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Working from home: some realities

Many people imagine working from home to be an ideal existence: no hassles travelling to work, no boss breathing over their shoulder and freedom to spend their time in what ever way they want. The reality, however, is very different.

Being your own boss is demanding in its self. You must be prepared to establish and work for realistic goals; you must have self discipline and, perhaps above all, persistence and determination to succeed.

Working from home involves additional strains and obligations. On the one hand, there may be social isolation that results from not meeting people everyday on the job; on the other hand, there are the problems of combining work and family life in the one place, of overcoming distractions and of being sufficiently productive in an environment where it is all too easy to ‘put it off till tomorrow’.

Working from home: some realities

Despite the problems mentioned above, a wide range of businesses are operated successfully from their owners’ homes. Here are some of the possibilities:

• Manufacturing: crafts, making simple appliances, food preparation and preservation, making toys, printing, dressmaking and contract sub-assembly work for factories.
• Retailing: mail order selling, personal network selling, selling garden produce and low volume imported produce.
• Services: by far the largest category, includes:
  1. professionals (doctors, vets, accountants)
  2. tradespeople (carpenters, plumbers, electricians)
  3. people involved in ‘information based’ services (consulting, freelance writing, typing and word processing)
  4. people who offer domestic services to other households (pest control, gardening, house minding, babysitting, cleaning, maintenance, rubbish removal, lawn mowing)
  5. personal service businesses (music teacher, running classes and groups of all kinds, hairdressing, beauty care and so on)

Is your business suitable for home operation?

Not every kind of business makes a good home business. Also, introducing a business in your own home is likely to cause some changes, to which not every member of the family will take kindly. Consider the following questions:

• Would the business involve the employment at your home of more than two people from outside the household?
• Is the business noisy, dirty, smelly or otherwise likely to disrupt a residential neighbourhood?
• Does the business require the storage of bulky items?
• If the clients need to come to you, is your home difficult to locate?
• Does you type of work require frequent contact with others in your field?
• Would there be sufficient visitors to your business to create parking problems in the street?
• If you are transferring an existing business to your home, are your present clients likely to go elsewhere?
• Is the local government authority likely to forbid or restrict you conducting you type of business from home?
• Many home mortgage agreements prohibit a business being conducted from the building. Do you have a mortgage with these restrictions?

If you answered yes to either of the last two questions, then your first priority is to check out your plans with the authorities concerned. If you answered yes to most of the other questions, then you should, in any case, think seriously of starting your own business in other premises.

Is your home suitable for a business?

Consider the questions in the following checklist to see how suitable your home is for your intended business, and what changes might be needed before you start.

If your home lacks any of the above facilities which you will need, you would be wise to plan to obtain them before you actually start your own business. However, before committing yourself to costly home alterations, it would be prudent to obtain professional advice from an accountant or tax agent on whether any tax deductions might be applicable. In recent years it has become increasingly difficult successfully to claim ‘home office’ type expenses as tax deductions.

Getting started

A lot of small businesses are started with great enthusiasm and energy, but without much thought or planning. This is a recipe for failure. Before you start your business you need to lay careful plans. This means carefully thinking through the different issues involved.

The following ‘starters checklist’ has been designed to help you do your planning. If you study each of the sections which are expanded in the rest of this booklet, you should avoid the pitfalls which lead to business failure.

Starters Checklist:

• Ask your local council for permission to run a business from your home.
• Prepare a business plan for the first six months.
• Discuss your idea of running a business from home with your family.
• Consider what space your business will need.
• Make use of free advice on small business.
• Discuss your idea of running a business from home with your neighbours.
• Work out a marketing strategy for your business.
• Consult an accountant on the best business structure, tax concessions and bookkeeping methods.
• If you intend to run your business as a partnership or company, consult a solicitor.
• If you do not intend to run the business under your own name, register the name of your business.
• Ask an insurance broker to advise you on insurance.
• We will now deal with each of the points in the ‘Starter’s checklist’ in detail

Your business plan

The business and your family

Watch for the strains

Almost anyone who owns a business will tell you that it puts extra strains on a family relationship. Business pressures have been the cause of more than a few marriage break-ups, usually because one partner in the marriage is so tied up with the business that he or she is hardly ever at home. Running a business from home helps to avoid that particular problem, but you do need to recognise that introducing a business into your home is likely to cause some changes, which may not be popular with every member of the family.

Family teamwork

In some businesses it is possible for husband and wife to work as a team. This is particularly the case where one spouse provides a service to the public which involves going out to customers. The other partner can run both the home and the office, acting as a secretary, receiving phone calls for new business and perhaps doing the bookkeeping as well. In this type of arrangement it is very important to have a telephone answering machine, so that the home-based partner is not tied to the house when the other partner is away. Such a facility enables the children to get undivided attention when they most need it; for example when they first arrive home from school and are bursting to tell you all their news.

Your children – a business asset?

Older children can be a real asset to the business when it comes to answering the phone. One furniture removalist who operates from home said that he believes that he actually wins some business, especially from older people, because of the polite and efficient way his children answer the phone. It’s logical when you think about it: people may figure that if he can organise his kids that way, he is likely to have a well organised business! However, another view could be that callers might consider it unbusinesslike to deal with children. If you take this view, you will need to think of alternatives, such as using an answering machine.

Your children may not, however, always enjoy your running a business from home.

John and Irene run a craft supplies business from their home. They have set days and times when the business is officially ‘open’. However, new customers are not always aware of this and sometimes come when John and Irene are involved in activities with their three young children. Naturally neither the children nor the parents enjoy that kind of interruption; it is an aspect of the business they would rather do without. But they do not have a simple answer to the problem.

If you expect to have business visitors coming to your home when the children are there, you really need to arrange your house so that the children can ‘be themselves’ without disturbing your business conversations. If that is impossible, cooperate by being as quiet as possible when the situation arises.

Space for the business

Business operations need space. Even the smallest business – such as one person working part time requires a record system. A couple of files may be sufficient, but they need to be stored somewhere. If you are planning that type of operation, then it may be adequate to allot part of a shelf in a bookcase for your files. For larger businesses it may be necessary to buy a cupboard or filling cabinet especially for all the files and papers connected with the business. A two drawers or three drawer metal filling cabinet is ideal for this purpose. Ideally it is best to have a separate room set aside as your business office. (If you have a workshop for the business, then the office might consist simply of one corner of the workshop.) One advantaged of having a separate office of this kind is that it entitles you to certain tax concessions, since it can be clearly defined as a business expense.

The following list identifies the equipment that may be required in a home based business office:

• Desk- preferably with drawers, one of which is deep enough to hold suspension files;
• Type writer- even the smallest business should have a typewriter, as invoices, receipts and the occasional business letter can be set out much more neatly if typed, it gives a better impression of the business;
• Desk lamp- not essential, but can help to reduce eyestrain if the main lighting is not ideally positioned to avoid shadows;
• Small desk items- (which could alternatively be kept in a drawer for the sake of tidiness) rubber stamps, stamp pads, hole punch, stapler, stapler remover, adhesive tape, etc;
• Telephone- if you can afford it, install a separate phone for your business, if you make a lot of calls, pay extra for the push button dialling, don’t forget to have a telephone index and note pad near the telephone;
• Adjustable chair- if you expect to spend a lot of time at your desk or computer, get a well made ergonomic chair, the lessening of fatigue will make the extra cost worthwhile;
• Bookshelves above your desk- so that you use them for books and files to which you need regular access;
• Product display board- for information you would like visitors to see;
• Notice/reminder board- a place to pin up notes to yourself regarding urgent telephone messages, or any other information you need to refer to;
• Fluorescent lighting- not essential, but adequate lighting improves business efficiency;
• Decorative plant- for making your working conditions as a attractive as you can without losing efficiency;
• Photocopier- not essential but very useful;
• Fax machine;
• Stationery supplies cupboard
• Waste bin;
• Visitor’s chair- to create the best atmosphere for meetings with clients, ideally you need two comfortable chairs, one for your client and one for yourself;
• Computer keyboard- make sure you have this at the most comfortable working level;
• Computer visual display unit;
• Computer disk drives- these are often placed beneath the visual display unit to save space;
• Computer printer- a ‘letter quality’ printer means you will probably not need a typewriter.

Your clients

Apart from needing space for the office (and possibly workshop) for your business, you will need space to receive clients if it is necessary for them to come to your house. We have already mentioned the need to have a separate area for the family to ‘be themselves’. The converse of this is that you also need an area where you can conduct business with your clients without being disturbed. If you have an office to take them into, there is no problem. If, on the other hand, you must use your lounge room or family room, recognise that the tidiness and cleanliness of your home is an unspoken message to your client about you and your family. Whatever the impressions is, it will reflect on your business, for better or for worse!

When clients arrive at your house, it will help you and then if you have a small notice directing them to the right door. This is particularly important if your office is at the side door or back of the house, as you will not want to be called to the front door each time. If your house is identified by a number, make sure that it is large and clear and not obscured by trees or bushes.

Your stock

Mary’s home business is selling bee-keeping supplies. For most of the year she is able to accommodate all the stock in the carport, which also acts as the distribution point for customers. August and September, however, are the busiest months for the business and a lot of extra stock has to be held just for that period. At the moment Mary puts up with the inconvenience of having it spread around the porch, hall and other parts of the house. Without building a larger shed, there seems to be no easy solutions to the problem – just one of the ‘joys’ of having a home business.

Neighbours

Nobody wants to be known as a ‘bad neighbour’, yet it is a reputation that quite a few people with home businesses have acquired. If you want to avoid earning that kind of reputation, you will need to be very careful how you go about running your business from home. There are at least four aspects of your business which are potential sources of trouble.

Noise pollution

Different people have different tolerance levels for noise.

As part of his home business – doing sub-assembly work for a local firm- Richard operates a stapling machine from time to time. Not a very noisy device, you might think, especially in the confines of a garage, but the retired couple who live next door to him complained to the authorities about it.

If you expect to do hammering, planing, sawing, stapling, riveting or any other task liable to draw complaints about noise, then it would be as well to discuss your plans with your near neighbours. People can sometimes tolerate greater inconvenience if they are forewarned. It might even be possible to reserve your noisiest tasks for times when the neighbours regularly go out.

Air pollution

This is, perhaps, a more serious factor than noise pollution, since it might have a direct effect on people’s health. Air pollution can be caused from any kind of burning, vapours from chemicals or paints, smells and dust from animals, cooking or processes. Make sure that you check out local regulations regarding air pollution early in your planning if you think that your business could have a problem in that area.

Visual pollution

Visual pollution in this context is anything that spoils a neighbour’s outlook. If you live in an attractive residential area, then you have public duty to help maintain that attractiveness. It affects the values of the properties, including your own house, of course. Leaving untidy heaps of scrap materials or even equipment in the front yard may be considered visual pollution by your neighbours. It is therefore best to plan, right from the start, to maintain a high standard of tidiness for your business.

Ron, who runs his building business from home, erected a very large but neat looking shed in his backyard. He says that he never leaves any equipment or materials outside; it goes in the shed. He has never had a complaint from his neighbours.

Visitors

Many of us have had the experience of neighbours putting on a party, with the result that the whole street is jammed with cars, even blocking one’s own driveway. Most people are able to react calmly when that happens, as they know that it is unlikely to happen again for a few months. But it would be a different story if it were to happen almost every day.

If you expect to have customers coming to your home, then you will need to ensure that the parking is adequate. The average house frontage probably has room for two cars to park. If you have your own vehicle in the driveway and three or four customers happen to arrive at the same time, they will have to park outside the neighbouring houses. Sooner or later, someone may inadvertently or thoughtlessly park in front of your neighbour’s entrance, and at the very time your neighbour wishes to go in or out! There is no easy answer to this, but ‘forewarned is forearmed’. If you discuss this possibility with your neighbours before it even happens, it will show your neighbour that you are concerned that your business activities should not inconvenience them. Then your neighbours are more likely to view the actual event sympathetically and calmly.

When Jill, who runs a word processing service from her home, talked to her neighbours about the parking problem, two of them offered the use of their driveways, since they were out at work all day anyway.

It is also a good idea to ask your customers to be thoughtful in their parking, if you have the opportunity to forewarn them.

Free advice on small business

Free advice is available from the Botany Bay BEC website:

You can email

Local authority regulation

Most local authorities have rules about the use of property and land within their area. Sometimes whole areas are designated for particular purposes, such as ‘residential’ or ‘industrial’. To avoid future problems, it is essential to find out, before you start, whether or not you would be allowed to run a business from your home. The answer may depend on the kind of business you want to run. Also, different local authorities have different rules. You are unlikely to get an immediate ‘yes’ or ‘no’ for an answer. The local authority will probably ask you a number of questions about the business you are proposing to run. They may send an inspector to your home to assess such things as availability of parking space and the effect of noise on other residents. Since a certain amount of time will be required before a decision is made, it is available to submit your application as early as possible.

As an example, in New South Wales, home based businesses can only be operated on either ‘home occupation’ or ‘cottage industry’ residential zonings. Where motor vehicle traffic is increased due to business activities or additional air, noise or visual pollution is caused, development approval will be refused. If the business employs others, or requires, motor vehicle repair or used vehicle licences, a shop and factory licence, second hand dealer’s licence, pressure vessel licence or meat or food licences, permission will generally be refused by the local authority.

Similar requirements apply in other States and Territories. It must therefore be stressed again that you should discuss your plans to run a business from your home with the local council before you actually start.

Certain types of business also require special licences. In the case of food preparation businesses, regular checks are made by health inspectors. The office of the local authority will be able to supply you with information about these matters.

Ray, who is employed as a mechanic at a large garage, started doing repairs to his friends’ cars in his backyard at weekends. It was only when an official paid him a visit, after a neighbour had complained about exhaust fumes and noise that Ray learnt that he had to have official approval to operate a business at home, even if it was only part-time business.

Ignorance of the law is not a valid excuse, so it pays to find out all you can about local regulations.

The following checklist identifies the possible regulations that you may have to comply with and licences that you may have to obtain:

• Local council approval to operate business from your home
• Registration of premises
• Registration of equipment such as compressors, lifts
• Health and safety regulations
• Builder’s licence (contractors and sub-contractors)
• Electrical contractor’s licence
• Plumber’s licence
• Second-hand car dealer’s licence
• Food preparation licence
• Goods trade description regulations
• Trade Practices Act
• Sales tax
• Income tax
• Payroll tax
• Workers’ compensation insurance
• Long service leave
• Superannuation
• Wage awards
• Building codes
• Standards
• Hawker’s licence
• Care labelling of fabrics regulations

Marketing strategy

What does the word ‘marketing’ suggest to you? Many people reply ‘selling something’ to that question. However, there is much more to marketing than just selling. Businesspeople who think that selling is all there is to marketing will probably not sell very much! The term ‘marketing’ covers a whole range of activities which will ultimately result in successful sales: market research, market positioning, promotion and advertising. For more details refer to Marketing your business (new biz).

Financial advice

All too often, prospective new business starters are reluctant to pay for professional advice. This is understandable, as funds are usually very limited at that time. Yet it is often at the starting stage that most financial benefit can be gained from such advice. This applies particularly to understand what tax concessions are available to you as a self-employed person. It also applies to the setting up of a suitable bookkeeping system which can expand as your business grows. A lot of small businesses get into difficulty through lack of proper financial management.

Legal advice

If your accountant advises you that it would be advantageous to operate your business as a partnership or company, you will need a solicitor to draw up an appropriate legal document for the business.

Carelessly thought-out business partnership often ends up causing problems for one or more of the partners. Anything that is agreed between partners regarding the way the business is to be conducted should therefore be properly documented and signed by all partners.

Your business name

If you call your business by your own name, for example, ‘JR Bloggs’, or even your name and your spouse’s name, for example, ‘JR and PK Bloggs’, then there is no need to register a business name. However, if the business has another name, for example, ‘JR Bloggs Electrical Contractor’, or ‘JR and PK Bloggs Partners’, the name must be registered. This is done by applying to the Registrar of Business Names in your State or Territory. A fee is charged, as a search has to be made to make sure that no other business has a similar name.

When thinking about a business name, bear in mind that the day may come when you want to sell the business. Since the name of the business carries some goodwill with it, you may decide that it is best to choose a name which you will not mind selling. After all, you may not want to sell your own name.

Insurance

It is in your interests to make sure that you have adequate insurance cover before starting your business activities. The types of insurance you will need will depend on the kind of business you operate, whether you employ staff and whether you have any special equipment.

An occupier of property or premises has certain obligations to others. A person who enters premises and is injured may be able to sue the occupier for damages. Occupiers can take two precautionary measures: make sure that their premises are as safe as possible and take out an insurance policy to protect themselves against the possibility of damages.

An insurance broker will be able to advise you on your insurance needs and quote costs. Use the following checklist so that you do not overlook any insurance that might be necessary.

Types of insurance

• Public liability and property damage (this is usually included in home insurance policies, but check with your insurance company that your policy will cover business clients)

Special note: in general, household insurance does not cover business activities.

• Worker’s compensation – compulsory if you employ staff, or if you are running your business as a PTY LTD Company and you are an employee of the company
• Sickness and accident - to protect yourself (remember that workers’ compensation insurance only covers employees)
• Fire – if you have insured your house and its contents you will be covered against fire risk; but check that operating your business will not alter the insurance contract
• Fusion – covers loss caused by damage to an electric motor by electric current; it is particularly important if you have refrigerated stock;
• Comprehensive vehicle insurance – this is additional to the third party insurance cover obtained when you pay your registration on the vehicle; it covers you against damage, fire or theft of your vehicle for which you cannot sue another person
• Loss of profits insurance – provides you with an ongoing income if your business has to cease temporarily due to some crisis such as a fire destroying the premises

Conclusion

Working from home initially offers the most economic way for many people to join the ranks of the self employed. For some people, with home commitments, it is the only way. Although running a business from home can reduce the financial risk of starting a business, it introduces other risks, such as a disrupted family life and strained relationships with the neighbour.

Plan carefully if you are thinking of starting a home business. Use all the free advice available to you. Pay for professional advice where necessary. Talk it over with your family and neighbours. Get official permission. Then, work at it! There is no prize for the half-hearted in the competitive world of business.