5 Pitfalls of a Home-based Business

Pitfall #1: It’s Unprofessional

Businesses are forced to follow the same rules as politicians. Perception is reality and unfortunately, that can work against a home based business owner.

It’s frustrating isn’t it?

Why don’t people take home based businesses as seriously as they do a business located in an office park or strip mall?

Regardless of how well maintained or spacious, a home may be perceived as unprofessional by perspective clients. Invariably, the question that the client will have is, “why isn’t this business successful enough to afford office space?”

A business is supposed to look a certain way.

When you aren’t set up as a traditional business, which for many also includes a traditional office space, the questions will undoubtedly be asked.

  • “If they had enough sales volume, they wouldn’t work at home.”
  • “Are they going to make it through the year?”
  • “Did they at one time have office or retail space and lost it for some reason?”
  • “Is this really a full time business or is it a hobby?”
  • “Can I feel good about trusting this person to do a professional job?”

What’s worse than being asked these questions is not being asked.

And lastly, there’s always a degree of discomfort that comes with being in somebody else’s home.


Pitfall #2: The Coffee Shop Meeting

Because most of us don’t want people in our homes for all of the reasons in our previous video segment, we go with the next best thing:

we meet at a coffee shop, deli, or other casual environment where a working lunch or dinner isn’t out of the ordinary. Is that a good representation of your business?

First you have the problem of privacy. If you’re an insurance agent or attorney meeting with a client, using a coffee shop to lay out documents and other reports that have the most personal of information on them may not be the most secure way to conduct this kind of business. You also don’t want to have personal conversations about these matters in public places.

In addition, you have the same problem as you do with your home business. People may not directly ask you, but they may be thinking to themselves, “Why can’t we have this meeting at their office?” or “Why do all of their competitors have offices but this person doesn’t?” “I’m sitting at a coffee shop when I should be sitting in a conference room.”


Pitfall #3: Taxes

The IRS loves to go after small business owners who claim the home office deduction.

The popular tax software, TurboTax, lists this as one of the top triggers of an IRS audit.

Not only is the home office deduction a popular audit flag, it’s difficult to calculate by homeowners.

First, you can only take the deduction if you use that space, “Exclusively and regularly as your principal place of business.”

You can’t claim the deduction if your home office doubles as the baby’s room unless you’re in business as a daycare provider.

According to Official IRS wording, it states:

“You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.”

If you’ve been claiming the home office deduction for public areas in your home, keep in mind that the IRS will investigate this if you are audited. If you are found to be in violation of this, you may have to pay fines and back taxes that could bankrupt your business.


Pitfall #4: Lack of Formality

Home based business owners want the same level of respect that traditional business owners receive but many of those same people don’t treat their businesses with the same level of formality. If you’re a home based business owner and you’re saving money by failing to hold the proper insurance coverage, you haven’t formed an LLC or other business designation, and you’re not properly reporting business activities on your taxes, not only are you taking a great financial risk, at some point it will catch up to you.

When we leave our home for work, not only are we free of the personal life distractions, we can make a clear distinction between work and relaxing. Home based business owners often speak of not being able to stop working. Being at work never stops because they never leave. This leads to burnout and the business fails.

Do you have trouble separating work and family? If you do, you’re not alone.


Pitfall #5: Too Many Distractions

Being productive at home is difficult and in order to be a huge success with your home based business you have to be an extraordinarily focused person and although we don’t want to insult you, most people aren’t able to avoid the distractions enough to allow them to perform at maximum efficiency.

When in your home office, do you think of mowing the grass, catching up on something you missed on TV, cleaning the house, raiding the fridge or grooming the dog?

Do you want to take your business to the next level? It might mean taking it to a traditional office space not only because it has a more professional appearance, but also because you’ll be more productive there.