising suggestions listed below can be done fairly inexpensively.

Business Cards, Letterhead, and Envelopes

These basic printed items will legitimize your business in the eyes of your customers, and will make you look as professional as your larger competitors. For $250 or less you should be able to get a sizeable amount of each of these items. Make sure you use them liberally. Each time you use them, it counts as additional exposure for you and your business.

Website on the Internet

The Internet is the great equalizer, because viewers on the other side have no idea how big or small your business is. With the right amount of creativity and programming know-how, you can have a huge "presence" via the Internet, while still conducting business from your home. Fees for placing your site on a web server at an ISP (Internet Service Provider) vary from $35 to $50 for a 10MB site. This is very cheap advertising. The downside, though, is the cost of developing and maintaining your site. Unless you know html, Java Script, and a few other tricks, you will have to hire someone to do this for you. Even college students have been known to work for $50 to $100 per hour for website design; a professional firm will charge much more. A better alternative is to study on your own, and/or take a course at a local college. The money you save will pay the site fees for many years to come.

Direct Mail

As soon as you have customers, start a database. Any time you have the opportunity to secure mailing lists of potential customers, do so. By directly mailing these people, you can increase the likelihood of a positive response. The key is to have a good mailing list. Make sure your list is screened regularly to weed out those who are not interested or qualified to purchase your wares. Also, make sure you keep your addresses updated, since about 1/15 of the American population changes addresses every year! If you send your mailings by bulk mail, they will not be forwarded, and you will have wasted your money.

Where do you get good mailing lists? Your only limitation is your own creativity. If you are selling religious items, you can likely purchase mailing lists from churches. Or, there are list brokers that can sell highly refined mailing lists. Seek out organizations where your target customers belong, and do everything possible to purchase or borrow their mailing lists.

While direct mailing has the detriment of being costlier on a per item basis than compared to advertising in a newspaper, it is usually much more effective because you can fine-tune your shots.

Newspaper Advertising

Probably the most cost-effective method of communicating your business through the available media (print, broadcast, outdoor, etc.) is through the local newspaper. You can achieve wide coverage across many demographic groups, and often at a fairly reasonable price. The primary shortcomings of newspapers are their short lifespan and haphazard reading patterns by conumers. Still, they can be a very effective means of announcing your products and/or services, even if it is something as inconspicuous as a small classified advertisement.

Press Releases

 

 

Whenever you or your home business does anything newsworthy, you should announce it by sending press releases to the appropriate media in your area. This would include newspapers and local magazines. Most TV stations likely won't be interested in a home business, unless they happen to be running a feature on the subject. Appropriate announcements could include the launch of your business, new services offered, or particular skills that you are able to provide. Press releases accomplish the same effect as advertising, but they do so for free, which means that it is up to the business to structure there press release so that it appears newsworthy and captures the attention of the media.

Internet Mail Distribution Lists

It is possible to build e-mail distribution lists of customers and potential customers that you can contact on a regular basis with your sales pitch. But, you must be careful to NOT spam mailing lists that don't want to receive your messages. You should only send to people who have agreed to receive your postings; otherwise, you may incur the rath of list managers and others who are offended by your having sent a message to an entire group of uninterested persons.

 

 

1. Why are increasing numbers of people starting home-based businesses?
2. What factors are contributing to this increase?
3. What types of home businesses (other than the ones mentioned) do you think have viability?
4. How can small home-based businesses compete with their larger, traditional competitors?
5. What do you see as the future for home-based businesses?

The two case studies presented below are illustrations of two successful home-based businesses. Please read them to see how business can be conducted in a professional manner from a household environment.

Skeptic Magazine/The Skeptics Society

Carl J. Sawicki Woodwind Repair

For more information on home-based businesses, please check out the following websites:

Massey Publications

Small and Home-Based Business Links

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