Starting a freelance business can put you on a path that leads to autonomy, creative freedom, and the opportunity to shape your professional destiny. Freelancing is not much different than building a small business, however, as a freelancer you work for yourself and you are considered self-employed.

While your primary role is to work part-time for clients via projects or ongoing retainers, just like any other business, building a brand as a freelancer is also important. Of course, building a freelance business has additional challenges. It requires meticulous planning, strategic decision-making, and a deep understanding of both your craft and the business side of freelancing. This journey involves more than just doing what you love; it entails managing clients, finances, marketing, and, most importantly, yourself.

Let’s explore the path to becoming a successful freelancer.

1. Perform Market Research and Choose Your Niche

What are you good at? What do you enjoy doing? Choose a niche you are passionate about and have some expertise in.

Performing market research will help you understand the demand for your skills, who your competitors are, who your competitors sell to, and what they charge for services. This process will also help you define your target market, understand who are you going to sell your services to, and better understand their needs and wants. Once you understand your target market, you can tailor your marketing and sales efforts accordingly.

Many people think of freelance jobs as being in the “creative sphere.” While many are, the term “freelance” covers a broad array of jobs. Some of the most popular and in-demand freelance jobs include:

• Bookkeepers
• Business consultants
• Content writers
• Editors and proofreaders
• Graphic designers
• Website developers
• Software developers and programmers
• Photographers
• Public relations specialists
• Search engine optimization consultants
• Search engine marketing consultants
• Social media managers
• Translators
• Tutors
• Videographers
• Virtual assistants

Before you select your area of focus, carefully consider your skill set to match what you’re passionate about to what services you can offer that clients are willing to pay for. And before you finalize your niche, make sure there is solid demand for this type of service.

2. Create a Business Plan

While you may not need to create a formal business plan, it’s always a good idea to outline your services, pricing strategy, marketing plan, and financial projections. We cover business plans in another article called The Startup Business Plan: Why It’s Important and How You Can Create One. This article will help you consider some key elements in planning your new business. You can pick and choose which elements apply to your future scope of work.

3. Legally Form Your New Business

Many freelancers start out as Sole Proprietorships since it’s easy and inexpensive. But being a Sole Proprietor doesn’t provide any legal separation between you and your business. This means your personal assets are at risk if your company faces legal issues or debt. For instance, if you are sued,  your business, personal savings, home, and other assets could be on the line. Being a Sole Proprietor may also cost you more at tax time since you’re responsible for paying both the employer and employee portions of Social Security and Medicare taxes.

A better option is to register a Limited Liability Company (LLC) because it offers that legal separation, keeping your personal assets free from business lawsuits and debts. As an LLC, you can choose to file your taxes as an S Corporation, paying yourself through payroll. To form an LLC, you need to file Articles of Organization documents with your state. There may be other licensing requirements. Check with your accountant or your state government to be sure. CorpNet can make the process easier and help you form your LLC.

4. Obtain an EIN and Open a Business Bank Account

Before you receive your first payment, it’s crucial to set up a separate bank account exclusively for your freelance business. No matter what form of business you choose,  you must keep your business and personal expenses and spending separate.

Even if you don’t have employees, you should get an Employer Identification Number (EIN) from the Internal Revenue Service (or CorpNet can get one for you). Most banks won’t allow you to open a business bank account if you don’t have an EIN.

5. Purchase Business Insurance

The insurance coverage you need depends on the type of work you do and the risks associated with your business. However, there are a few basic types of business and health insurance that most freelancers should consider:

• Professional liability insurance – Professional liability insurance, also known as errors and omissions (E&O) insurance, protects you from financial losses if you are sued for making a mistake or failing to perform your services as agreed upon. This is important for freelancers who provide professional services, such as writers, editors, designers, and developers.
• General liability insurance – General liability insurance protects you from financial losses if you are sued for causing bodily injury or property damage to someone else. This is important for freelancers who meet with clients in person or work with physical products.
• Health insurance – Health insurance is essential for everyone but is especially important for freelancers who do not have access to health insurance through an employer.
• Disability insurance – Disability insurance provides financial support if you cannot work due to an illness or injury. This is important for freelancers who rely on their income to survive.

If you are unsure what type of insurance you need, talk to an insurance agent or broker. They can help you to assess your risks and choose the right insurance policies for your needs.

Also, do not assume your homeowner’s policy covers your freelance business. Ask your insurance agent if you need additional coverage.

6. Set Your Freelance Rates

How much will you charge for your services? Consider the value of your services, experience, and the rates other freelancers charge in your niche. Next, compare this to what you want or need to make as income. If you are charging by the hour, calculate out how many hours you would need to work at the various rates to obtain your desired income. Don’t forget to factor in critical costs like income taxes, software, and services for web hosting and accounting.

7. Obtain the Right Equipment and Software

The equipment you need to run a freelance business will vary depending on the type of freelance work you do. All freelancers need a reliable and fast computer, a strong internet connection, and a cell phone.

Depending on the nature of your business, you may also need:

• Software that’s relevant to your field
• Printer, copier, and scanner
• External hard drive to back up your data (a good idea, even if you back up to the cloud)
• Business software that, depending on what you do, lets you invoice clients, keep track of your time (vital if you charge by the hour), manage projects, pay your bills, manage customer relationships (CRM), and more.
• Ergonomic equipment helps you to stay comfortable and productive while you work. This includes a comfortable chair, keyboard, mouse or trackpad, and desk.

It helps to have a dedicated workspace where you can work in private, which enables you to focus and be more productive. If that kind of space is unavailable, check out shared workspaces. That said, many a freelancer has launched their company on their kitchen table.

8. Establish Strong Marketing and Branding

Develop a brand identity, create business cards, and leverage the internet to attract clients. Market your services through social media, networking, and online advertising. It may help to join local business organizations like your Chamber of Commerce to meet potential clients.

9. Build a Website

Today, every business needs an online presence. So, having a professional website where clients can discover you and learn more about your services is critical. A well-designed website adds credibility to your freelance business and is a great way to showcase your work.

Here are some key elements to include in your website:

• Your website should feature your branding, including your logo, brand colors, and messaging, and reflect your style and personality.
• To be found, your website needs to be optimized for search engines (SEO). This makes it easier for potential clients to find you when they search for your type of services.
• You’ll need to make sure your site features examples of your work. A portfolio is a great way to organize work samples online.
• You’ll need to position yourself as an industry expert so you can gain authority with your prospects. This can be done by adding blog posts discussing industry trends or by providing information on how to perform tasks related to your freelance work.
• Your site should also include client testimonials, which offer social proof of your skills and reliability. Positive reviews from satisfied clients will help instill trust and confidence in potential clients checking out your work. In addition, include links to your social media channels (work ones only).
• Provide all your contact information (if you work at home, get a P.O. Box) and a way for potential clients to book and schedule a meeting with you.

You can create a website yourself using one of the numerous DIY tools like WordPress, Squarespace, or Wix. Or, if you’re worried about your skills or the cost of hiring a web designer, consider bartering your services with other freelancers. Bartering is alive and well within the freelance community.

10. Network With Other Freelancers

Networking is a great way to learn from other freelancers, find new clients, and collaborate on projects. While your future niche will determine your networking options, you’ll quickly find some industries have far better networking options than others.

The WordPress community offers local and national WordCamps all designed to help freelancers and agencies connect, share information, and build connections for lead generation and outsourcing. WordCamps are a great example of how valuable networking can be for freelancers. They also illustrate how an industry known for web development is closely tied to graphic design, search engine optimization, content writing, and social media marketing. Think outside of the box when you consider where to spend your time networking.

11. List Yourself on Popular Freelance Websites

There are numerous platforms and websites where you can find freelance work. Here are some to check out:

• Upwork is one of the largest and most popular platforms for freelancers. It features various job categories, including web development, content writing, graphic design, and more.
• Fiverr is known for its gig-based system, where freelancers create specific service listings, or “gigs,” that clients can browse and purchase. It is structured more like a marketplace for freelancers. It covers an array of creative and professional services.
• com is a global platform that connects freelancers with clients seeking various services, including web development, design, writing, and more. It operates on a bidding system where freelancers compete for projects.
• Toptal is a premium platform that connects the top 3% of freelancers with high-quality clients. It focuses on freelancers in software development, designers, finance experts, product managers, and project managers.
• Guru caters to a wide range of freelance skills. It offers tools to manage projects, invoices, and payments, making it easy for both freelancers and clients. It may be a bit pricey to join.
• 99designs is dedicated to design work. Freelancers, particularly graphic designers, can participate in contests or work directly with clients on design projects.
• FlexJobs is a subscription-based platform that curates remote and flexible job opportunities, including freelance positions.
• Bark connects freelancers with local clients seeking personal training, home improvement, or event planning services. It’s particularly useful for service providers.
• Freelanced is a job board and social network for freelancers. It allows you to create a portfolio, network with other professionals, and browse freelance job listings.
• We Work Remotely is not exclusively for freelancers but is an excellent resource for those seeking freelance or remote opportunities.
• SolidGigs is a subscription service that sends handpicked freelance job opportunities to your inbox, saving you time on job searching.
• Working Not Working caters to creative professionals, connecting them with companies looking for design, advertising, and marketing talent.
• Behance is a social media platform owned by Adobe where designers and creatives can showcase their work and connect with potential clients.
• LinkedIn is often overlooked as a freelance platform, but networking here can yield high-paying freelance gigs.

12. Reach Out to Prospects

To have clients, you’ll need to get comfortable with lead generation techniques. This includes sending emails, pitches, or proposals to prospective clients. Creating standardized templates for introductory emails, proposals, and contracts will help keep you organized, make sure you don’t miss important details, and keep your freelance business looking professional.

If this isn’t an area you’re skilled at, consider the many SaaS options available on the market to help make everything from emails to proposals and contracts quick and easy. A predesigned template from a solid SaaS provider will be money well spent.

13. Meet or Beat Your Deadlines

Delivering high-quality work and exceeding expectations is the most important thing you can do to build a successful freelance business. This will not only create a strong client base, it will help create a referral funnel that will keep new clients coming in the door. If you start your new business with the idea of exceeding customer expectations, you’ll never have to worry about missing deadlines or skipping deliverables.

Starting a freelance business can seem overwhelming, but breaking it down into manageable steps can make the process much easier. Once you’ve set up your freelance business, you can experience the flexibility and autonomy that traditional jobs often can’t match.

Starting a small business is exciting, but that alone is not enough. Achieving your goals will often require a long list of needs with money being at the top of that list. While most startups are self-funded, many entrepreneurs want and need a small business loan.

Obtaining a startup loan makes it easier to turn your business ideas into viable companies. They provide a solid financial foundation to build a business and make it easier to weather the initial challenges and uncertainties of a startup.

Startup loans provide new small businesses with:

• Cash infusion – Having more available funds at startup enables entrepreneurs to invest in essential resources and infrastructure from day one, giving them a head start to grow.
• Operational Stability – With adequate funding, small businesses can maintain their operations without disruptions, which is vital for building a solid customer base and reputation.
• Growth Potential – Access to capital allows businesses to seize growth opportunities, expand their product or service offerings, and reach a broader market sooner.
• Crisis Preparedness – Having the financial reserves startup loans provide can help businesses navigate unexpected challenges, such as economic downturns or unforeseen expenses.

Challenges of Getting a Startup Loan

Truthfully, startup loans are not easy to come by, but they’re not impossible to get either. The first place most new business owners turn to for startup funds is a traditional bank. But this is often a challenging ask. Typically, before banks lend money to small businesses, they examine several factors.

How Long You’ve Been in Business

• This is perhaps the biggest hurdle for startups.
• Most traditional banks prefer to lend to companies that have been in business for five or more years.

Excellent Credit Scores

• Banks and credit unions – A minimum credit score of 680. To get the best terms, you’ll need a score of 740 or higher.
• SBA lenders – A score in the mid-600s is required for financing.
• Online lenders (fintechs) – If your startup is otherwise financially strong, fintechs look for minimum scores in the mid-500s. But your interest rates are typically much higher.
• Term loans and lines of credit – Bank and credit unions require a credit score of 670 and online lenders require a credit score of 580.
• Commercial real estate loans – These typically require a minimum credit score of 680.
• Equipment loans – These typically require a minimum credit score of 550 (the equipment serves as collateral of sorts).

Collateral

• Collateral is an asset you (the borrower) pledge to the lender as security for the loan.
• If you default on the loan, the lender can seize and sell the collateral to recoup its losses.
• Common types of collateral for small business loans include real estate, equipment, inventory, accounts receivable, cash, and investments.
• Lenders typically require borrowers to put up collateral equal to or greater than the loan amount.
• Collateral can make it easier to qualify for a loan and get a lower interest rate.
• If you’re considering offering collateral:
  • Choose collateral that is valuable and has a substantial resale value.
  • Make sure that the collateral is easy to liquidate.
  • Avoid offering collateral that is essential to your business operations.
  • Consider using personal assets as collateral only as a last resort.

Personal Guarantees

• Giving a personal guarantee to a lender can be risky.
• Pledging your personal assets if you default on the loan means the lender can seize those assets, like your home, car, and savings, to repay the loan.

Types of Startup Loans Available

Several financing options cater specifically to startup businesses.

SBA Loans

SBA loans are backed by the SBA and not given directly to businesses. Since these loans are partially guaranteed, they tend to have more favorable terms than traditional loans, including lower interest rates and longer repayment terms.

The SBA sets the guidelines and qualifications for SBA-backed loans. Use the SBA Lender Match tool to find an SBA-approved lender in your area.

Here are the different SBA loans available:

• SBA 7(a) Loan – the 7(a) loan can be used for short & long-term working capital, to refinance current business debt & to purchase furniture, fixtures & supplies. The maximum loan amount for a 7(a) loan is $5 million.
• SBA Express Loan – SBA Express Loans are part of the 7(a) SBA loan program. Applicants get answers within 36 hours. The maximum loan amount is $500,000.
• Community Advantage Loan – For a limited time, the SBA is offering a pilot loan—the Community Advantage (CA) loan with a maximum loan amount of $350,000. CA loans are available from community-based, mission-focused lenders to meet the needs of small businesses in underserved markets. The pilot program is set to expire on September 30, 2024.
• SBA 504 Loan – The 504 loans are long-term, fixed-rate loans of up to $5 million for “major fixed assets that promote business growth and job creation.” Loans are available through the SBA’s community-based partners-Certified Development Companies (CDCs).
• SBA Microloan – Microloans up to $50,000 provide startup and expansion funding. Intermediary lenders are nonprofit community-based organizations, and each lender sets its own lending and credit conditions.

Traditional Bank Loans

Traditional banks offer loans to startups based on the entrepreneur’s creditworthiness, business plan, and collateral. These loans typically have competitive interest rates but may require a robust credit history.

Online Lenders

Online lenders provide a quicker and more accessible option for startup loans. They often have less stringent credit requirements and offer various loan products, such as term loans and lines of credit.

Microloans

Microloans are small, short-term loans provided by nonprofit organizations, community lenders, or online platforms. They are suitable for startups with modest financing needs.

Personal Loans

Some entrepreneurs use personal loans to fund their businesses, especially if they have good personal credit. However, this approach carries more personal financial risk.

Crowdfunding

Another way to raise startup funds is by crowdfunding. Instead of getting money from a single-lender model, crowdfunding collects money online from many people and exposes your new business to potential future customers.

Most people are familiar with popular crowdfunding sites like Kickstarter, GoFundMe, and Indiegogo. There are also crowdfunding platforms designed to serve specific groups of people, like IFundWomen and FundBlackFounders.

Here are some tips if you’re considering crowdfunding:

• Create a compelling campaign that is clear, concise, and persuasive. It should explain what your business is, why you need funding, and how you plan to use the money. You should also include a video or other multimedia content to help bring your campaign to life.
• Promote your campaign. Once you have created your campaign, you need to promote it to potential backers. You can do this through social media, email marketing, and paid advertising.
• Offer rewards. Many crowdfunding campaigns offer rewards to backers, such as early access to products or services, discounts, or exclusive merchandise. This helps incentivize people to support your campaign.
• Be transparent and communicative. Be clear about how you plan to use the money you raise. Keep your backers updated on your progress and be responsive to their questions. This will help to build trust and excitement for your campaign.

Crowdfunding can take time and lots of effort, so be patient. Don’t get discouraged if you don’t reach your goal right away. Keep promoting your campaign and reaching out to potential backers.

Before You Apply for a Small Business Loan

Securing a startup loan requires strategic planning and preparation.

Here are some tips to improve your chances of obtaining the financing you need:

• Build a Solid Business Plan – Craft a well-documented business plan demonstrating your understanding of the market, competition, and financial projections.
• Maintain Good Personal Credit – Maintain a healthy personal credit score by paying bills on time and managing your finances responsibly.
• Explore Multiple Lenders – Don’t limit your options. Research and compare loan terms from various lenders, including traditional banks, online lenders, and nonprofit organizations.
• Establish a Business Credit Profile – Most banks expect you to get an Employee Identification Number (EIN) before opening a business bank account. You can apply for an EIN on your own or let CorpNet help you. And it’s imperative to keep your business and personal funds separate.
• Seek Professional Guidance – Consult with financial advisors, accountants, business consultants, or organizations like SCORE that can provide guidance about loan options, financial planning, and loan application preparation.

While it can be challenging to get a startup loan, understanding the types of loans available and knowing the process makes it possible for new entrepreneurs to obtain startup funding.

Do you need a register an LLC to obtain a hard money loan for your real estate investment? Let’s explore the LLC and hard money loans so you can decide.

What is a Limited Liability Company?

A Limited Liability Company (LLC) is a formal business structure that is the simplest to form and maintain. Creating an LLC offers some of the same benefits as a corporation, without the costs and compliance complexity. Business owners who are looking for personal liability protection, tax flexibility, and management options may find that registering an LLC will be an ideal choice for their company.

When it comes to investing in real estate, most investors choose to create a separate legal entity to purchase a property. The reason? To protect personal assets from liabilities associated with real estate transactions. Moreover, the Limited Liability Company (LLC) business structure has become a preferred entity of real estate investors for some very good reasons.

The LLC business structure offers many benefits:

• Limits personal liability
• Provides tax treatment flexibility
• Is relatively simple to establish and maintain
• Costs less to set up and maintain
• Offers more flexibility in how you distribute profits
• Makes it easier to give real estate investments
• Can be owned by a non-U.S. individual or company
• Is preferred by hard money lenders

Keep Learning: Is A Real Estate LLC Really Necessary?

What is a Hard Money Loan?

What is a hard money loan? A hard money loan is a type of loan primarily used for real estate. The lender is not a traditional bank, but rather an individual or another business. Because hard money loans usually use property as collateral, are used to raise money quickly, and have an inherently higher risk, they usually cost the borrower more money.

Hard money lenders are set up as business investors and terms for the loan depend on the value of the property being used as collateral. Therefore, borrowers are not as much evaluated on creditworthiness, as they would be if they had gone to a bank. For example, borrowers looking to flip a property (buy, renovate, and resell) would seek a hard money loan because even though the loan is costly, the borrower plans to repay the loan quickly (from one to three years).

Hard money loans may also be sought when borrowers need a quick infusion of cash. The approval process is usually much quicker than applying for a traditional loan and lenders are not as concerned about repayment because they can always sell the property used for collateral if the borrower defaults on the loan.

Finally, hard money lenders do not make consumer loans, so to make sure the lender knows the loan is a business investment, you should set up the real estate under an LLC.

Benefits of Real Estate LLCs

In addition to making the process easier for hard money lenders to approve, setting up your property purchases under a real estate LLC offers you many benefits, also.

An LLC limits personal liability

As a property owner, any casualties occurring on your property are your responsibility and could put you at risk for lawsuits. If the property is owned by a company, such as an LLC, it is a separate entity and the responsibility belongs to the entity. Therefore, your personal assets would be protected, and only the LLC’s assets would be exposed in the lawsuit.

An LLC offers tax advantages

LLCs offer the option of pass-through taxation of profits and losses, whether they have a single owner or multiple owners. When it comes to tax filing for an LLC, the IRS considers a real estate holding company with one owner a sole proprietor for tax purposes. Income and profit or loss of the LLC pass through directly to the owner’s personal tax return and must be reported on a Schedule C.

With no income tax for the LLC to pay, the owner avoids double taxation (i.e., she only pays tax at her personal tax rate for the rental income and appreciation in property value). Another benefit is that the owner of a single-member LLC can use mortgage interest as a tax deduction.

Multi-member LLCs are typically taxed like a partnership. A multi-member LLC needs to file an informational tax return but will not pay taxes as a company. The LLC’s members (owners) will report and pay income tax on their individual tax returns via a Schedule C or K (with Form 1065).

An LLC requires fewer compliance obligations

An LLC is not required to have officers and directors to oversee the business as you would in a C Corp. LLC owners can manage the business, or you can assign third-party managers to do the job.

An LLC allows you to pass the real estate to your heirs

With an LLC, you can gift your real estate holdings to your heirs each year. Therefore, over time you can pass your owned properties through an LLC without being required to execute, record new deeds and pay the state’s transfer and recording taxes and fees.

Daycare businesses provide a critical service to working families. Parents and guardians need reliable, responsible childcare services to ensure that their children are well taken care of while adults in the household work hard to earn a living.

Before starting a daycare, I recommend that you seek resources—such as an attorney, tax advisor, accountant, and business consultant—who can help with your legal, accounting, and industry-specific questions and decisions. In the meantime, I’ve created this step-by-step guide that provides key considerations and action steps for starting your own daycare business.

What I share here is not meant as legal or accounting guidance but rather to give you a general idea of what you may need to consider when opening a daycare center.

What is Considered a Daycare?

What is considered a daycare? A daycare is a licensed or certified business that offers services to take care of children not related to the business owner. Different states have different classifications for daycares according to the number of children they enroll.

Generally, there are family childcare and childcare providers:

• Family Child Care – These providers often run their businesses from their private homes and care for mixed-age groups of children. States require them to register and meet specific rules, including limiting the number of children that they care for.
• Child Care – These centers offer care for larger groups of children at a commercial location rather than in a private home. Usually, these businesses divide children into different groups according to age. Childcare centers must comply with all state regulations.

Some states, like Pennsylvania for example, have other categories of childcare centers, too. In Pennsylvania, the Department of Human Services (DHS) oversees the following types of childcare facilities in the state.

• Child Care Centers – Facilities that care for seven or more children unrelated to the operator.
• Group Child Care Homes – Facilities that care for seven to 12 children unrelated to the operator.
• Family Child Care Homes – Facilities that care for four to six children unrelated to the operator.

For each of these types of daycare facilities, there are staff member-to-child ratios to be met (according to the ages of the children) and maximum group sizes allowed.

Similarly, California recognizes the following categories of childcare centers. The Child Care Licensing Program of the Department of Social Services oversees daycare licensing in California.

• Small Family Child Care Homes – A private home providing care for up to six children (up to eight children if specific criteria are met).
• Large Family Child Care Homes – A private home that provides family child care for up to 12 children (up to 14 children if specific criteria are met).
• Child Care Centers – Child care facilities of any capacity, other than a family child care home, in which less than 24-hour per day nonmedical care and supervision are provided to children in a group setting.

There are staff-to-child ratios that must be maintained for each of these categories.

For a list of all of the states’ definitions of licensed daycares, visit the website daycare.com

Components of a Daycare Business Plan

Your business plan will be the roadmap for outlining your daycare business goals and what will be involved in achieving them. It will also help you get a handle on the costs, revenue, and profitability you might expect—which is especially critical if you intend to seek outside funding for your business. The elements included in a business plan can vary depending on the type of business, location, size, and other factors. Generally, most business plans include the following sections, which might be called different things or organized differently, depending on the business owners’ or stakeholders’ preferences.

• Executive Summary – Company mission and objectives
• Company Overview – Startup requirements, funding requirements, company ownership
• Products and Services – Description of what you’ll provide to your customers
• Market Analysis – Target market, industry outlook, competitor analysis
• Execution – Sales strategy, sales forecasts
• Management – Leadership, hiring plan, staffing requirements
• Financials Projections – Break-even analysis, cash flow statement, balance sheet, income—Profit and Loss— statement
• Appendix – Containing supporting details and assumptions

This is not an all-encompassing list of the possible items your business plan might include, but it will serve as a good starting point as you begin to work on yours.

Things to think about as you write your business plan include the following items.

Should You Buy a Daycare Franchise or Start Your Own Daycare?

Whether you’ll purchase a franchise, an existing independent daycare, or start your own will affect what you need to do to open your daycare and how much it will cost. Primarily, you have the following three options:

• Buy a Daycare Franchise – Buying a franchise can eliminate a lot of research, planning, and time involved in starting a daycare business. With a daycare franchise, much of the infrastructure, operational guidelines, marketing assets, and brand reputation are already developed. Of course, you will pay (pretty handsomely) for those advantages, and the costs might be prohibitive. Franchisors usually charge an initial franchise fee and other fees (such as training, background checks, furnishings, website, marketing materials, software, security, and more). There will also be some ongoing charges (royalty fees and possibly other recurring costs, such as a monthly advertising fee). Buying a daycare franchise could cost hundreds of thousands to several million dollars.
• Buy an Existing Daycare Center – Is an existing daycare facility for sale in your area? This can save some of the steps and time required to get into business. It’s important to weigh the pros and cons carefully. This scenario’s potential advantages include having a location ready to go, qualified staff in place, and an existing clientele. On the flip side, if the current business has a poor reputation, it could prove challenging to turn that image around and gain perspective clients’ trust.
• Start Your Own Daycare Business – Throughout this article, I will focus on the scenario of starting your own daycare business from scratch. Business owners who go this route have many tasks and responsibilities to fulfill to launch a daycare center. Although there is much work involved, there are some significant advantages such as you start from a clean slate, you have the freedom to create the business you’ve dreamed of, and you do not have a negative brand reputation lurking in the shadows that could derail your efforts.

When starting your own daycare, you’ll need to consider the type of daycare facility you will open. As I mentioned before, states recognize different categories of daycare operations based on where they are based and the number and ages of children in their care.

If you’re planning to open a daycare in your home, consider what additional space and amenities you’ll need to operate your business according to the state and local requirements for childcare businesses. Also, make sure that no zoning ordinances exist to prevent opening a daycare facility where you live. Entrepreneurs who intend to operate their daycare from home also should check with their homeowners’ association (HOA), if they have one. In most states, HOAs may not forbid running a daycare (although this can happen if their governing documents do not allow in-home businesses on residential premises), there may be restrictions on enrollment numbers.

If you plan to rent, lease, or purchase a commercial property for a daycare, realize there may be zoning restrictions about the types of businesses that may operate in the area. It’s critical to ask the local municipality about any rules that may prevent a daycare from opening there. Also, research the state and local regulations that apply to daycare businesses. It’s essential to know what building amenities a property must have in place before opening a child care center.

What Equipment and Supplies Will You Need for Your Daycare?

The equipment, furnishings, and supplies you’ll need to purchase for your daycare center will depend on your business’s size, the ages of children you’ll care for, and other factors. Below, I’ve listed some of the possible necessities:

• Tables and chairs
• Gliders or rocking chairs
• Cribs
• Infant seats
• Changing tables
• Room dividers
• Floor mats
• Strollers
• Sheets and blankets
• Diaper disposal solutions
• Trash cans
• Learning materials
• Arts and crafts supplies
• Toys and games
• Activity tables
• Book display rack
• Playground equipment
• Towels
• Kitchen supplies
• Cleaning supplies
• Bathroom supplies
• First aid kits
• Smoke and carbon monoxide detectors
• Fire extinguishers
• Audiovisual equipment
• Dry-erase boards, markers, bulletin boards
• Computers
• Daycare management software solution
• Accounting software
• Shelving, cubbies, hooks for children’s clothing and supplies
• Storage tubs and totes for toys

Other expenses to consider include:

• Utilities – heating, cooling, electric, gas, internet access
• Marketing – website development and maintenance, signage, business cards
• Professional support – attorney and accountant fees, building maintenance

Does Your Daycare Need an LLC?

Check with your state or talk with an attorney to determine which business entity types are options for your daycare. The business structure you choose will affect your tax obligations, your personal liability related to business legal and debt issues, growth potential, and the ongoing compliance requirements you will need to fulfill to maintain the business entity. The LLC (Limited Liability Company) entity is one that many small business owners choose due to the personal liability protection it provides, the tax flexibility it offers, and minimal ongoing compliance requirements.

I’ve listed other popular business entity types below. You can find more about each by visiting the links I’ve provided.

• Sole Proprietorship
• Partnership
• C Corporation
• S Corporation 

Note that while Sole Proprietorships and Partnership require less (or no) business registration paperwork and ongoing formalities, they do not offer business owners liability protection. Carefully weigh the pros and cons of each entity type before deciding on how to structure your daycare.

What Business Licenses and Permits Does a Daycare Need?

Each state has its own rules and regulations for daycares that operate in their jurisdiction. Examples of state agencies that oversee daycares are the Department of Children and Family Services, Department of Public Welfare, or similar department. In some states, there may be local agencies that also regulate and monitor daycares. Business owners should check with the appropriate agency to find out what’s required to start their daycare.

A helpful resource to determine the licensing requirements in a state is the daycare.com website. It has a PDF, “Licensing Threshold for Family Child Care Homes Caring for Unrelated Children,” which contains a state-by-state list of the criteria for when a daycare must get licensed or registered.

To get a daycare license, the provider must meet all of the state and local government agencies’ requirements governing childcare facilities.

Requirements might include:

• Certificate of Registration or Certificate of Compliance from the state
• Zoning approval
• An approved plan of operation
• Outdoor fencing around playground areas
• Completion of food safety courses
• CPR training and certification
• Clean driving record (no violations) for staff that will operate daycare vehicles
• Criminal and child abuse background checks
• Site inspection (to ensure the building complies with code and safety standards)
• Staff education or training
• Proper signage on the building

To retain a daycare license, daycare providers must:

• Maintain staff-to-child ratios and group sizes set forth by the state or local agency that oversees them.
• Follow an approved plan of operation.
• Follow cleaning and disinfecting guidelines, using approved cleaners and disinfectants.
• Maintain a health record of children’s immunizations.
• Submit reports to government agencies as required.
• Ensure staff members meet the state’s qualification requirements.
• Conduct required safety drills.
• Provide required documentation to parents (for example, a “Notification of Parents’ Rights”).

There may be other requirements, as well.

What Staff Will You Need to Hire?

Your staffing needs will depend on the category of daycare you operate and your state’s rules for the ratio of caregivers to children that must be maintained. In addition to wages and salaries, a daycare may also incur costs for providing company benefits and training.

According to the U.S. Bureau of Labor Statistics, the median pay for childcare workers in 2019 was $24,230 per year ($11.65 per hour). Of course, this might be higher or lower for each staff member depending on their position, level of education, professional credentials, and experience in the field.

Examples of the types of positions in a daycare center are below.

• Director – A person to oversee the daycare’s programs and supervise other staff members
• Preschool Teacher – An individual responsible for teaching children the basics of reading, writing, and other subjects to prepare them for Kindergarten
• Infant Teacher – An individual that provides care and enrichment for babies
• Toddler Teacher – An individual that provides care and enrichment for toddlers
• Teacher Aide or Assistant – An individual who assists teachers in creating and executing lesson plans and activities
• Administrative Assistant – Someone who helps the owner or director with clerical duties, such as answering phones, handling paperwork, scheduling appointments, etc.

If you research the roles in daycares, you’ll find other position names, as well.

• Group supervisor
• Assistant group supervisor
• After-school assistant
• Infant child care worker
• Classroom aide
• Classroom assistant
• Child care worker

Regardless of what a daycare entrepreneur chooses to call staff member positions, it’s critical to find responsible, skilled, trustworthy candidates who meet all of the criteria required by law to serve in those positions.

What Education and Experience Do Daycare Owners and Staff Need?

The states’ rules vary regarding what experience and education daycare staff members need to be qualified for their positions.

The names of roles that states mention in their regulations vary.

• Director
• Group leader
• Child care supervisor
• Group teacher
• Lead caregiver
• Caregiver
• Assistant group supervisor
• Staff

The above are just a few examples of the wording states might use.

States describe what responsibilities those roles entail. Daycare owners must ensure that the staff members at their facility in those roles (even if they’re called something else) have the necessary qualifications required by the state.

Qualifications requirements may include:

• Minimum age requirements
• High school diploma (or equivalent)
• Early childhood education degree
• Previous experience working with children
• Orientation training
• Ongoing education training
• Health and safety training
• Health assessment
• Background checks (criminal and child abuse)

Some states require daycare workers to have a nationally recognized credential, such as the Child Development Associate (CDA) Credential™ through the Council for Professional Recognition. Once obtained, the CDA credential must be renewed every three years. Other optional accreditation is available through other organizations, including The National Association for Family Child Care (NAFCC™).

It’s critical to review the requirements and get hiring and training policies in place before hiring staff.

What Kind of Insurance Does a Child Care Center Need?

Entrepreneurs need to protect themselves and their businesses legally and financially. I recommend talking with a trustworthy, experienced insurance agent who can advise on a business owner policy that will meet your needs. States may require daycares to buy certain types of coverage before they’re allowed to operate there.

Various types of coverage that a daycare operator might need or consider include:

• Commercial General Liability Insurance – Helps protect the business if someone sues the daycare, claiming negligence or harm caused to them physically or to their personal property.
• Professional Liability Insurance – Helps protect the business if it is sued because a member of its staff has shown negligence in caring for children enrolled.
• Abuse and Molestation Liability Insurance – Helps protect the business if it is sued due to a claim against an employee that sexually or otherwise abuses a child.
• Commercial Property Insurance – Helps to protect the property (building and its contents) the daycare owns.
• Workers’ Compensation – This mandatory insurance paid by employers covers employees’ medical expenses, lost wages, funeral costs, etc. in the event of work-related accidents and illnesses. Laws and requirements for workers’ compensation vary by state.
• Unemployment Insurance – Unemployment insurance, a federally mandated program, temporarily replaces some of the wages that workers have lost if they were laid off or let go through no fault of their own. The program is funded by employers who must pay into FUTA (Federal Unemployment Insurance Act) as part of their payroll taxes. The FUTA tax paid corresponds to an employee’s wages and is not deducted from the employee’s paycheck. In most states, there is also SUI (State Unemployment Insurance)—or SUTA (State Unemployment Tax Act)—tax. I’ll provide more detail about this in the soon-to-follow payroll section.
• Business Interruption Insurance – If a disaster forces a daycare to close temporarily, this type of policy helps pay for expenses and compensate for lost revenue. Review policies carefully to understand what they do and do not cover. Unfortunately, during the coronavirus crisis, many entrepreneurs discovered that their policies don’t cover pandemics.

What Taxes Does a Daycare Have to Pay?

Tax obligations vary by state. Below are several types of tax that can impact a daycare’s bottom line:

• Federal income tax
• State income tax
• FUTA tax (federal unemployment)
• SUI tax (state unemployment)
• FICA (Social Security and Medicare) taxes – FICA tax is paid by both the employee and employer. 7.65 percent of an employee’s wages must be withheld from each paycheck, and then the employer must pay a matching 7.65 percent.
• Self-Employment taxes – If a daycare owner operates as a sole proprietor, Limited Liability Company, or S Corporation, the owner must pay self-employment taxes (Social Security and Medicare taxes). Sole proprietors and LLC owners must pay self-employment taxes on all net earnings received. S Corporation business owners pay self-employment taxes on only the wages and salaries they receive from the company.

There may be other state and local taxes and fees depending on where a daycare is located.

Generally, daycare services are not subject to sales tax. However, there may be exceptions. Ask a trusted tax expert for guidance or reach out to the state and local tax authorities to learn what they require.

Entrepreneurs that seek to set up their daycare as a nonprofit may have an exemption from certain taxes. Many stipulations must be met to qualify for nonprofit status.

How Much Does It Cost to Open a Daycare?

This is something you will be getting a feel for as you research what your daycare will need and decide how you will operate your business. As you may have guessed, the costs can vary immensely. SBDCNet, in a recent blog post, shared that sources estimate startup costs might average anywhere from $10,000 to over $95,000. The costs could likely be more if building renovations are required or the entrepreneur must make other significant purchases.

How Will You Fund Your Daycare?

If you do not have the finances necessary for starting your daycare, you will need to seek funding from other sources. Business registration costs, property and building expenses, equipment needs, staffing requirements, license and insurance costs, marketing expenses, and other factors will affect how much you’ll need to start a daycare. It’s also crucial to have some funds on hand to cover ongoing operating expenses and unexpected expenses as your business ramps up.

Possible sources of funds when starting your own daycare business:

• Your personal assets
• Friends and family members who want to invest in your venture
• Business or partners (one or more people who will share ownership with you)
• Banks or credit unions
• Local, state, and federal government programs and grants (The SBA and Small Business Development Centers are useful resources for finding these opportunities.)

Steps for Starting a Daycare Business

OK, so now that you’ve begun to gain an understanding of the many considerations involved in opening a daycare, let’s take a look at some of the steps you may need to take to launch your business.

1. Choose a Daycare Business Name

A daycare’s business name will arguably be its most powerful branding tool. Given that customers will be putting their child’s well-being in your business’s hands, consider what your business name communicates to potential clients.

• Does the name instill trust?
• Does the name give a sense of positivity and goodwill?
• Does the name give the impression that you’re providing a capable yet fun experience?
• Does the name sound official? (i.e., Some people may feel more confident entrusting a business with “LLC” or “Inc.” behind the name. To use those abbreviations, business owners must formally register their daycare as the appropriate entity type.)

Before using a business name, it’s critical to make sure that another similar business has not already claimed it. Infringing on a name that’s already in use could create legal problems for your company.

As you think of business names, it’s also beneficial to check if the corresponding domain name is available. Having a website URL that will match your daycare name can help people find you online. For example, suppose you want to call your business, “Above and Beyond Child Care Center.” You could use one of the below sites to verify if “aboveandbeyondchildcare.com” or “aboveandbeyondchildcarecenter.com” are available to use as your website URL.

• Whois.net
• Doming.com
• GoDaddy
• Nameboy

CorpNet has a free business name search tool that can help you identify if a business name is available. Also, an attorney can help check and confirm a business name’s availability.

When a business forms an LLC or C Corporation, the business name will automatically be registered at the same time. However, Sole Proprietorships and Partnerships that want to use a name that does not include the owner’s legal name must file a DBA (fictitious name) to use their desired name.

2. Designate a Registered Agent

Businesses that form an LLC or incorporate must designate a registered agent in the state(s) in which they operate. What is a registered agent? It is a company or individual authorized to accept “service of process (official government notices and legal paperwork) on the daycare’s behalf.“ A registered agent must maintain office hours Monday through Friday from 8 a.m. to 5 p.m. and meet whatever other criteria the state requires. In some states, business owners may serve as their own registered agent. However, for privacy reasons and to ensure important documents don’t get lost in the shuffle with other mail, it can be beneficial to use a third-party registered agent. Some registered agents, like CorpNet, offer services in all 50 states, which simplifies matters if entrepreneurs want to expand their daycare into other states.

3. Register Your Daycare Business with the State

A daycare that will operate as an LLC or a Corporation must file registration paperwork with the state. Articles of Organization are used to form an LLC and Articles of Incorporation are used when forming a C Corporation. A business might also have to complete other Secretary of State filings or reports, such as an initial report.

An attorney can assist daycare owners in completing and submitting their business formation paperwork. Consider asking an online business document filing service, like CorpNet, to reduce legal fees for assistance with your business registration and compliance filings.

4. Obtain an EIN

Many banks will require that companies have an EIN (Employer Identification Number) to open a business bank account. An EIN, which the IRS issues at no charge, is a unique I.D. number (similar to a Social Security Number). You’ve probably heard EINs referred to also as Federal Tax ID Numbers. Any company that will hire employees (or registered as an LLC or Corporation) must obtain an EIN.

5. Open a Dedicated Business Bank Account

After a daycare’s business entity is formed, it’s time to open a business bank account and credit accounts in the business name. Doing so will allow business expenses to be paid from the funds in those accounts, and revenue from customers can go to the appropriate place.

While it’s always ideal to keep business records and funds separate from entrepreneurs’ personal accounts, it’s mission-critical for businesses operating as LLCs or Corporations! With those entity types, business owners risk losing the personal liability protection that insulates them from the business’s legal and financial troubles if they mix their personal and business finances. That could put daycare owners at risk of having their homes, savings accounts, vehicles, and other assets used to pay damages in lawsuits or other business debt.

6. Get Your Daycare Location Ready

Before you can pass inspections and obtain the necessary licenses and permits for your daycare, you’ll need to prepare your location to meet all rules and regulations. Hopefully, you have done all the research required as you developed your business plan. Whether you need plumbing amenities, updated electrical infrastructure, remodeling or new construction, get qualified professionals and tradespeople to help you complete the work correctly.

7. Get the Required Licenses and Permits

I discussed some of the possible licensing considerations for daycares earlier in this article. Business owners should contact their state and local government offices to determine the requirements specific to their type of childcare facility and the location at which it will operate. You can save some time identifying the necessary licenses and permits by using CorpNet’s Business License Service Packages. We can even prepare and submit your applications for you!

8. Create a Daycare Client Contract

It’s essential to formalize the details of what your daycare will provide and set other expectations with your clients, as well. A daycare contract is a legally binding document that protects the business, parents or legal guardians, and children. An attorney can help create a contract with the necessary details and terms and conditions that are fair to all parties involved.

Some components that a daycare agreement might include are listed below. Note that this is not an all-inclusive list, and the elements may vary depending on the type of childcare facility and other factors.

• Parties involved
• Names and ages of the children to be enrolled
• Parent or guardian contact information
• Medication policy
• Emergency contact information
• Services and supplies provided
• Parent and guardian responsibilities (information they must provide and supplies they must bring)
• Fees and payment schedule
• Hours of operation (time that parents may drop off their children and when they need to be picked up)
• Late pick-up policy and associated fees
• Sick child policy
• Late payment policy
• Vacation policy (will the daycare charge families even if children do not attend)
• Discipline policy
• Inclement weather policy
• Abuse and neglect reporting policy
• Termination procedures
• Confidentiality
• Signatures

You can find several online resources to help you write your own childcare contracts. Alternatively, a childcare attorney can advise you on the elements of your contract. A daycare’s client agreement should be completed and reviewed by legal counsel before the business seeks clients.

Often, daycares must have clients sign other forms, too. For example:

• Permission to administer OTC medications (such as acetaminophen or an antihistamine), sunscreen, insect repellent, etc.
• Medical history and emergency medical care form
• Sign-in and Sign-out sheets
• Accident and injury report form
• Field trip release form
• Photo release form (if taking photos that the business will use for marketing purposes)

9. Hire Employees

When hiring staff for your daycare, it’s critical to understand all of the laws that employers must abide by. An H.R. consultant can help ensure you conduct the hiring process correctly and comply with requirements after bringing staff on the payroll.

Job applications, job interviews, background checks, and all other elements must follow all applicable hiring and anti-discrimination, minimum wage, and child labor laws. Employment laws exist at the federal and state levels, so it’s essential to research what you may and may not do when hiring and retaining a workforce. Also, have a training plan to onboard new employees so that they understand all business rules, policies, and procedures.

10. Register for Payroll Taxes

Daycares with employees must also register for state payroll tax accounts before they open. Employers must pay some payroll-related taxes, such as FUTA. And some taxes, such as State Unemployment Insurance Tax (SUI) and State Income Tax (SIT), must be withheld from employees’ paychecks. Usually, the employer must pay SUI (rates vary by state), but SUI is also withheld from the worker’s pay in some states. Employers must also withhold federal income tax from workers’ pay. As I mentioned earlier, business owners must withhold half of FICA taxes (Social Security and Medicare) from employees’ wages, too. Daycare owners must report and remit payroll taxes to the appropriate tax agencies.

11. Market Your Daycare Business

Until you have earned a reputation that generates word of mouth and brings clients your way, you will need to put effort into marketing your daycare. Some branding and marketing assets include:

• Company logo
• Signage outside your building
• Business cards
• Website
• Google Business Profile and Bing Local accounts for local search
• Social media
• Email marketing

Remember that the quality of all of the above will impact your brand reputation, so it may be worth getting professionals’ assistance to handle the design, writing, and photography for your marketing assets.

12. Keep your Daycare Legally Compliant

Daycares must remain up to date on the compliance requirements that apply to them. I’ve listed some examples below:

• State and local government reports
• Tax filings
• Licenses and permits
• Retaining a registered agent
• Industry certifications (if required)

A business may need to tend to other compliance formalities, as well, to stay in good standing with the IRS and state and local governments. Attorneys and tax professionals offer guidance on what your daycare must do and the deadlines for completing compliance tasks. A resource for tracking upcoming business entity reporting and filing deadlines is the CorpNet Compliance Portal.

Resources for Daycare Providers

As you can see, there is a lot to think about when starting a daycare. The following resources provide helpful information about the childcare industry and what entrepreneurs must do to operate a safe, legal, and successful daycare facility.

• Association for Early Learning Leaders
• Childhood Education International
• Council for Professional Recognition
• Child Care Services Association
• Daycare.com
• Division for Early Childhood
• National Association for Family Child Care
• National Association for the Education of Young Children
• National Child Care Association
• National Head Start Association
• National Resource Center on Health and Safety in Child Care
• Office of Child Care
• U.S. Environmental Protection Agency
• SCORE.org
• Zero to Three

Get Started With CorpNet’s Help!

CorpNet is here to help demystify all of the forms and filings involved in starting your daycare business. Our team of experts will ensure all of your state business registration, registered agent services, business license applications, and other filing needs are prepared accurately and submitted promptly. You can count on us to save you time and give you peace of mind—for less money than you would pay an attorney to handle the paperwork for you.

Sources and References:

“About the Child Development Associate (CDA) Credential™. Council for Professional Recognition. https://www.cdacouncil.org/about/cda-credential.
Accessed August 11, 2020.

Castleberry, Emma. “How to Start a Daycare Business.” Bplans. https://articles.bplans.com/how-to-start-a-daycare-business.
Accessed August 7, 2020.

“Child Care Workforce Qualifications, Training, Professional Development.” U.S. Department of Health and Human Services (HHS). https://childcareta.acf.hhs.gov/sites/default/files/public/rg3e_childcareworkforce_508_0.pdf.
Accessed August 11, 2020

“Daycare Business” (2020, June 8). SBDCNet. https://www.sbdcnet.org/small-business-research-reports/daycare-business.
Accessed August 13, 2020.

Flavin, Brianna (2017, October 30). “Your Step-by-Step Guide to Opening a Daycare.” Rasmussen College. https://www.rasmussen.edu/degrees/education/blog/how-to-open-a-daycare.
Accessed August 4, 2020.

Hamill, Virginia (2020, August 7). “Daycare Insurance: Coverage, Top Providers & Costs.” Fit Small Business. https://fitsmallbusiness.com/daycare-insurance-cost-coverage/#:~:text=Most%20daycares%20need%20more%20than,policy%20for%20a%20reduced%20rate.
Accessed August 12, 2020.

National Association for Family Child Care. https://www.nafcc.org. Accessed August 11, 2020.

“Occupational Outlook Handbook: Childcare Workers.” U.S. Bureau of Labor Statistics. https://www.bls.gov/ooh/personal-care-and-service/childcare-workers.htm.
Accessed August 11, 2020.

State Definition of Licensed Family Child-Care Homes. Daycare.com. https://www.daycare.com/news/states_family.html.
Accessed August 4, 2020.

“What to Do When a Day Care Pops up in Your HOA.” HOAleader.com. August 2014. https://www.hoaleader.com/public/What-Do-When-Day-Care-Pops-up-in-Your-HOA.cfm
Accessed August 7, 2020

As a small company, CorpNet understand the challenges small businesses face, especially in an uncertain economy. However, entrepreneurs are resilient and remain the country’s economic backbone. Small businesses account for 99.9% of all businesses in the United States and employ 61.7 million Americans, which accounts for 46.4% of private-sector employees.

Over the years, we’ve helped thousands of small business owners start and grow their companies. New business owners have lots of questions, business terminology can be confusing, and they frequently wonder about the true revenue potential of starting a small business.

In today’s post, I’d like to tackle some of the common questions entrepreneurs have about small business revenue and what they can expect to make in their new venture.

What Is Revenue?

First, it’s crucial to understand the difference between revenue, profit, and income when talking about small business revenue.

• Revenue is the same as sales. It’s the total income a company generates from its normal business activities, such as selling products or services.
• Profit is the net amount you have left after deducting expenses from revenue.
• Income is the amount left minus the costs of doing business (depreciation, interest, taxes, and other expenses).

Essentially, revenue is the company’s top line (since it sits on the top line of the income statement). Revenue includes discounts and deductions for returned goods but does not include operating expenses.

Typically, a company earns two types of revenue: operating and non-operating. Total revenue income consists of both,=.

• Operating revenue (or sales revenue) comes from a company’s primary activity. For retailers, that would be the number of units sold times the per-unit price.
• Non-operating revenue comes from activities that include interest, royalties, and other secondary sources of income.

Although revenue indicates how well your business is doing relative to sales, it doesn’t take the costs associated with running the company into account.

Average Small Business Revenue

Many factors influence average small business revenue, including:

• Industry trends
• Business location
• Experience of the entrepreneur
• Number of employees
• Length of time in business
• Community support

For a sole proprietor (single owner with no employees), the average small business revenue is around $44,000 per year. And statistics show that the average small business revenue increases as the number of employees rises. For instance, the average small business revenue leaps to $387,000 for businesses with one to four employees. Companies with average small business revenues of $1 million typically have at least five to nine employees.

Businesses owned by men have an average small business revenue of $675,643, whereas those businesses owned by women have an average revenue of $475,707.

Profitable Industries for Startups

As noted above, your industry can play a role in determining your average small business revenue and profits.

• Pet Services – Average net profit margin of 40% (grooming, pet-sitting, and dog-walking)
• Home Cleaning Services – Average net profit margin of 28%
• Event Management – Average net profit margin of 20%
• Information Technology – Average net profit margin of 16.62%
• Retail Distribution – Average net profit margin of 16.5% (intermediaries between manufacturers and retailers)
• Real Estate – Average net profit margin of 12.67%
• E-commerce – Average net profit margin of 10%
• Home Improvement -Average net profit margin of 9.65%
• Dining – Average net profit margin of 9.28%
• Building Supply Retail – Average net profit margin of 8.67%

Small Business Salaries

Although many new business owners plan to skip taking a salary until the company gets off the ground, the Internal Revenue Service (IRS) expects you, at some point, to pay yourself reasonable compensation. This depends on several factors, such as duties performed, the cost of living, and industry data.

If you’re unsure of what your salary should be, the U.S. Bureau of Labor Statistics offers nationwide comprehensive wage data, searchable by occupation and comparable wages by state, region, and city.

Here are some statistics on small business salaries::

• The average salary for small business owners is $69,301.
• Small business owners in Dallas, Texas, earn an average of 332.9% more than the national average.
• Other top owner salary locations include Boston, MA (78.6% more) and Chicago, IL (51.2% more).
• The lowest salaries can be found in Los Angeles, California (63.9% less than the national average) and Seattle, Washington (12% less).

There is no way to know how long your startup will take to reach the average small business revenue for your industry, but creating a business plan outlining a comprehensive roadmap for success is always a good move. And when you’re ready to actually get started and looking for advice on business structure, CorpNet is here and ready to help.

References:

https://advocacy.sba.gov/2023/03/07/frequently-asked-questions-about-small-business-2023/
https://www.forafinancial.com/blog/small-business/average-small-business-revenue/
https://finance.yahoo.com/news/10-most-profitable-small-businesses-064319111.html
https://www.bls.gov/bls/blswage.htm
https://www.payscale.com/research/US/Job=Small_Business_Owner/Salary

One of the challenges of running a home-based business is deciding what type of business to start in the first place! With so much to consider, where do you begin?

First, think about your definition of a home-based business. Do you define it as having your office and performing your work at your house? Or is it having an office at home but carrying out most of your work at another site or your customers’ locations?

In this article, I’ll focus on at-home business ideas that allow an entrepreneur to have their office and perform most of their work within their home. I’ll also answer some frequently asked questions about starting and running a business from home.

The Good and the Bad of Running a Business From Home

First, let’s look at some of the benefits and potential drawbacks of managing a business at home.

Advantages of running a home-based business:

• No need to rent or buy office space
• No commute, so it frees up time and minimizes vehicle fuel expenses
• No dress code
• Allows for a flexible work schedule (depending on the type of business)

Disadvantages of running a home-based business:

• Some business owners find it difficult to set boundaries that allow them to turn off work and enjoy personal time. This can lead to burnout.
• Zoning laws may prevent running a business on a residential property.
• Entrepreneurs working from a home office sometimes find it difficult to concentrate. Distractions like undone household tasks or interruptions by friends, family members, and pets can quickly detail productivity.

My Favorite Home-Based Business Ideas

A home office is not ideal for every business venture, but it can work well for others, like those listed below. It’s important to assess your interests, capabilities, and resources before launching any type of business. Finding a good fit is an essential success factor.

Affiliate Marketer

Many big-name companies offer affiliate marketing programs that give people an opportunity to earn income by spreading the word about their products and services. Typically, an affiliate gets a commission when someone purchases a product or service using the affiliate link the company running the affiliate program assigned them. Commission rates, guidelines for promoting a company’s products, payment timelines, and other details vary depending on the program.

Learn more about affiliate marketing from industry veteran Pat Flynn.

Artisan

From pottery to candles to jewelry to woodworking and more, unique hand-crafted creations are attractive to people looking for unique gifts or distinctive items for themselves. Artisans can create their wares at home with the right tools, equipment, and supplies. However, selling them often involves attending events, such as art fairs and craft shows.

Learn more about selling your goods on Etsy.

Babysitter

Do you adore young children and want to provide a safe, comforting space while their parents are working or away? Then offering babysitting services in your home could be a fulfilling business. Check your state and local municipality’s rules for limits on the number of unrelated children allowed in the home without a license. Other requirements and restrictions might also exist.

Take a babysitting course and become verified at the Red Cross.

Baker

If you’re a master at crafting cookies, cakes, pies, bread, or other tasty treats, starting a home-based bakery might be appealing. Research your state and local government’s home bakery laws first, though. Some areas have strict rules and various limitations.

Learn more about this career and training opportunity at the Culinary Institute of America.

Caterer

Starting a catering business can be a fulfilling choice for individuals with a flair for the culinary arts. If pursuing this idea, carefully research all licensing and permitting requirements. States’ health department laws for preparing food in a home kitchen may be strict, licensing will be required, and local governments may have zoning rules and requirements for operating this type of business.

Learn more about starting a catering business at Auguste Escoffier School of Culinary Arts.

Dog Groomer

What could be better for an animal lover with hands-on creative skills than a dog-grooming business? States’ rules for education, training, and licensing vary (some require none while others do), so wanna-be dog groomers must check the requirements that apply to them before shampooing and clipping commence.

Learn more and take a dog grooming course at QC Pet Studies.

Freelance Content Writer

Marketing writers help businesses with an array of projects — such as website content, email marketing copy, ad copy, social media content, press releases, newsletters, brochure copy, and more. Naturally, writing talent and some marketing knowledge is essential for succeeding in this type of business.

Learn more about becoming a freelancer copywriter from Jacob McMillen.

Music Instructor

Teaching voice or musical instrument lessons is another viable at-home business opportunity. While many schools provide lessons to budding musicians, students’ parents often seek additional instruction to advance their children’s skills. No college degree or certification is typically required to become a private music instructor. However, having a music education or performance degree can bolster the confidence of potential clients.

Learn more about music instructor career options at Zippia.

Personal Trainer

Fitness enthusiasts who would love to work with people and help them reach their wellness goals might consider starting a personal training business. This type of business might require some education (e.g., kinesiology, exercise science) and certifications (e.g., CPR, AED), and possibly professional licensing as a certified personal trainer.

Learn more about becoming a personal trainer at zengig.

Pet Sitter

When people go out of town for the weekend or leave for vacation, they want peace of mind that their furry friends are safe and loved. If you own your own home and want to open a pet-sitting business there, make sure to comply with any ordinances limiting the number of pets allowed on the premises or restricting certain breeds (Sadly not all municipalities are welcoming of pit bulls, Dobermans, Rottweilers, and other breeds).

Learn more about becoming a pet sitter with the National Association of Professional Pet Sitters certification course.

Resume Writer

When people are trying to land their dream job, their resume needs to stand out. A resume writing business focuses on presenting individuals’ education and professional skills, background, and achievements in a compelling way to help ensure human resource departments take notice. It’s essential to have strong writing skills. Also, for credibility, it can be helpful to obtain certification from a professional resume writing association.

Learn more about becoming a Nationally Certified Resume Writer at the National Resume Writers’ Association.

SEO Consultant

Businesses of all sizes consult with independent contractors for SEO strategy development and execution. SEO services by knowledgeable professionals are in-demand as companies want to stay as competitive as possible in online search results. This field requires a solid understanding of how search engines work, a willingness to stay current on ever-changing algorithms, and proficiency in using SEO tools.

Learn what it takes to become an SEO consultant with industry expert Brian Dean.

Social Media Manager

Nearly every business has a social media presence across multiple platforms. Keeping those social accounts active and engaging with fresh content can be challenging for in-house staff. That’s why many companies outsource their social media content creation and community management to social media professionals on a contract basis.

View HubSpot’s 30+ resources for learning social media management.

Tax Preparer

Many people need assistance preparing their tax returns. Individuals who are math-savvy, well-informed about tax issues, and have obtained a Preparer Tax Identification Number (PTIN) from the IRS may find this business idea gratifying.

Learn how about starting at home tax preparation business from home.

Tutor

Individuals proficient in math, English, science, a foreign language, or another academic specialty might consider offering tutoring services to help students (or interested adults) improve their understanding and abilities.

Learn more about the certification options and requirements needed to become a tutor.

Virtual Assistant

Virtual assistants build their own businesses by filling voids for other businesses. They play an essential role by helping companies and busy professionals handle administrative and other tasks (monitoring emails, fielding calls, scheduling appointments, etc.).

Learn how to become a virtual assistant at Upwork.

Website Designer

Websites are critical marketing assets, and many businesses outsource their website creation to contractors. Website designers need creativity and an artistic eye; some basic knowledge of programming languages (HTML and CSS); an understanding of SEO fundamentals; and an understanding of templating in popular website platforms like WordPress, Squarespace, or Shopify.

Learn more about website design at the American Graphics Institute.

FAQs About Running a Business At Home

Can a home-based business be an LLC?

Absolutely! And it can be very advantageous — forming a Limited Liability Company helps protect the business owner’s personal assets from the liabilities of the business. Business owners must follow their state’s process for registering their LLC. All states require designating a registered agent in the state and submitting formation paperwork (usually called Articles of Organization). Other requirements can vary from state to state.

Do you need an EIN to operate a business from home?

It depends. If operating as a Sole Proprietorship or General Partnership without employees, an Employer Identification Number might not be required because the business is considered the same legal and tax-paying entity as the business owner(s). However, if a Sole Prop or General Partnership hires employees, it will need an EIN from the IRS for employment tax purposes.

Most LLCs and C Corporations need an EIN even if they don’t have employees. Banks typically ask for the business entity’s EIN when setting up a business bank account. Also, an EIN is required when applying for business licenses and permits.

Do you need an at-home business license?

Possibly. Home-based business license requirements vary depending on the state, town, and type of business or trade. Therefore, it’s important to research the rules thoroughly at all levels.

License and permit examples for home based business include:

• Sales tax permit
• Cottage food license
• Health permit
• Sign permit
• Resale permit
• Zoning permit
• Home occupation permit

Do you need insurance for a home-based business?

Business property insurance can provide peace of mind for at-home entrepreneurs as homeowners insurance policies may not cover — or provide limited coverage of — business property. Other examples of insurance to consider include general liability (protects from claims of bodily or personal injury to someone else or their property), professional liability (a.k.a. errors and omissions insurance), and business income insurance (a.k.a. business interruption insurance, which helps replace lost income in the event of property damage or loss).

Whether you need business insurance and what types you need will depend on a variety of factors. It’s best to talk with a trusted, knowledgeable insurance agent to discuss which policies make the most sense for your situation.

How can you start a home business with no money?

Reality check: Starting a business will likely cost you something. But you can keep expenses low by running the business at home and choosing a business idea for which you already possess the required knowledge, skills, tools, and equipment. Also, using an online business filing service, like CorpNet, can help minimize the expense of preparing and submitting business filings to the state.

Do you need a lawyer and accountant to start your business?

While there’s no requirement to work with a lawyer or accountant, I encourage it. Consulting with those licensed professionals can help you understand your tax responsibilities and how to start and run your home-based business legally.

Who can help you prepare and submit your business filings and applications if you’re uneasy about handling them yourself?

My team at CorpNet has your back. From forming your business entity to applying for an EIN and researching business license requirements, we have you covered! We have handled tens of thousands of filings for clients in virtually every industry across the United States.