01_577638 ffirs.qxd 1/26/05 7:30 PM Page iii Home-Based Business FOR ‰ DUMmIES 2ND EDITION by Paul and Sarah Edwards and Peter Economy 01_577638 ffirs.qxd 1/26/05 7:30 PM Page iv ® Home-Based Business For Dummies , 2nd Edition Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2005 by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600. Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, 317-572-3447, fax 317-572-4355, e-mail: 01_577638 ffirs.qxd 1/26/05 7:30 PM Page v About the Authors Paul and Sarah Edwards’s self-employment and career books have sold over a million and a half copies. They write monthly columns for Entrepreneur and The Costco Connection. They hosted The Working From Home Show on HGTV, have been regular commentators on CNBC, and appear frequently on radio and TV shows across the country. Since 1988, they have produced and co-hosted an hour-long show Working From Home, which currently airs on The Entrepreneur Radio Network at www.wsradio.com/entrepreneur_ homebasedbiz/. Occasionally, their show, broadcast from their California home, is enriched by the barks of Billy, their toy Manchester Terrier. Paul and Sarah provide a wealth of ongoing information, resources, and support, including updates, marketing tips, and excerpts from their sixteen books on self-employment at www.workingfromhome.com. Peter Economy, who lives in La Jolla, CA, is a home-based business author and the coauthor of Why Aren’t You Your Own Boss? with Paul and Sarah Edwards, Managing For Dummies and Consulting For Dummies with Bob Nelson, and Writing Children’s Books For Dummies with Lisa Rojany Buccieri. Peter is also Associate Editor for the award-winning magazine Leader to Leader. Peter combines his writing experience with more than 15 years of hands-on management experience. He received his bachelor’s degree in economics from Stanford University and is pursuing his MBA at the Edinburgh Business School. Peter invites you to visit his Web site (www.petereconomy.com). 01_577638 ffirs.qxd 1/26/05 7:30 PM Page vii Dedication To the millions of home-based businesspeople whose entrepreneurial spirit shines as a beacon, inspiring those around you and lighting a path to the suc- cess you so richly deserve. 01_577638 ffirs.qxd 1/26/05 7:30 PM Page ix Author’s Acknowledgments We give our sincere thanks and appreciation to our original publishing team: Kathy Welton, Mark Butler, and Tere Drenth. For the current edition, we thank Stacy Kennedy, Corbin Collins, and Beverley Williams. Paul and Sarah also extend their thanks to Peter Economy for his dedication to this project. Peter thanks Paul and Sarah Edwards for the opportunity to work with them on this dynamic topic, and for sharing their extensive experience and wisdom with him. Together, we rediscovered the joy of doing the work that we truly love and the power of teamwork. 01_577638 ffirs.qxd 1/26/05 7:30 PM Page x Publisher’s Acknowledgments We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Composition Media Development Project Coordinator: Maridee Ennis Project Editor: Corbin Collins Layout and Graphics: Andrea Dahl, Acquisitions Editor: Stacy Kennedy Lauren Goddard, Joyce Haughey Stephanie D. Jumper, Barry Offringa Technical Editor: Beverley Williams Heather Ryan, Julie Trippetti Editorial Manager: Michelle Hacker Proofreaders: Leeann Harney Jessica Kramer, Editorial Supervisor: Carmen Krikorian Joe Niesen, TECHBOOKS Production Editorial Assistants: Courtney Allen, Services Nadine Bell Indexer: TECHBOOKS Production Services Cover Photos: Rob Melnychuk/Getty Images/ Taxi Cartoons: Rich Tennant, www.the5thwave.com Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Joyce Pepple, Acquisitions Director, Consumer Dummies Kristin A. Cocks, Product Development Director, Consumer Dummies Michael Spring, Vice President and Publisher, Travel Brice Gosnell, Associate Publisher, Travel Kelly Regan, Editorial Director, Travel Publishing for Technology Dummies Andy Cummings, Vice President and Publisher, Dummies Technology/General User Composition Services Gerry Fahey, Vice President of Production Services Debbie Stailey, Director of Composition Services 02_577638 ftoc.qxd 1/26/05 7:30 PM Page xi Contents at a Glance Introduction .................................................................1 Part I: Beginning at the Beginning ................................5 Chapter 1: What You Need to Know about Home-Based Businesses ..........................7 Chapter 2: Mirror, Mirror on the Wall, What’s the Best Business of All?...................21 Chapter 3: Hot Opportunities Now and for the Future................................................45 Chapter 4: Marketing 101: Getting Customers..............................................................65 Chapter 5: Making the Web Work for You......................................................................87 Part II: Managing Your Money...................................105 Chapter 6: Making the Transition to Working for Yourself .......................................107 Chapter 7: Keeping Track of Your Money....................................................................131 Chapter 8: The Price Is Right: Deciding How Much to Charge .................................157 Chapter 9: Getting Health Insurance and Planning for Your Retirement ................175 Chapter 10: Getting a Grip on Taxes and Deductions................................................191 Part III: Avoiding Problems .......................................213 Chapter 11: Legal Do’s and Don’ts ...............................................................................215 Chapter 12: Using Outside Resources and Experts ...................................................235 Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches ....................................251 Part IV: Making It Work: Moving Ahead.....................261 Chapter 14: Staying on Track with a Serious Business Attitude ..............................263 Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets ..........................281 Chapter 16: Don’t Just Stand There, Grow ..................................................................295 Part V: The Part of Tens ............................................309 Chapter 17: Ten Tips to Succeed in Your Home-Based Business.............................311 Chapter 18: Ten Things to Avoid ..................................................................................319 Chapter 19: Ten Myths about Working from Home....................................................325 Chapter 20: Ten Things to Do if Times Get Tough .....................................................333 Index .......................................................................339 02_577638 ftoc.qxd 1/26/05 7:30 PM Page xiii Table of Contents Introduction..................................................................1 About This Book...............................................................................................1 How This Book Is Organized...........................................................................2 Part I: Beginning at the Beginning ........................................................2 Part II: Managing Your Money...............................................................2 Part III: Avoiding Problems....................................................................3 Part IV: Making It Work: Moving Ahead ..............................................3 Part V: The Part of Tens.........................................................................3 Icons Used in This Book..................................................................................3 Where to Go from Here....................................................................................4 Part I: Beginning at the Beginning .................................5 Chapter 1: What You Need to Know about Home-Based Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Home-Based Business Defined .......................................................................8 The Basics of Home-Based Business .............................................................9 What kind of business will it be? ..........................................................9 Managing your money .........................................................................11 Avoiding problems ...............................................................................11 Moving ahead........................................................................................12 The Good News and the Bad ........................................................................14 Reasons to start a home-based business ..........................................14 The pitfalls of home-based businesses..............................................16 Understanding when you’re ready to make the move.....................16 Chapter 2: Mirror, Mirror on the Wall, What’s the Best Business of All? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Starting Something from Scratch .................................................................22 Doing what you have been doing in a job .........................................24 Doing something new and different ...................................................25 Buying a Business ..........................................................................................26 Home-based franchises .......................................................................28 Direct-selling opportunities ................................................................34 Business opportunities........................................................................38 Identifying Which Option Is Best for You....................................................41 Finding Your Niche by Specializing..............................................................42 02_577638 ftoc.qxd 1/26/05 7:30 PM Page xiv xiv Home-Based Business For Dummies, 2nd Edition Chapter 3: Hot Opportunities Now and for the Future . . . . . . . . . . . . . .45 1. The Maturing Population ..........................................................................45 Daily needs ............................................................................................46 Professional services ...........................................................................47 Special services ....................................................................................47 2. Great Migration South and to Smaller Places.........................................48 3. Universal Connectivity: the Electronic Environment ............................49 4. Economic Globalization ............................................................................50 5. Increasing Numbers of Self-Employed.....................................................52 6. Living off the Grid ......................................................................................53 7. Rising Physical and Property Security Needs ........................................54 8. Education for Youth and Adults ...............................................................55 9. Health Care: Up in Demand and Cost ......................................................56 10. Luxuries as Necessities ...........................................................................59 Where You Can Learn about More Home Businesses ...............................61 Chapter 4: Marketing 101: Getting Customers . . . . . . . . . . . . . . . . . . . .65 Identifying Your Best Customers .................................................................65 Tapping Into Your Customers’ Needs..........................................................67 The WPWPF principle ..........................................................................68 Carving out a niche ..............................................................................70 Marketing: Different Roads to Meeting Your Goals....................................71 Word of mouth ......................................................................................73 Referrals ................................................................................................74 Public relations.....................................................................................76 Direct marketing ...................................................................................79 Advertising ............................................................................................80 Web sites and e-commerce..................................................................81 Developing a Marketing Plan — Now!..........................................................83 Part 1: Overview ...................................................................................84 Part 2: Marketing objectives ...............................................................84 Part 3: Situation analysis .....................................................................84 Part 4: Marketing strategies ................................................................85 Part 5: Financials ..................................................................................85 Chapter 5: Making the Web Work for You . . . . . . . . . . . . . . . . . . . . . . . .87 Bidding for Work ............................................................................................87 Sites that specialize in putting buyers and sellers together...........88 Tips for winning bids ...........................................................................89 Keys to keeping clients and building your business with them.....90 Getting Listed in Directories.........................................................................90 Online business directories ................................................................91 Association memberships...................................................................91 Going local: SmartPage listings and search-engine local listings .............................................................92 02_577638 ftoc.qxd 1/26/05 7:30 PM Page xv Table of Contents xv Networking the Internet Way........................................................................93 Online forums .......................................................................................93 Social networking sites ........................................................................94 Online etiquette for making winning relationships..........................94 Using Your Web Site to Attract Customers and Clients ............................96 What it takes to get traffic...................................................................96 Making it easy for visitors to become customers ............................98 Building and Maintaining Your Web Site .....................................................99 Hire someone to create and maintain your Web site.......................99 Create a Web site yourself.................................................................100 Skip the Web site and create an e-commerce site..........................101 Regardless of who creates it, make your site good........................102 Part II: Managing Your Money ...................................105 Chapter 6: Making the Transition to Working for Yourself . . . . . . . .107 Transitioning into Your Home-Based Business ........................................108 Five steps to take before leaving your job ......................................109 Overview of starting a home-based business.................................111 Six Ways to Get the Cash Flowing ..............................................................120 Beginning part-time with your new business .................................120 Working part-time at your old job....................................................120 Turning your employer into your first client..................................121 Taking business with you (ethically!) ..............................................121 Financing your business with startup funds ..................................121 Piggybacking with your spouse or significant other .....................123 Sixteen Sources of Startup Funds ..............................................................123 Putting Together a Business Plan ..............................................................126 Knowing When to Move On ........................................................................128 Chapter 7: Keeping Track of Your Money . . . . . . . . . . . . . . . . . . . . . . .131 Organizing Your Finances............................................................................131 Setting Up a Business Account...................................................................133 Accepting Credit Card Sales .......................................................................134 Choosing the Best Bookkeeping System for Your Business ...................138 Check registers and bank statements..............................................139 Financial statements ..........................................................................140 Key financial ratios.............................................................................143 Finding Happiness in Positive Cash Flow..................................................144 Treating cash as king! ........................................................................145 Finding seven ways to kick-start your cash flow............................147 Understanding collections ................................................................148 Getting a Loan...............................................................................................151 Discovering different kinds of credit ...............................................151 Getting the loan you want .................................................................153 Fixing your bad credit history ..........................................................154