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Can't afford an office in which to launch your venture? Here are some creative problem-solving tips to help you get started, even if funding is limited.
Perhaps one of the most famous examples of entrepreneurial origins is the garage of Steve Wozniak, co-founder of Apple computer. It's a fact that many new ventures start on kitchen tables, in broom closets, garages, carports and basements. It's also true that home offices can be disruptive to family life, and that many people prefer to move to another location when the time is right. Apple didn't stay in Wozniak's garage; it now inhabits a large complex in Cupertino, California.
This article describes options you may not have considered, and how to make an alternative, or transitional office, work for you.
Before you decide what kind of office is best, ask yourself these questions:
Is it legal to work at home, or on my boat?
How much space will I need?
How important is visibility?
What happens if my business grows?
We'll make suggestions as to how you can answer these questions in more depth, and present some important legal issues to research before you open an alternative office:
Zoning and Licensing
Insurance
Taxes
To open up a business, the minimum documentation you need is a business license. In many cases, you will need two business licenses, one from your city, and one from the state. In most areas, you are required to display these licenses in your place of business. In addition, you must conform to related zoning regulations.
Every urban and rural center is divided up into zones which govern the kinds of activities which may take place. Thus, there are commercial zones, residential zones, institutional zones, industrial zones and others.
Residential zones are carefully protected against commercial intrusions like signs, billboards, retail traffic, and buildings that butt up against sidewalks. In other words, you can't just build a facade on the front of your residential home, call it a shop, and open up for business. Zoning regulations forbid this.
Sometimes zoning changes can be requested, but if you are deep in a residential district, you are not likely to be successful. If, however, you live on a busy street, with shops nearby, you may be in a transitional neighborhood, where application for a zoning change from residential to commercial would be considered. Or, you may find that your house is already on property zoned commercial, in which case you can do whatever you like, as long as you comply with regulations for that category.
Your city and county authorities provide free access to information on zoning. You can phone to ask about a specific address, or visit their offices to see charts and maps of the different zoning regions in your area.
Street Vending. Even if it's a commercial area, it doesn't mean you can automatically start a business anywhere you like. You've no doubt seen street vendors with blankets and trinkets dotting urban centers. In many cases, these vendors are in violation of city commercial solicitation laws. This is true for flower and hot dog stands, as well. In most cities, if you want to open up a street shop, or shop on wheels, you will need a special permit, sometimes called a Peddlar's License, to conduct business in public throughways. Even once you have the license, you must adhere to strict regulations to protect the safety of the public, and to keep the throughways clear for traffic and emergency personnel.
Home Businesses. Well, if you can't run a business in a residential area, then why are there so many people operating from home-based businesses? Because home-based businesses are an essential part of our economy. In addition, they permit parents to stay home and care for children, while still earning a living, or for otherwise unemployable handicapped individuals to support themselves, instead of being forced to collect disability. They also reduce the amount of traffic on our crowded streets. For these reasons, there is usually a special category of business license called a Home Occupation License. This license has a number of restrictions, which vary from place to place, but which usually center around retail traffic, manufacturing and signage. You may not be permitted to have customers coming to your home, and if a sign is permitted, there is probably a maximum size restriction. Make sure you find out what the restrictions are before you set up shop in your home.
Oh yes, insurance. It doesn't seem to matter what you do in our culture, insurance issues are sure to creep in somewhere along the line. As a business owner, it's very important that you be aware of insurance regulations and needs. In some cities, you will be required to provide proof of insurance before you can apply for a city business license. In other cities, the requirements are more lenient, but you will still have to consider the welfare of your employees, investors, and customers in deciding how much, and what type of insurance you need.
As an example, suppose you decide to open up a little paint shop downtown. You find the perfect retail location. You sign a lease. You apply for your business license and they request evidence of insurance. So you contact your insurance agent and discover that they are unwilling to insure your premises because there is a restaurant next door with an old kitchen that they consider to be a fire hazard. This can happen. Now you either end up paying a premium for the insurance, or doing a lot of legwork to find someone willing to insure you. Make sure you make inquiries about insurance when you select a location for your business. A treehouse might be a great place to put an office if you are a wildlife photographer, but your insurance agent might not come to your aid if you fall out of a tree while getting a tight shot of an eagle flying by.
The other major legal aspect of a business is taxation. You must apply for appropriate tax numbers, especially if you plan to hire employees (a federal tax ID is required). You will be required to keep records and to pay federal corporation or personal income taxes on your earnings. In addition, you may be required to pay local sales tax, and business and occupation tax. The amounts and types of taxes vary geographically.
You are also well advised to find out about tax deductions and procedures for small businesses. We'll have articles to cover these topics in more detail in other issues.
Are home or other alternative office spaces tax deductible? Yes, as long as the space does not exceed any local restrictions, and if the office and its furnishings and equipment are normal and necessary to the operation of your business. Thus, a psychiatrist or massage therapist could deduct a fancy couch and a city office as normal and necessary office expenses, but could not justify deducting a saleboat. On the other hand, a captain of a salvage tug could deduct a boat as a business expense, but not a couch. Note that the salvage captain might claim part of his boat as an equipment expense, and part of it as an office expense, if he keeps his radio phone and business files and papers on board. It's not unusual for alternative offices to comprise a percentage of a larger facility. This may have its advantages for you, but you must be prepared to give your calculator a workout at tax time if you have mixed-use expenses.
How Much Space Will You Need?
This question is almost impossible to answer, unless you also know what type of business you will be conducting. A paper manufacturer requires more space than a typist. Consider about 100 square feet per person for office areas, then add whatever space you think you will need for equipment, production and manufacturing, if relevant to your business. It's a good idea to look at similar businesses, and see how much space they are using, relative to the number of people they employ.
How Important is Visibility?
The answer to this is probably more than you realize. So many people are under the mistaken impression that the American Dream consists of coming up with a better mousetrap. Nothing could be further from the truth. A better mousetrap is useless if no one knows about it, or no one wants it. However, if you have a better mousetrap that you really think people will buy, then you must do everything in your power to let people know that it is available. Always seek out ways to let your name and logo be heard and seen. Even if your business is at home, get a business line installed so you will have a business listing in the phone book. Consider putting up a small, tasteful sign, and balance the decision about whether to select the convenience of working at home, against the greater visibility and foot traffic you may have downtown. If you decide on a downtown office, make sure the entrance is clearly visible and appealing.
If your alternative office is a residential home on a commercial street, consider putting extra windows in the front so potential customers don't feel like they're trespassing on a home by coming up the walkway.
If your office is in a barn or a boat, consider including a map on the back of your business card, so it's easier for people to find.
What if My Business Grows?
Always consider future growth, when you select a place of business. If you need to expand, what options do you have other than relocating your entire business? Are there vacant offices next door? Should you start out with a big office and sublease half so you have the opportunity to grow into the other half without incurring a lot of extra expense?
When you seek out your office space, you should always be thinking three years in the future. Since it takes this long for many enterprises to get off the ground, it's reasonable to be thinking this far ahead. You may also have to commit yourself to a two, three or five year lease, depending on where you decide to locate your business.
Summary
An office can be anywhere that is appropriate to your business: on a rooftop, on a yacht, in a gym, or on a plane. As long as you comply with licensing and zoning regulations, and you have the necessary insurance, special permits for food preparation, and appropriate certification for your industry, choose the space that works for you, and remember to consult your tax department for information on deductions for which you may be eligible.
Other articles in this issue:
The Online Store: Setting Up Shop on the Web
Hanging Out Your Shingle: Finding Appropriate Office Space
Point to Point: The Illusion of Free Enterprise
Promoting Your Mousetrap: An Anecdotal Look at Consumer Buying Habits
Selling Your Software: Even if You Hate Doing Business
Book Review: Launching a Business on the Web
Suggested Web sites for information related to this article:
The Victor Company Glossary of Useful Terms for Tenants
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