For many of the millions of Americans who lost their jobs over the past year, the next step is starting a business. And many of these enterprises are being launched out of the entrepreneurs’ homes.
Owners of new home-based businesses find there are pros and cons to running a company out of a spare bedroom. The upsides include a more flexible lifestyle and huge cost savings. Among the drawbacks: having to work alone, without a dedicated support staff, and keeping work and personal lives separate.
Joanne Hakim, who recently started her company, The Pen Is The Sword, in her house in Norwood, N.J., finds that a home-based business can be isolating after the experience of being surrounded by many co-workers.
“I took for granted the interaction that I had with colleagues every day,” said Hakim, whose business includes copywriting, editing and design. “You fail to realize the importance of stimulation in your life.”
But, she said, “you don’t have the constant interruptions that you do” in a workplace with many other people.
The transition can be easier for other owners. Charlene Li, who runs her new business, Altimeter Group, out of her San Mateo, Calif., home, was used to not having face-to-face contact with staffers or clients, since many were in other cities. She had a different challenge: She no longer had an information technology department to turn to for help.
“I’m a pretty techie person, but I still had a hard time figuring out how to set things up,” said Li, who has a consulting and speaking business.
One of the great advantages of launching a home-based business is the extremely low startup costs — aside from a PC, printer, fax machine and office furniture, the expenses are minimal. Hakim said that if she had to rent an office and start furnishing it, “that would involve an expense that I probably would not be ready to take on.”
“You can’t beat the overhead” of a home-based business, Hakim said, noting also, “you can write off part of the house.”
That’s because the IRS allows owners of home businesses to deduct part of their expenses including mortgage interest, repairs, utilities and insurance. Owners determine how much of the square footage of their home is dedicated to the business, and that percentage of expenses for the home can be deducted. That portion of the house can also be depreciated.
Some owners may be wary about taking a deduction for a home office because it was believed in the past to make a taxpayer vulnerable to an IRS audit. Tax professionals say that’s no longer the case — as long as the deduction is reasonable.
The IRS has information about the home office deduction in its Publication 587, Business Use of Your Home. You can access it on the IRS Web site, www.irs.gov/publications/p587/index.html.
Some owners might find, if they’re inviting clients, vendors or other business people into their homes, that they need to do a little decorating — including putting toys and bicycles away, and perhaps banishing cats and dogs from the rooms where visitors will be. Li does teleconferences from the room that serves as her office, but positions the camera so participants see professional-looking bookcases.
If it’s just not feasible to have business meetings at the house, owners can rent office space or meeting rooms by the hour, or perhaps use the office of a friend or relative.
Family members may well need to adjust to the presence of a business in the home — something that can be difficult for younger children.
Li, who has two children ages 8 and 10, said, “the hard things have been to train them, when my door is closed, to not come in.”
Hakim finds that having a business at home makes it a lot easier to work with overseas companies — including some in India, which is about 10 hours ahead of Eastern time.
“My hours are all over the place,” Hakim said. “I could be talking to India at midnight.”
Joyce Rosenberg writes about small business issues for the Associated Press.
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