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Record Keeping, Taxes, Insurance And Permits
Record
keeping
Keeping accurate and up-to-date business records is, for many people, the most
difficult and uninteresting aspect of operating a home-based business. If this
area of business management is one that you anticipate will be hard for you,
plan now how you will cope. Don't wait until BAS or end of year tax time or until you are totally
confused. Take a course at the local community college, or a representative from the Small Business
Administration to help you in the beginning, or hire an accountant to advise you
on setting up and maintaining a record keeping system.
Your records will be used to prepare tax returns, make business decisions, and
apply for loans. Set aside a special time each day to update your records. It
will pay off in the long run with more deductions and fewer headaches.
If your business is small or related to an activity that is usually considered a
hobby, it's even more important that you keep good records. The Tax office may decide
that what you are doing is only a hobby, and you won't be allowed to deduct
expenses or losses from your home-produced income at tax time. So keep records
of all transactions in which you spend or bring in money. Pick a name for your
business and register it with local or state regulatory authorities. Call your
city hall or county courthouse to find out how.
Your records should tell you these three facts:
* How much cash you owe,
* How much cash you are due, and
* How much cash you have on hand.
Choosing a Record keeping System
Even though you may be small and just beginning, it is probably wise to consult
an accountant to help you decide which record keeping system is best for your
business. Once it is set up, you can use it to answer some of the basic
questions above, which all small business operators need to know.
Be sure to establish a separate bank account for your business--even before the
first sale. Then you will have a complete and distinct record of your income and
expenditures for tax purposes, and you won't have to remember which expenses
were business and which were personal.
It is important to choose a record keeping system that you understand and will
use. It will help you see how well the business is doing and is the first step
in responsible financial management.
Tax Obligations And Benefits
Significant tax savings are available to the home-based business owner in the
form of deductions, credits, and depreciation allowances. The time, money, and
energy you put into keeping good records and keeping current on tax laws will be
worthwhile and ensure that you operate within the law. You will need to plan for
income tax, PAYG withholding and superannuation (if you hire anyone), PAYG instalments
and other business-related taxes, such as GST.
As a home-based business owner you should be aware that every business
decision--each purchase and transaction you make--has tax implications or
built-in tax advantages or disadvantages. Deductions may be available for home
maintenance and improvements; automobile expenses; telephone expenses; office
and work space; inventory space; major purchases, such as a computer; and a wide
variety of other items such as uniforms, coffee service, trademarks, a safe
deposit box, credit bureau fees, and business cards.
Each business situation is different and tax laws change, so consult up-to-date
references, a trusted attorney, and an accountant who can advise you on your
particular obligations and benefits.
Insurance
Insurance helps to safeguard your business against losses from fire, illness,
and injury. You cannot operate without it. Talk with an insurance representative about your business needs. Check with the insurance carriers on
your home policy and make sure business use of your home is compatible with your
homeowner's policy. In addition to a homeowner's policy (personal plan), now
that you have a business, you will need a commercial policy for full protection.
Discuss these other possible needs with your agent:
* Product Liability Coverage--to protect you in case your product causes injury
to the user
* Auto Liability and "Non-owned" Auto Liability Insurance--if a car is
ever used to support the business in any way
* Public Liability Insurance--payable if someone is injured in your home whether
or not it was your fault
* Worker's Compensation--if you have employees
* Business Interruption Insurance or Earnings Insurance--in case your business
is damaged by fire
or some other cause and you must totally or partially suspend operations
* Disability Income Protection--a form of health insurance in case you become
disabled
* Business Life Insurance--to provide funds for transition if you die
Be sure to keep all your insurance records and policies in a safe place--either
with your accountant or in a safe deposit box. If you keep them at home for
convenience sake, then give your policy numbers and insurance company names to
your accountant or lawyer or put it in your safe deposit box.
Final advice for the wise business person is to read and understand the fine
print in all policies and to re-evaluate business insurance needs about
every six months.
Other Considerations
Another aspect of planning is corporate pension and profit-sharing plans, if your business is incorporated, or
a retirement plan.
If you have a partnership, consider making a Buy and Sell Agreement with your
partner(s). This agreement requires the surviving partner(s) to buy, and the
heirs to sell, the deceased partner's interest. The surviving
partner(s) then becomes the sole owner(s) and the heirs receive cash for their
share of the business.
Dealing With Laws: Zoning, Licensing, Permits, and
Others
Unfortunately, many home-based business people try to "slide" into
business, saying "I'll just try it for a few months and see how things
go" or "It's not really a business. I have only ten clients."
This attitude can
lead to a lack of planning and big disappointments. If you set up your studio,
print business cards and flyers announcing classes, and then find that
regulations make it illegal to operate out of your home, you may have to start
all over.
Zoning
Before you start your home-based business, do a thorough investigation of the
zoning laws in your community. Zoning regulations spell out activities permitted
and prohibited in specific portions of a city or county. Call your town hall,
zoning office, or local library to get a copy of zoning laws. Find out the
structure of your local zoning groups. Most areas have Planning, Zoning, and
Appeals Boards.
If the home business you are planning conforms to zoning regulations, then all
you need to do is keep abreast of new proposals that may affect your situation.
It's a good idea to stay in touch with others operating from their homes by
joining business organizations or neighbourhood groups in case you ever need to
band together to propose or oppose new regulations. Maintaining a low profile
and friendly relations with your neighbours will result in more support from them
should adverse regulations affecting your business ever be proposed.
If through your research you discover that the home business you are planning
would violate the zoning code, there are several possible ways to proceed. You might wish to check with an attorney who specializes in zoning law
to look for a legal way around the regulation. You might decide to apply to the
Zoning Board for a variance or exception. Or you may be able to change your
business enough to make the operation fit the law. If the regulation outlaws
businesses that employ people other than the owner at home, maybe you can have
employees take work to their own homes. If your business will create too much
traffic, consider another strategy for product distribution. If your business
will create too much noise, maybe you can soundproof your house. At last resort,
ask yourself "Is it worth it to organize a drive to change the law?"
Considering the rapid growth in the number of home-based businesses, you just
might find other entrepreneurs who are also interested in submitting a change in
the regulations to the Zoning Board. Go to meetings of the Board and try to
identify the person who appears most active and most sympathetic to your
position.
In the unfortunate and unlikely (most zoning officers don't have time to chase
people who aren't bothering anybody) event that you are issued a "cease and
desist" order, you should: 1) file an appeal immediately with the Appeals
Board (if you interpret the regulations differently than they do); or 2) submit
a change in the regulation to the Zoning Board to allow your business, which may
enable you to continue to operate without fines until the Board reaches a
decision. You may need a lawyer if you are not entirely familiar with the
regulations and the workings of the Board.
Cultural and national trends point in the direction of zoning regulations that
allow quiet, non-polluting, low-traffic kinds of home businesses. More
and more corporations are employing people to work at home. Most neighbourhoods will adopt a "live and let live" attitude if you keep your premises
neat and quiet and don't create traffic and parking problems.
Keeping Up With Zoning Legislation
There are two ways to keep up with zoning legislation in your community (and
with other topics of interest to home-based entrepreneurs). One way is to read
local newspapers, especially the business section and the local or
"neighbourhood" sections. Be sure you notice local items about such
things as proposed subway stations or the county's plan for revitalization.
Changes like these could eventually influence zoning in your area. The other way
to keep abreast of trends and zoning issues is to join the local chapter of a
business group, such as the Rotary Club, the National Association of Women
Business Owners, the National Family Business Council, or a Business and
Professional Women's Club. Through newsletters, meetings, and friendships that
develop, you will hear all the latest local (and national) issues discussed
while you learn valuable business skills and make useful contacts.