Increasingly, people are choosing to work from home or start a home-based business. This guide explores the benefits and drawbacks of working from home, what you need to think about and how to overcome some of the common pitfalls of running a business from home.
Making the choice
If you haven’t worked from home before, it may take some getting used to. There are many advantages, but there are some disadvantages too - and it may not be for everyone. Before setting up a home business, take some time to weigh up the pros and cons below.
No commuting (except when you need to visit customers or suppliers) - so you could save on time and transport costs.
Freedom - depending on the needs of your customers, you can wear what you like and work when you like.
Instant access to your office. No worries about leaving something at work.
Cheaper costs - particularly rent, which can be a significant expense for most start-up businesses. You can also share some of the costs of running your home, such as telephone, rates and electricity expenses (for more information on claiming business expenses for your home office, talk to your accountant or see the IRD website).
Setting up a home business can also be a low-cost way of trialling your business concept. If the business grows, you may need to find larger premises (for example a home-based catering business may need to move into a commercial kitchen), but at least you haven’t had to make a huge outlay up front.
Your office is always with you, so it can be difficult to switch off. That can lead to burnout if you can’t find a way to manage the constant blurring together of your work and home life.
You may not have a suitable space in your home, or it may not be adequate for your needs. Not everyone can dedicate a room to business or have a separate entrance.
It can be difficult to maintain focus, motivation and disciplined work routines – there’s always the temptation to do household chores when you should be focusing on your business.
Feeling out of the loop without people to chat to and bounce ideas off.
If you run a business out of your home and clients will visit - does it give off a professional vibe? People who visit will expect it to look and operate like a real business with a dedicated work space.
If you come from a corporate environment, you may be used to having easy access to specialist expertise – for example, an IT helpdesk or in-house HR or legal experts. When you’re working from home, you have to be much more of a jack-of-all-trades.
While there are ways to successfully manage many of these issues (see below), it pays to be aware of them before taking the plunge.
Is your business suitable?
Working from home may be right for you, but you also need to consider whether it’s right for your business.
Some types of business are well suited to operating from home. For example:
Service and consultancy type businesses such as freelance writers, bookkeepers, financial advisors, marketing consultants, beauty consultants, home cleaning businesses, or gardening services.
Technology businesses such as website builders, IT consultants, software developers, etc.
Online businesses (e.g. online stores) that don’t need large physical premises.
Small scale or home industry type businesses, such as caterers or dressmakers.
However, other types of businesses may not be suitable. For example:
If you need to project an upmarket, professional image or have regular meetings with clients or customers, it’s more difficult to do so when there are children running around or dogs barking when you’re on the phone. It may pay instead to rent space in a serviced suite of offices or utilise the services of a shared space/co-working environment. That way you could benefit from facilities such as a reception and waiting area, meeting rooms, plus other shared business equipment that are not cost-effective for the average home office.
You should also always check first with your local council or regional authority to find out what they permit in a home office situation. If you’re renting, you should also check your lease as there may be restrictions you’re not aware of. For example, there may be restrictions on the number of employees you can have working in the business, noise levels (e.g. if you want to start a panel-beating business), or businesses that attract a lot of customers (neighbours are likely to object if your business is tying up all the car parks in your street).
Your local council is also a good place to find out about things like:
Whether you need a license (for example, if you’re running a health & beauty business or food business)
Special requirements such as health & safety, food-handling, liquor licensing, etc.
Building modifications that may be required for your business (e.g. smoke alarms if you’re setting up a homestay business).
Are you suitable?
Consider also whether you have the skills and personality to start a business. It’s one of the most challenging things you’ll ever do, so if you’re not someone that is fiercely determined, self-reliant, confident in your own abilities, action-oriented and a self-starter, you might struggle.
Running a business from home can be wonderfully rewarding, but it has some unique challenges. Here are some tips to help.
The main challenge facing most home-based small business people is the feeling of being isolated from the mainstream of business life. People used to busy offices can find it harder to retain motivation and work discipline. Strategies to keep you motivated include:
Getting out of your home office – schedule face-to-face visits with customers and suppliers, or regular breaks to go for a walk and clear your head
Networking – join groups with shared interests, from your local Chamber of Commerce to professional associations
Getting a business mentor or confidante – talking through your business challenges and opportunities with someone else can bring valuable new perspectives. Simply approach someone you respect or check out organisations like Business Mentors NZ
Dealing with interruptions
It's hard to stop children interrupting you at work, and it can also be hard when friends imagine they can pop in for a cup of coffee anytime. The key is communication. Explain to children that you need to be left alone at certain times to do your job. Make your office hours clear to your friends – and treat them more formally if they do ‘pop in’ when you’re working.
Normal home and contents insurance policies may not cover equipment used for business purposes, so it’s worth checking with your insurer. Our article, "Expert tips for your business insurance needs" also has useful information.
Growing your business
If your business is successful, you may reach the point where to grow it further you need to move out of your home office and into larger premises. It can be a difficult choice to make. For many businesses, moving out of home can spark a real growth phase. Other people prefer to maintain the freedom that a home-based business offers. Ultimately, it comes down to being clear about what’s really important to you.
When you go the office every day and you’re surrounded by colleagues, it’s easier to stay focused on the job at hand than when your desk is just down the hall from your bedroom. There’s often the temptation to do those household chores or spend just a few more minutes in bed. The solution is to do exactly what you’d do if you were going out to work. Get up, get dressed (rather than hanging round in your pyjamas) and get to your home office at the same time you’d get to an external office. Invest in proper office furniture too so you have a business-like environment to work in. It all helps switch you into a work mindset and make a clear distinction between home and work.
Building a support network
Make sure you have a plan in place for when something goes wrong – for example, your internet connection or website goes down, the power goes off, you’ve forgotten a tax payment, you have an issue with an employee or contractor, or you have a short-term cash flow problem. The key is to build up a network of people you can call on when you need to – including a good accountant, lawyer, IT person and business banker.
Succeeding in a home business does take some extra discipline and adaptation, but always remember you're part of a great tradition. After all, Apple, one of the world’s most valuable companies, started in a suburban garage. So stay focused on your goal - and don’t forget to reward yourself regularly for your achievements along the way.
This material is provided as a complimentary service of ANZ Bank New Zealand Limited ("bank"). It is prepared based on information and sources the bank believes to be reliable. It is subject to change and is not a substitute for commercial judgement or professional advice, which should be sought prior to acting in reliance on it. To the extent permitted by law the bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.
This material is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. If you wish to consult an ANZ Business Specialist, please contact us on 0800 269 249.