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Five Common Mistakes of Home-Based Business Owners and How to Avoid Them

by Patricia Schaefer

More and more individuals are opting to work from home. According to the latest U.S. Census, nearly 4.2 million people worked from home in 2000; this up from 3.4 million in 1990. The Census estimates are for people who work most days of the week from home. Additionally, there are about 16 million more individuals who also work from home one to two days a week.

Many of these work-at-home individuals are entrepreneurs: The U.S. Department of Labor's Bureau of Labor Statistics reports that in 2004 more than 4.5 million people worked at home with a home-based business, these individuals comprising about 30 percent of the work-at-home population.

The advantages of a home-based business are many and include:

  • Zero commuting time and expenses
  • Lower start-up costs and overhead
  • Tax benefits
  • Optimum flexibility and time management
  • Part or full-time work options
  • The satisfaction of being your own boss
  • Greater income potential

The reality though of working from home presents a number of new challenges unique to the home-based business owner. Knowing about these potential pratfalls ahead of time can be a key factor in preventing them from becoming a roadblock to your home-based business success.

1. Not keeping business and personal life separate

Too many people have learned the hard way that if you commingle business and personal responsibilities at the same time, you won't make any real progress in either.

Family members need to know that your being home does not equate to being at their beck and call 24/7. Frequent interruptions can wreak havoc with performing business tasks efficiently. And when the chores of the household start beckoning, you'll need to be able to resist their call.

If possible, have an entire room of your home set up exclusively for your home business, optimally with an outside separate entrance if business clients or visitors will be coming to call. If not possible, and your home office is part of a larger room, be sure to partition it off with something like a screen or an area rug. Have a dedicated phone line for business use only, and make sure your home-business space has a door to close off any household noise. You may also need to come up with a "signal" so that family members know you literally "mean business." Closing your office door or affixing a sign reading "Hard at work -- Do not Disturb" may be all that's necessary.

And the flexibility afforded by having a home-based business doesn't mean there should be no schedule at all. Yes, it's great that you can adjust your work hours to attend Timmy's kindergarten graduation, but do plan out blocks of time every week devoted exclusively to the business and try to stick to it; i.e. every weekday 9 a.m. to 1 p.m., and 6 to 10 p.m. (i.e., when your spouse can take over care of the kids or household duties).

Remember, treat your home-based business as a "real" professional business and others will follow suit.

2. Not doing something you really like

"You have to love what you're doing, because then it won't seem like work to you, and you'll bring the necessary energy to profit from it."

Billionaire Entrepreneur Donald Trump

In addition to being good at what you do and fulfilling a real need in the marketplace, you need to have a real passion for what you'll be doing in order to be a success at it. If you don't love what you do, how will you "sell" it to someone else? Enthusiasm is contagious and so is the lack thereof.

Of course passion alone does not a successful business make. Other factors such as sufficient start-up funds, proper planning and management, and understanding cash flow all contribute to the success of your business. But, the ultimate factor in starting your own business should be that it will allow you to earn your living by doing something you truly like or love to do.

If not -- those sometimes-necessary long hours, those ups and downs, and those long trade journals -- may eventually be just too much to bear.

3. Not considering the legalities or protection of your home-based business

One tax consultant spent thousands of dollars renovating his home for his home-based business. He should have known that in areas zoned as "residential only," restrictions may rule out home businesses that involve the coming and going of customers, clients or employees. Soon after his neighbors became aware of his steady stream of client, their complaints started and then continued. Within months, this tax consultant closed down shop at his home and rented a building for his business on a nearby street zoned for business.

Don't leave yourself open to this type of scenario -- be sure to check with your city and county zoning boards to ascertain how the ordinances in your particular area may affect your home-based business plans. You may find that, for example, that business sign you were planning to hang outside your side door is forbidden, or that it is illegal for you to sell your products on your premises.

Another consideration: Will your homeowner's insurance policy cover the property and liability involved in your home-based business? Be sure to speak with your insurance agent about obtaining the coverage needed for your in-home business; sufficient coverage may be as simple as adding a fairly inexpensive rider to your homeowner's policy.

Like any other business, a crucial element in your home-based business success will be your ability to minimize potential risks.

4. Not charging enough

A college art student started a home-based business selling jewelry made with Swarovski crystals. She based her jewelry prices on what she felt were prices her prospective customers would be willing to pay. While tabulating her receipts for that year's tax returns -- and after countless hours of making her custom-made jewelry -- she was shocked to find that she had actually spent more on crystals and jewelry supplies than she had earned on her finished products. This dean's list student learned the hard way about appropriate pricing.

It's not just students who miscalculate pricing; this is a common mistake many home-based business owners make when setting prices for their products and services. New business owners often charge lower prices initially to drum up business. Then they find themselves in the awkward position of having to boost prices in order to stay in business, while customers' expectations for lower prices have already been set.

Prior to setting prices for products and services, business owners need to determine fair market pricing in their industry, and then establish and maintain an optimum pricing strategy. Pricing items correctly is a key way to: improve short-term cash flow; improve return on investment (ROI); and to manage and maximize profits. And when determining prices, don't forget to factor in the slow times -- every business has them. On the other side of the pricing coin, home-based business owners should periodically compare prices from different suppliers in order to get the best price for their business needs.

Don't forget that incoming revenue is the financial lifeblood and nourishment your home-based business needs to grow and thrive in order to stay alive.

5. Not considering a website

Every home-based business should consider a website. For the vast majority, a website can be a powerful and relatively low-cost way to announce a business, its products and services -- and reach prospective customers 24 hours a day. With a new home-based business, you may not want to tackle this right away, but failing to have a website indefinitely may prove to be a critical mistake.

Be aware that e-Commerce revenues are on the rise. Statistics from The Census Bureau of the Department of Commerce show total U.S. e-Commerce sales for 2005 at $86.3 billion; up from 15 billion in 1999 when e-Commerce sales were first tracked. Additionally, U.S. e-commerce sales are now 2.7 percent of total retail sales; up from .6 percent of total retail sales in 1999.

Remember, at some point, your home-based business should have a website -- one that is professional looking and well-designed, and one that enables users to easily find out about your business and how to avail themselves of your products and services.

Copyright 2006, Attard Communications, Inc.

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