4 Mistakes to Avoid When Starting a Business from Home

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Table of Contents

• Failing to Plan
• Inadequate Financing
• Ignoring Laws and Regulations
• Not Having a Separate Space for Business
• Key Takeaways
• Frequently Asked Questions

Starting a business from home can be exciting, especially if your business is something you are passionate about. However, you should ensure you are not overly hasty in starting your business, as this can lead to costly mistakes. This article will outline four common mistakes to avoid when opening your new business from home. 

Failing to Plan

Many home based entrepreneurs fail to develop a business plan. Without a plan, you risk driving your business in the wrong direction and may fail to achieve your goals. A business plan enables you to track growth and attract investors. When creating a plan, aim to keep it simple and to the point. As a result, your business plan can be clear to anyone who views it, such as investors, employees, or future business partners. 

Business plans should generally include:

• a business model;
• financial plans;
• marketing strategies;
• a target market;
• identified competitors;
• budgets; and
• products and services.

Inadequate Financing

Without adequate capital, your business may not leave the ground. As a result, you need to create a finance strategy to understand how your business will continue making a profit. Plan your startup on a budget and factor in costs such as computer equipment, materials, and home office furniture. Financing options include:

• bootstrapping;
• having a partner;
• friends and family;
• crowdfunding;
• angel investors;
• venture capital; or
• bank loans.

After figuring out how much capital you need and where you will get it, you need to keep accurate records of your finances. This will ensure you know where your money is going and whether it is being invested in the best way possible. Furthermore, you can track how much return you are getting on your investments (or on your investor’s investments). When running your business, you may need to pay taxes which highlights the need for accurate record-keeping. 

Ignoring Laws and Regulations

There are certain laws your home based business will need to comply with. Many businesses fail to comply with laws and run into trouble later on. In addition to this, there may be specific regulations your business must follow depending on what your startup does. 

For example, your startup may be selling food from home, in which case you must comply with food and safety regulations. You may need to obtain a food control plan and ensure the workplace is hygienic.

We will consider three important consumer laws you should review so you understand your obligations under the law:

• Consumer Guarantees Act 1993 (CGA);
• Fair Trading Act 1986 (FTA); and
• Privacy Act 2020.

Consumer Guarantees Act (CGA)

The CGA aims to protect consumers by seeking remedies if the goods are faulty. The Act also outlines minimum standards your products and services must meet. Minimum standards include:

• acceptable quality;
• fit for purpose;
• match description, sample, or model;
• reasonable pricing;
• products arrive on time and in good condition;
• spare and parts and repairs available (if not, then the customer should be aware of this before the sale); and
• guarantees and warranties.

Fair Trading Act (FTA)

The FTA aims to promote fair competition and ensures your business does not misrepresent its products or services in any way. This means you must be honest and accurate when advertising or describing your goods to your customers. Importantly, you cannot make claims about your goods you cannot substantiate. For example, you cannot say your baked goods are organic when this is not the case or you do not have sufficient evidence to prove this. Furthermore, your goods must comply with health and safety requirements. 

Privacy Act

Your business may collect personal information in the course of transacting with consumers. You should be aware of what constitutes personal information, as the storage and use of personal information is regulated by the Privacy Act. Personal information includes a consumer’s:

• name;
• email address;
• physical address; and
• credit card information.

As a matter of best practice, you should clearly communicate to customers how you collect, manage and store their personal information. Furthermore, you need to outline how the information will be kept secure from privacy breaches. You must ensure that personal data is not disclosed or leaked to anyone without authorisation. Finally, this information should be readily available upon request, such as by having a webpage on your website.

Not Having a Separate Space for Business

Separating work and personal life can be difficult, especially if you are conducting business activities from home. However, it is still necessary and beneficial to have a separate area to work and run your business. Creating a professional environment can help you focus and increase productivity levels. 

Your separate work area does not have to be huge. It can be a small room or an office in your household. However, your work area must be stable and consistent with maintaining a professional vibe and consistent workflow. 

Key Takeaways

When starting a home-based business, there are four critical mistakes you should strive to avoid. These include:

• failing to have a business plan;
• not having adequate finance to run your business;
• ignoring laws and regulations; and
• not having a separate work area.

By avoiding the above mistakes, you can sustain a successful business and achieve your business goals. If you need help starting your home-based business, you can contact our experienced startup lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at  0800 005 570 or visit our membership page. 

Frequently Asked Questions