Thinking of starting a small business from the comfort of your own home? Take some time to learn more about the ins and outs of how to start a home business in Australia. From the approvals you might l need to seek, the types of insurance to investigate to the steps involved in starting up your business venture, there’s plenty to consider before you start selling your product or service.
What is a home-based small business?
A home-based small business can be a type of business that operates at or from your home. Your home may be your place of business, act as a base for your business or be a space where a small online business is managed.
Many people who operate a home-based small business may have a dedicated space in which they conduct business activities in an effort to reduce business costs and enhance their work-life balance. Many different types of small businesses could be run out of a home office, from e-commerce operations to some trades, making it a flexible choice that has the potential to suit a variety of people.
Approval of running a small business
Although you might be excited to launch your business, you may need to seek approval from several different parties first.
What do I need to get approved before I open a small business from home?
Before starting a small business from home, there are a few key approvals that you should consider. The first is an approval from your local council. While most councils around the country are quite supportive of home-based businesses, you may need to apply for approval before your business begins operating. In some circumstances, you may be able to operate your business without seeking council approval, but this will depend on the type of business, where you live and how the business will impact the surrounding neighbourhood. Consult your local council for the latest information about starting a small business from home in your area.
If you’re currently renting your home, you may need to seek approval from your landlord to operate a business from your home. A residential rental agreement may prevent you from conducting a business at your rental premises, so it’s always best to check before you get started.
Are you allowed to run a small business from a rental property?
You may be able to run a small business from a rental property, but the final decision does sit with your landlord and/or body corporate (if you are living in a strata building). Before you start operating a business from a rental property, first consult your rental agreement to see whether business activities are permitted within the house or apartment. If the rental agreement does not clearly outline what is and isn’t permitted, consult with your landlord and body corporate directly for their final decision. Seek written approval to ensure you have a record of this decision on hand, and, if the answer is a firm no, be sure to respect the decision made to avoid having your lease agreement terminated.
Considerations about tax when running a small business from home
Although many tax considerations apply to small businesses and home-based small businesses, there are a few differences that you may like to consider, including the deductions you can claim at tax time.
There are a variety of deductions that may apply to your business
If you’re operating a small business from home, you may be eligible to claim tax deductions for some of the costs associated with running your business. Although the types of expenses that you will be eligible to claim will vary depending on how and where you run your business, some common deductions include:
Occupancy-related expenses, such as rent, interest payable on a mortgage, home and contents insurance premiums, and council rates
Operating expenses, such as phone bills, electricity, furniture, cleaning, the cost of heating and cooling, and necessary repairs to equipment
The cost of business travel between your home and other locations
When you are working from home, it may be difficult to work out what proportion of some expenses, such as lighting, heating and cooling, you can claim as a tax deduction. The ATO provides several different calculation methods on the basis that you keep appropriate records to show how the calculations were made, you exclude your regular living costs and your claim is reasonable.
If you’re unsure of which expenses you may be eligible to claim as a business related deduction the ATO’s website, calculators and guides for home-based businesses may provide you with assistance or it may be more appropriate that you seek assistance from a qualified accountant.
You’ll need to keep records
It’s important to maintain a record of any purchase or business expenses that you intend to claim as a tax deduction. The ATO provides guidance around how long businesses are required to store financial records and the minimum timeframes can vary between five and seven years.
Records to consider for safe keeping may include receipts for furniture and equipment purchases, utility bills, a diary showing how you calculated the split between business and private use, and other written evidence that supports any information included in a tax assessment.
An accountant or tax agent might be worth consulting
Consulting an accountant or tax agent may also be a good business decision. Using their knowledge and experience, can assist you to comply with all relevant tax requirements.
What insurance should you consider when running a small business from home?
Insurance may seem like just another expense that you need to factor into the cost of your business operations, but taking time to consider your insurance arrangements can help to protect your business, your employees and your clients. Some forms of insurance that you may want to consider when starting a small business at home include:
Public and Products Liability Insurance
Public liability insurance helps to protect your business in the event of third party injury or property damage claims pursued against your business. Product liability insurance is quite similar, covering third-party injury or property damage claims arising out of your business’ products.
Personal Injury Insurance
If you are a sole trader, you may not be covered by a standard workers compensation insurance policy. Personal accident and sickness insurance, however, provides the ability to purchase cover for things such as specified injuries or sickness which lead to an inability to work and a loss of income.
If your business premises and its contents, including tools, equipment, stock and other business-related items, were to be damaged, Property Insurance offers some financial reimbursement for events covered under this policy.
Business Interruption Insurance
This is usually an optional feature under Property Insurance policies. Business interruption cover can help you to stay on top of your business’ ongoing expenses if your usual business operations were disrupted by an insured event, such as damage to your property, theft or fire.
Portable Property Insurance
When you need to use tools, laptops and other equipment to perform your job outside your home workspace, portable property insurance may provide cover for accidental loss or damage to specified portable equipment. Portable property insurance is also available as a feature under Property Insurance policies.
Theft and Money Insurance
Theft and money insurance is intended to provide cover if someone was to break into your home and steal stock, equipment or cash. This cover is also a feature available under Property Insurance policies.
Professional Indemnity Insurance
Mistakes can and do happen, but if a client was to initiate legal action against your business alleging negligence in the provision of your professional service, professional indemnity insurance is designed to assist your professional business.
Workers compensation insurance
If your business has any employees, it is likely that your business will need to take out a workers compensation insurance policy to cover your business and its employees if they were to be injured in the course of their employment.
Steps To Opening Up A Small Business From Home
Opening up a small business at home can be a daunting task, especially if it’s the first time you’re doing so. However, with some careful planning and a few formalities, you can have your small business up and running before you know it.
Secure your workspace
While starting a home-based small business might sound like a good opportunity to work from the comfort of your bed or couch, it’s important to find yourself a dedicated workspace where you can concentrate, avoid distractions and set a clear boundary between work and home. You might have a desk that’s used purely for work purposes, a room that serves as your workspace or a separate studio that you use to house your equipment and stock.
Create a business plan
You may have a great business idea in mind, but without the right planning, it may be difficult to turn your vision into a successful venture. Before you get started on building your small business, it’s a good idea to develop a business plan. This document outlines the goals of your business, any financial targets you may have and the steps you’ll take to help minimise the impact of any setbacks you may encounter. The process of creating a business plan can be a great opportunity to solidify the direction of your business while also working out what it will take to get you there.
Register for an ABN
An Australian Business Number (ABN) is an 11 digit number that is used by the government to identify your business. It serves many purposes, from helping other businesses confirm that your operations are legitimate to allowing you to secure an Australian domain name for your business website and is quite easy to obtain. You can set up an ABN online for free.
Develop a digital presence for your small business
Establishing a digital presence can be an important step for any new business, especially when starting a small online business. Modern consumers tend to turn to the internet when they want to learn more about a business, research the products and services available, and learn how to get in touch. Developing a good website can be a great way to build the credibility of your business, open an additional line of communication with your customers and even sell your product or gather leads. If it’s appropriate for your business, you may also consider setting up social media profiles, including a Facebook Business Page. This can be a good option if you’re wanting to build awareness around your brand or business.
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