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How to Start a Small Business at Home in 4 Steps

How to start a small business from home
Photo by Tim Mossholder on Unsplash

Do you think working from home is something you could do long term? Or is it time to turn that side-hustle or hobby into a profitable business? If you’re thinking about starting a small business at home, there are a few things you need to do. To help you out, let’s discuss how to start a small business at home.

The 4 steps to start a small business at home in the UK are:

  1. Choose a business structure and register with HMRC
  2. Check if you need a business license
  3. Get any necessary insurance
  4. Sort out your accounting processes


How to Start a Small Business at Home

Starting a small home business can give you independence, flexibility, and control over your working hours. By removing the need to rent business premises, there are also much lower start-up costs involved in setting up a home business. Later in this article, we’ll take a look at the specific steps involved in starting a home business in the UK and the US. But first, there are some general points to consider, regardless of where you’re setting up your home business.

Coming up With Your Business Idea

Coming up with a business idea can be the hardest part of the whole process. You might be starting this process with an idea already in mind. But if you know you want to work from home and aren’t sure what type of business to set up, start brainstorming. Research online. Talk to friends and family. Read about other successful home businesses.

Writing a Business Plan

Once you decide on what type of business you want to set up, it’s a good idea to create a business plan. A business plan sets out the objectives of the business and how it will achieve them. It’s a map to help guide you as you set up and run your business. A business plan doesn’t need to be a novel. Even a short, simple one can be very useful to identify the potential opportunities and risks to your business and what you can do to grow your business.

Financing Your Business

Regardless of the size of your business, you’ll likely need some money to get it up and running. This can come from a variety of sources, and you might already have some savings that you plan on using to start the business. Friends or family may be willing to provide you with a loan (although be very careful about these sorts of arrangements to avoid any fallouts!), or you can apply to a bank for a business loan.

You might also be eligible for government grants or loans. For example, in the UK, local councils often offer a range of small business grants. The UK government also runs the Start Up Loans Scheme, providing unsecured personal loans of up to £25,000, as well as mentoring.

Choose a Business Structure

Choosing a business structure is an important step in setting up your home business. Will you operate as a sole trader or sole proprietor, a partnership, or a company? The right choice will depend on your specific circumstances, and it’s worth getting some professional advice before deciding. This is an important step, as the type of business structure you choose will determine your tax and regulatory compliance obligations.

Accounting and Record-Keeping

Once you’re up and running, you will also have ongoing record-keeping and accounting obligations. As a sole trader or sole proprietor with basic record-keeping requirements, you may be comfortable manually generating and managing your invoices and records. There are a bunch of free ways to do this, and most will suffice for freelancers.

If your paperwork will be more complex, it may be worth looking at some paid accounting software such as QuickBooks or SAGE. You can of course hire an accountant, but this may be outside your budget in the early stages.

Creating a Brand

Marketing is a large part of running a small business. At a minimum, most home businesses have a basic website and business email address. Having a dedicated business email adds to your credibility and professionalism. There are many ways to get a business email address including using Office 365 Business, going through your hosting service, or using G Suite. You can learn how to do that in this article.

A business website is essential to allow potential clients to see your work and get in contact with you. But you don’t need to spend lots of money hiring a web developer to set one up for you. There’s lots of information online about how to set up a simple website using a website builder like WordPress and a hosting service such as Hostinger.

If marketing or social media isn’t your forte, take a look at sites like Fiverr, People per Hour, or Upwork to hire people for specific tasks, such as building a website or writing a series of Instagram posts. If you have the time, it’s worth learning some basic marketing yourself as a free way to promote your brand.

With these considerations in mind, let’s take a closer look at what kinds of small businesses you can start from home.


What Kind of Small Home Business Should You Start?

When it comes to deciding what kind of small business to start, the list really is endless! Below are just a few ideas of the types of small businesses you can set up and run from home to give you some food for thought.

Remote Businesses

Remote service businesses include freelance writing, website creation, virtual assistance, graphic design, and business coaching. These jobs only require a laptop, a reliable internet connection, and the unique skillset you can offer your clients. This makes these services ideal for a home business.

Online Teaching

If you have a background in education or specialist skill, developing and teaching online courses or tutoring could be an option for you. There are online courses on every topic imaginable – languages, coding, copywriting, knitting, nutrition, etc.

Creative Businesses

Creative roles such as artists and photographers fall into this category. People in this industry often work on a freelance basis, with a home business providing the flexibility to do so.

Homemade Products

Many people turn their hobby of making small-batch, handmade products into a small business at home. Jewellery, food products, clothing, candles, hampers – you’re only limited by your imagination!


In some countries, like Australia, approved individuals can run small, family day-care businesses from their homes. Understandably, there is a lot of regulation in this industry, so check the rules specific to your location and circumstances.

Beauty Services

These include hairdressers, beauty therapists, and makeup artists. Running a beauty service business from home is ideal as it avoids the overheads involved in maintaining a physical space.

Pet-Related Services

Services such as dog-walking or animal grooming are ideal opportunities for pet lovers. Pet ownership in the UK has increased by 18% over the last 12 months. So, it’s a good time to start a small business in this niche!

Fitness Services

This category includes things like personal training, yoga, and Pilates classes. You could run these online, go to your client’s homes, or from your own home if you have space.

Selling Second-Hand/Repurposed Products

If you have a knack for finding second-hand gems and restoring them to their former glory, along with some space to store your products, you could set up and run an online shop from home. With this kind of business, there’s no end to the kinds of products you could sell!

Once you’ve decided what business you want to start, it’s time to start building it! But first…

Is It Legal to Run a Small Business From Home?

It is legal to run a small business from home, provided that the business model itself is legal (i.e. no pyramid schemes). You may need to apply for a business license for some types of business, but you can legally operate a business from your home.


4 Steps to Start a Small Business at Home in the UK

1. Choose a Business Structure and Register With HMRC

Once you decide whether you will set up as a sole trader, a partnership, or a company, register accordingly with HMRC. If you’re setting up a limited liability partnership or company, you’ll also need to register with Companies House.

2. Check If You Need a Business License

Ask your local authority whether you need any business licenses or other permissions to run a business from your home. Also, check your mortgage or rental contract to see if there are any restrictions or conditions on doing so. Keep in mind, if you are running a business from home, you may need to pay business rates in addition to the usual residential Council Tax.

3. Get Any Necessary Insurance

Insurance protects you and your business from any unexpected losses. Depending on the type of business you start, you may need to consider the following types of insurance in the UK:

  • Public liability insurance, which protects the business against any losses suffered by people injuring themselves due to the business’ activity
  • Professional indemnity insurance to protect your business against claims arising from an alleged act, omission, or breach of your professional duties
  • Product liability insurance
  • Employers’ liability insurance
  • Business contents insurance

4. Sort Out Your Accounting Processes

While there may be more overlap between your work and personal life when running a business from home, it’s a good idea to keep the financial side of things separate by setting up a dedicated business bank account. This will help you keep track of your business finances, particularly at tax time.

Most UK banks offer business bank accounts but will charge varying fees, so do some research before choosing one. Online multi-currency accounts such as N26 and Wise are also available if you have clients paying in foreign currency. PayPal is also a useful way to charge clients and pay for expenses. Note that there are some fees to beware of with this option, and you can learn more about them here.

However, if you’re a freelancer, or just starting out as a small business at home and don’t plan to grow it too far, you can probably get by with a standard bank account.

So that’s how you start a small business in the UK. But what about in the US?


How to Start a Small Business at Home in the US

1. Choose a Business Structure and Register Your Business

Like in the UK, there are various business structures you can use to run a home business in the US. These include sole proprietorship, general partnership, limited liability corporation (LLC), C-Corporation, S-Corporation. Once you’ve decided on the right business structure for your circumstances, check your local business bureau guidelines to see whether you need to register your business and how to do it. If you’re setting up a corporate structure, you’ll need to register with your state authority.

2. Apply for an Employer Identification Number

An Employer Identification Number (EIN) identifies your business for federal tax purposes. It’s compulsory to have an EIN if you register as an LLC or employee people. Even if you’re operating as a sole proprietor, it’s useful to have an EIN to avoid using your own Social Security Number for your business. You can apply to the IRS for an EIN.

3. Check if You Need Any Business Licenses

The licensing requirements for home businesses in the US vary between states. At the very least, you usually need to apply for a home occupation permit to operate a business from your premises. You will also need to check whether there are any zoning regulations in your area which affect your ability to run a business from home. Again, it’s worth getting legal advice on the licensing requirements for your specific business.

4. Get Any Necessary Insurance for Your Business

In some states, it’s compulsory to take out particular insurance for a home business. You should be able to get this information from the relevant state authority. Types of insurance for home businesses in the US include:

  • General liability insurance
  • Product liability insurance
  • Professional liability insurance
  • Business income insurance
  • Home-based business insurance
  • Business owners’ policy

5. Put Your Accounting Processes in Place

In the US, there are different types of business bank accounts including checking, savings, and merchant services, which allow you to take credit and debit card payments from your clients. In addition to the traditional brick-and-mortar banks, there are also online payment systems like PayPal and Payoneer that might work for your business.

Make sure you’ve got good accounting practices in place to help you when it comes to paying tax. Given the complexity of the US federal and state tax systems, it’s a good idea to get an accountant to help you with your tax obligations.


How to Start a Small Business at Home – Other Things to Consider

As you can see, there’s a lot to consider when starting a small business at home. Running your own business can be incredibly time-consuming. As a small business owner, you have to perform many roles. These include managing the business, doing the work itself, keeping on top of your tax and accounting, and promoting your business to ensure a regular income.

It can also be difficult to draw a line between your personal and work life when working from home. It’s important to set boundaries around your work time so you can maintain some work-life balance, even when you’re doing both of those things from the same space.

But there is also a lot to gain by setting up your own business – and not just financially. It can give you autonomy, flexibility, and independence. Hopefully, this article serves as a useful guide to taking those first steps towards starting a small business at home!

If you want more tips and tricks about starting a business or working as a freelancer, head over to the Sophical Blog.

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