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Setting Up Your Home-Based Business Workspace

Filed under Home-Based Business. Fact checked on May 24, 2012.

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When creating your home office space for your startup, consider these options and implications.

When you set up your home office, there's more to consider than just the space you will furnish and occupy. Can you safely perform the activities required by your business in a residential setting?

Legal restrictions on home offices must also be considered. Zoning laws are intended, in part, to preserve the residential character of neighborhoods. Will your neighbors believe that your business is somehow reducing the quality of the area? Are you going to have numerous employees or clients coming and going?

At some point, you may need to leave home and move to a dedicated work environment. What circumstances might indicate that it's time to move out of the home, or to restructure your business if you don't want to move?

Home-Based Space Considerations

The area of your home where you operate your business — your workplace — will have an impact on the success of your business venture. To make sure that this impact is positive, you will need to organize it so that it becomes an efficient tool of your business. Your workplace should encourage productivity when you deal with customers or clients, suppliers, family, friends, neighbors, and yourself!

Setting up such a work-conducive area requires wise choices of business and communication equipment and information sources, as well as accommodation to local zoning and other restrictions. To avoid having your workplace unduly drain business profits that may not yet be there, this should all be done on a tight budget. Take a close look at defining your work area, equipping your home office, and ensuring home office safety.

Defining your work area.The two driving concepts in creating a work space are:

  • Functionality
  • Cost

Your home office work area should allow you to perform all necessary duties of your business without unduly disrupting the functioning of the rest of your household, and should do so at a cost that does not put your new business too deeply in the hole.

Increasing functionality in your home office. Most people working out of their homes find it helpful to have the work area somewhat isolated from the "personal" areas of the home. Whether you will find this true for you depends on what type of product or service your business provides, how you work best, and why you're working out of the home in the first place.

The type of product or service that your business provides often largely determines where your work space will be situated in your residence. If clients and customers will be coming into the work area, it's usually best to have it as isolated as possible from the rest of the house. Doing so helps establish that you are serious about your business. Also, to the extent possible, your work area should be situated where customers and clients will have to walk through as little of your personal space as possible. If feasible, a separate entrance (or even a detached building on your property) to the work area might be best.

If your business involves working with power tools, other noisy equipment, or paint or other smelly solvents, it's probably the garage for you! But you still may want a desk or other work area where you can do your business's paperwork.

Considering the type of business that you operate, all signals may point to selecting a work area in your house that is as isolated as possible from the functioning of the rest of the home. But before you set up your office in your attic or crawl space, remember why you chose to work out of your home. If you did so to care for your children or elderly parents, such isolation might not work out.

Lowering the cost of your home-based business. Possibly you have decided where to put your work area and are thinking that physical changes should be made to enhance its efficiency (partition walls, wood paneling, sound proofing, carpeting, etc.). All of these may be good ideas — and possibly some or all of these changes should be done — but the question is, when? If you are just starting your home business, economy and efficiency should be your watchwords. 

Expenses of doing business often are larger than anticipated, and income may not flow in as quickly as planned. Because of this, it's a good idea to hold your initial spending on physical facility items to those that are absolutely necessary to kick off and perform your business. You can always upgrade your work area when the profits roll in. You might even include your desire for a better work area as a business goal: "When my weekly sales reach $XXX, then I'll carpet the office."

If you qualify, Uncle Sam may partially subsidize your home business in the form of income tax write-offs.

Equipping your home office. For the most part, our suggestions for acquiring equipment, tools, furnishings, and other business assets are the same regardless of whether you work out of your home or in a separate business facility.

Essentially, you should look at such acquisitions as investments of your valuable capital that will be made only after a careful analysis of your needs. You should avoid acquiring any item that won't make you and your business significantly more profitable, efficient, or productive.

In planning your home office, keep in mind that some people have the preconceived notion that home businesses are not as committed or as efficient as other businesses. If you bring customers or other people into your home work area, you should consider whether your desk, furnishings, and other equipment convey the right impression. Although these items usually don't have to be expensive or elegant, they may detract from your business image if they are battered or appear unbusinesslike. Your office equipment should convey the impression that you are serious about your business, and you are able and willing to provide your customers with superior products or services.

Ensuring home office safety. If customers, suppliers, or employees visit your home business, you'll want to take all reasonable steps to make sure their visits are safe ones.

Because your business shares space in a home, your business visitors may not think to look for hazards that are a part of the home, but are not usually encountered in a business. If possible, you should try to keep your visitors out of the personal areas of the house where the belongings of family members may create hazards (such as the skateboard at the bottom of the steps). Likewise, aggressive dogs or other animals should be kept away from visitors.

Regardless of how hard you try to keep your business area safe for visitors, you should always have adequate liability coverage.

Legal Restrictions on Home Offices

Setting up a home office means that you work and live in the same space. You may think that your home is your castle, but the government will beg to differ with you!

Federal and state government laws regulate the types of businesses you can run from your home. Moreover, zoning rules are often used by local governments to bar or limit the types of businesses that can be operated in a residence. You need to consider the impact that these restrictions will have on your home business.

Cottage industry regulations by federal and stage authorities. The Department of Labor, under the Fair Labor Standards Act (FLSA), can restrict work done at home in order to enforce the minimum wage laws.

Employees producing certain types of goods are protected from minimum wage violations by federal regulation. Violations of this regulation can result in civil and criminal penalties, as well as being forced to shut down the home workplace.

State law also may restrict the hiring of employees and outside contractors if they work out of their homes. You can check with your state's Department of Labor to see if there are any rules relating to this issue in your state.

Local zoning regulations on home-based business. If your workplace is also your home, local zoning rules may affect you. While some localities have no zoning laws related to working at home, cities and towns that do have zoning laws usually prohibit or restrict working at home. The main rationale behind these prohibitive or restrictive zoning laws is to maintain the residential character of a neighborhood. On the flip side, it is often illegal to live in some commercially-zoned areas where you are running a business.

Local zoning laws can impose many types of restrictions that will affect your ability to maintain a home office or business. Some localities restrict the right of property owners to build separate structures. There may also be restrictions on how much of your home can be used exclusively for your home office or business. For example, in Chicago you may not use more than 10 percent of the home exclusively for business. Local zoning laws can limit the number of employees you are allowed to have, or may not allow you to have any employees working in your home (other than domestics).

Zoning ordinances may also affect your ability to advertise or run your business. For example, some local ordinances prohibit advertising signage to maintain the residential character of neighborhoods. Many communities also have parking restrictions that could seriously impact your ability to conduct business. Restrictions on the amount and type of vehicular traffic in residential areas can also be an issue.

Zoning rules may also impose environmental restrictions or prohibitions on home businesses. Noise, smoke, and odor can all be subject to zoning rules. Certain types of equipment are prohibited due to environmental concerns. The disposal of chemicals, hazardous substances, etc., may also be regulated by zoning. These restrictions may prevent you from operating certain types of businesses from your home.

Researching zoning restrictions. If you're thinking of starting a home business, or you already have one, you should find out what impact the local zoning rules will have on your home business.

Every public library should contain a copy of the local ordinances, including zoning rules. You can pore over these at your leisure, without alerting any government officials about your plans for a home-based business. You may also be able to find information about local zoning rules online.

You may be able to get information about local zoning from non-government sources such as the local chamber of commerce, local industry associations, and trade groups.

Perhaps an easier, although less anonymous, way to get zoning information is to contact your local planning department or zoning board. They are usually accessible through your county offices if you live outside city limits or through city hall if you live within city limits.

If you live in an apartment building, we suggest you contact the manager or board responsible for setting up rules for activities in the building. Similarly, find out if your neighborhood has a homeowner's association and check its policy on businesses run out of the home.

If you live in a condominium or co-op, check the lease or ownership agreement to find out if running a business out of your home is prohibited. If you rent your house or apartment rather than own it, check your lease agreement because it might prohibit a home business.

Depending on your local laws, you may need a home-occupation permit or a business license to have a home office or business. The cost is usually a flat fee or a percentage of annual receipts from your business.

Consequences of zoning violations. If you know that your locality has zoning laws that prohibit running a business in your home and you already have a home business or plan to start one, what are the consequences of violating zoning rules?

Technically, if you are violating zoning laws by having a business in your home, you can be forced to close down. On the other hand, you may be able to remedy whatever is causing a nuisance and your business will be allowed to continue operating.

Tip

If your home business does not attract much attention from the neighbors and does not detract from the neighborhood, it is unlikely that you will run into zoning problems even if you are technically committing a violation. Local custom and usage (e.g., how the laws are actually enforced) and your relationship with your neighbors may be more important than the letter of the law.

While home offices or businesses have been shut down for violating zoning rules, the rules are often enforced only if neighbors complain about disturbances resulting from the operation of a home-based business. That's why arguably the most crucial step in operating a home business free and clear of zoning problems is getting your neighbors' approval. Their approval need not be explicit — although being upfront with them about what you are doing may work best.

Put yourself in your neighbors' shoes. If it wasn't your own business that was causing a particular change, how would you feel about it? While a change in the character of the neighborhood may be unavoidable, that change must be kept below the level where neighbors are angry or disturbed enough to lodge complaints. Formal complaints by neighbors could jeopardize not only the existence of your home business, but your quality of life as well. After all, not only do you work in the neighborhood — you live there, too!

If, despite your efforts to the contrary, you run into or anticipate running into zoning problems because of your home office or business, you can apply to the zoning or planning board for a variance. Keep in mind that avoiding this step is extremely desirable because variances are not easily granted. The following criteria have been used to determine whether variances should be granted:

  • Applying the zoning ordinance would deprive you of your livelihood.
  • The business use of your home would not harm the neighborhood.
  • The requested business use of your home is similar to one currently allowed in the area.

Is it Time to Move Out of Your Home-Based Business?

There are a variety of reasons why, at some point, it may be no longer desirable or feasible to run your business from your home. Some reasons relate to business growth, or its lack of growth. Others may have no direct relation to the business's performance.

Business is too good. Maybe this is your dream, maybe not: Your home business is so successful that your home just can't cope. Possibly the business has reached the point where you have to hire employees, buy more or larger equipment, maintain more extensive inventories, or deal with a steady stream of customers coming into your home. None of these seem to fit in with your idea of a desirable home environment. Further, the comings and goings of employees and customers might push your neighbors' simmering displeasure with your home business over the boiling point. If any of these have occurred, it may be time for you to relocate your business into a nonresidential setting.

You need to hire people. Some home business operators originally went into business for themselves because they wanted to work alone. To such owners, the idea of having employees or independent contractors reporting to them is a hassle to be avoided. If this describes your feelings, you would have these alternatives to consider if your business grows to where you would need to hire people:

  • Scale back operations so that you don't need anyone else in the business. This may be much easier said than done. Your existing customers or clients may not stay loyal to you if you refuse some of their business. Also, without a steady stream of new customers, your sales, and your profitability, may drop.
  • Sell the company. Selling a home-based business can be difficult. The new owner will have to deal with the disruption and cost of moving the business from your house. Further, the new owner may be concerned that existing clients may drift away once you are gone. Although your business may not be easy to sell, the fact that it is growing — now needing employees — may cause a potential owner to take a chance on prospects for additional growth.
  • Liquidate the business. If you won't operate your business with employees, can't scale it down, and are unable to sell it as a going concern, you may decide to shut down and sell off any valuable business property. But, unless your business property is in high demand, you shouldn't expect to get much for what you sell.
  • Bring in a co-owner. If you like what you're doing, but you don't want to deal with the additional work associated with having employees, you might want to consider bringing in a co-owner. If you can find someone that you can trust and get along with (family members may be good choices), you might be able to divide responsibilities so that the new co-owner would deal with all matters relating to employees, and you would deal with other aspects of the business. Since this would mean bringing employees and your co-owner into your house during business hours, you might also want to consider moving into a new, nonresidential location.

The market has dried up. If you determine that there is no longer a demand for your products or services, it's probably time to fold your tent. But this doesn't mean that you can't start up a profitable new home business. Many successful home business operators tried several businesses before they found one that they could run at a profit. If nothing else, much of the business equipment (desks, computers, telephone systems) that you have from an old business may be usable in the new one.

Your business hasn't grown as planned. It's possible that you won't achieve an acceptable level of profitability even though there is a market for your product or service. Maybe you can't get needed financing, find the competition stiffer than you envisioned, or realize that the business is demanding too much of your time and energy. Unless you can realistically expect circumstances to change, this may be a cue to look for different opportunities.

There's little personal satisfaction. Many employees become business owners — at least in part — to attain greater job satisfaction. Sometimes, however, financial success doesn't generate the expected personal satisfaction. The business may demand too much time, the work may lose its challenge, or the isolation resulting from working alone may be overwhelming. If you were unhappy as an employee, but even more so as the owner of a home business, it's time to reconsider working out of your home.

If you determine that there is no longer a demand for your products or services, it's probably time to fold your tent. But this doesn't mean that you can't start up a profitable new home business. Many successful home business operators tried several businesses before they found one that they could run at a profit. If nothing else, much of the business equipment (desks, computers, telephone systems) that you have from an old business may be usable in the new one.

It's possible that you won't achieve an acceptable level of profitability even though there is a market for your product or service. Maybe you can't get needed financing, find the competition stiffer than you envisioned, or realize that the business is demanding too much of your time and energy. Unless you can realistically expect circumstances to change, this may be a cue to look for different opportunities. Many employees become business owners — at least in part — to attain greater job satisfaction. Sometimes, however, financial success doesn't generate the expected personal satisfaction. The business may demand too much time, the work may lose its challenge, or the isolation resulting from working alone may be overwhelming. If you were unhappy as an employee, but even more so as the owner of a home business, it's time to reconsider working out of your home.

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