1 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Chapter 7: Home-Based Businesses

2 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Learning Objectives To realize that home-based businesses were very common before the Industrial Revolution To be able to identify the reasons for the increasing number of home-based businesses To understand the advantages and disadvantages of home-based businesses To be aware of the legal, insurance, and tax issues applicable to home-based businesses

3 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Rebirth of Cottage Industries Cottage industry Industry in which labor force works from home Number of home-based businesses is growing rapidly

4 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Reasons for Growth Increasing use of the Internet Recessions and corporate downsizing Greater concern for family issues Improving image of home-based businesses

5 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Increasing Use of Internet Home-based businesses can now market globally Auction sites such as e-Bay provide opportunities

6 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Recessions and Corporate Downsizing Businesses are often started by those who are laid off Half of member-businesses in the National Association of Self-Employed are home based

7 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Greater Concern for Family Issues Home-based entrepreneurs do not have to place their children in day care More home-based entrepreneurs (than other self-employed) have young children

8 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Improving Image of Home-Based Businesses Home-based businesses were once seen as second-class businesses Now, professionalism and quality less likely to be an issue

9 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Advantages of Home-Based Businesses No commuting Less wardrobe costs Flexible hours

10 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Disadvantages of Home-Based Businesses Loss of structure Isolation Long hours with no work/home separation Family interruptions

11 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Home-Based Franchises Less expensive than location-based franchises Combines flexibility of home-based business with expertise of franchisor Need to be self-motivated, committed, and disciplined

12 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Legal Issues City law may Ban all home-based businesses Limit the number of square feet devoted to business Limit the number of employees

13 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Zoning Laws Local ordinances that restrict the use of property for specific purposes Many laws originally to restrict factories Laws need to change to account for high-tech and service-oriented businesses

14 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Zoning of Property Residential Commercial Industrial Agricultural

15 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Home-Based Businesses May Also Be Restricted By condominiums By townhouses By apartments By private subdivisions

16 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Utilities, Insurance, and Taxes Utilities may need to be upgraded Home-owners insurance may require added coverage or a commercial policy may be needed Special tax deductions are allowed for home-based businesses

17 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ The Growth Decision The entrepreneur may need to relocate if the business becomes large Some entrepreneurs move to a commercial space but still work from home when possible

18 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ The Home-Based Business in the Business Plan A home-based business should be identified as such in the “location” section Information will include The home address Applicable state and local laws concerning home-based businesses Need for a business license