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How to Setup a Home Business

Updated on February 9, 2014
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Kate is a researcher and writer who holds a Bachelor of Science (B.S.) degree from Sonoma State University in California.

If you have had no luck trying to find a job, perhaps you would like to consider creating a job on your own. With a good idea, some hard work and the proper organization, it is possible to set up a home business of your own. There are always opportunities in all different fields for starting a business. Whether you want to provide a service or sell a product, the first thing you need to do is decide how your business will be organized.

There are 3 basic types of business formations for you to consider. The simplest and most often used by an individual starting a business out of his or her home is a sole proprietorship. If you want to go into business with a friend or another individual, you might look into forming a partnership. Finally, if you want to protect your personal assets and keep the business as a separate entity from your other financial dealings, you should consider forming a corporation.

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Step 1: Choose the Type of Business

A sole proprietorship makes the individual personally liable for the actions of the business. Any profits or losses are reported on the business owner's personal income tax form. The same is true for a partnership where each partner can be held liable for the actions of the company and they report their portion of the profits on their own personal tax forms. A slight exception to liability is if you become a General partner where your liability is limited to your investment, but, you usually do not have a say in the day-to-day operation of the business. A corporation separates the individual from the company. Liability for the actions of the business is assumed by the corporation and the officers of the corporation. The corporation pays its own taxes. It is a more complex way to organize a business and can cost more to form. There is no limit on a C corporation as far as its size is concerned. You can form a 1 man corporation or have a corporation with a million shareholders.

Step 3: Find Your Customers!

Assuming you have some working capital, the next step is to market your company and get potential customers interested in your business. If you are selling a service such as designing web sites, you will need to have a very professional web site of your own with plenty of examples of your work. If you want to sell shoes on EBay, you need to take a different approach. In either case, you should be well organized and develop a marketing and advertising plan that best suits your particular business.

Step 2: Develop a Business Plan

Once you have decided on the type of business structure, the next thing to do is to have a good business plan. In a business plan, you will lay out your objectives and goals and have a well-defined path about how you intend to achieve those goals. If you intend to get a bank loan or other financing for your new venture, having a professional looking business plan can help when you present your loan application to the bank or lending officer.

Step 4: Figure Out a Payment Method

Finally, you should have a good method of accepting payments and fulfilling orders as they come in each day or week. Customers should have as many options to pay as feasible including by credit card, PayPal, check and so on. Also, you should have a shipping policy so your customers will get what they ordered in a reasonable amount of time.


Having a home business can be a very good way to make a living and perhaps even become financially independent. There is no better feeling than how it feels to be your own boss and set your own hours. Most people start a home business because they realize it's important to work to live, and not live to work. Just remember, the more time and effort you put in to a home business, the better your chances of success.


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