Written by Working from home sounds like a dream come true for many entrepreneurs. And it can be when you make clear divisions between work and life.
Separating administrative areas helps you develop a professional business and keeps you out of legal hot water. Organizing your home office provides clarity when seeking necessary records. Plus, maintaining optimal work-life balance is required for your own well-being. Let’s learn how to make these divisions.
The Importance of Separating Personal and Business Activities
Maintaining this separation will reduce risks for your business and help you maintain a healthy work-life balance while protecting your business. Here are ways to manage these activities to build a successful home-based business.
Finances
First, consider how and why you must separate personal and business finances. Establishing separate accounts helps you maintain a professional appearance among your clients, vendors, and colleagues and establishes a reputation for your business. Building a clean credit slate for your company is also crucial.
Personal liability is a risk for small business owners who set up their businesses as sole proprietorships. Instead, consider setting up your company as a partnership, LLC, or corporation to protect your personal finances if something goes wrong.
Setting up separate business banking accounts tells the world you are serious about the longevity and success of your company. This is a crucial mindset for any entrepreneur.
Taxes
The IRS allows you to deduct some of your home-based business expenses, but the rules are complicated. For example, you can write off a dedicated room for your office, but you cannot write off shared spaces.
If you own your home, you may be eligible to deduct a percentage of financial items, such as homeowner insurance or utilities. You can also deduct the square footage of your home office. Hire a professional accountant specializing in small business to ensure you file accurately.
Vehicles
There are both pros and cons to using a personal vehicle for business. You can deduct mileage and expenses such as traveling to client meetings when using your car.
This has some drawbacks. Business travel can wear down the life and functionality of your car. It also means more frequent maintenance, and it can be challenging to determine what services you can write off. And if you damage your vehicle while working, you’ll need a rental car for backup. Consider buying a separate vehicle for business and see if commercial vehicle insurance is an option.
Legal Considerations
There will also be some legal considerations for your home-based business. In addition to incorporating, you must have the proper licensing and permits for running a business out of your home. This can get pretty complicated. Requirements may vary by location. Your safest bet is to hire an attorney to help you if this is required.
Zoning can be an issue for some businesses that deal with issues like onsite cooking, high customer traffic, or certain types of machinery. Research local zoning regulations before setting up shop.
Insurance and Bonding
Proper insurance and bonding are a must when you are self-employed to help avoid unwanted legal challenges. There are several types of insurance to consider:
- Professional Indemnity Insurance, also known as Errors and Omissions Insurance, protects you from civil lawsuits and negligence claims.
- General Liability Insurance, also called Commercial General Liability, is for business risks, like injury or damage.
- A Business Owner’s Policy offers you even more protection.
Certain professions require license bonds that ensure compliance with laws and licensing requirements. If your business hires people to work in homes or offices, such as cleaning services, you may also need a fidelity bond. This protects you from dishonest employees.
Records Management
It’s crucial to implement reliable records management systems. Two main types work well to keep your home office organized.
Storing your data onsite means having a personal server in your home. This allows you more control and access but requires a costly upfront configuration and regular maintenance. On the other hand, cloud-based services charge you a monthly or annual fee to keep your documents secure and easily accessible. This can be a hassle if your internet service is down or you run out of storage space.
Whichever type of system you use, make sure it offers the functionality you need to quickly access your data. This includes tools like keyword search, mobile access, software integrations, security functions, and required compliance.
Maintaining Work-Life Balance
For new business owners, maintaining a work-life balance is difficult, particularly when you work from home. In addition to having a dedicated workspace, you need to set up boundaries for yourself and those you live with.
One way to address this is by managing your time. This means grabbing your calendar and scheduling work hours plus time for yourself and your loved ones. To better manage your workday, create a task list. This helps you prioritize deadlines and must-do goals over less consequential tasks.
Whenever possible, delegate tasks. If you don’t have employees, you can outsource certain tasks, such as accounting or tax services. Or, you can hire freelancers for things like marketing or writing. Taking these small steps helps you to care for your well-being while growing a business.
Starting a small business from your home is rewarding, especially when you separate your business from your personal life. Put proper precautions in place to safeguard your company and learn to balance your work while still enjoying life. These steps will help you achieve your dreams and create a thriving business.