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Starting a Home-Based Software Company?
deanj asks: "I'd like to start a new software business, as I'm sure many Slashdot readers would. I'd like to be able to run the company out of my home, at least until I can afford to move into an office in commercial area. A major roadblock to starting a home business are zoning restrictions, set by both home-owners associations and by the town you live in. So, I'd like to Ask Slashdot: What were your experiences with getting your company zoned properly and started? What did you have to do? What other tips do you have for someone starting their own home-based software business?"
Start with your city's Commercial Licensing offices, whatever they may be called. Many of them have all the paperwork you need for running a business out of your home, which includes the zoning change. It's a fairly minor change, and in most cases isn't a hassle, unless you have some seriously strict HOA or city codes.
Seriously, it's easier than you think. Hit up your local Chamber of Commerce as well, there are undoubtedly more people running businesses from their homes in your area.
- billn
If you don't have commercial traffic to your house, my understanding is that there is no problem with having a business.
If you must have customers come to your "office", and you live in a bigger city, consider renting office space by the hour. Believe it or not, there are companies that serve as front offices for tens or hundreds of businesses. They forward your mail, have a bank of telephone operators that answer with "Foo Bar Inc., how may I help you" or whatever, and forward the calls as appropriate. They also have office space rentable by the hour -- they go in ahead of time and put your pictures on the wall, put in the right plants, nick knacks, etc.
Bizarre? Sure. But, if you need to look like a real company before you've got the capital/manpower, this is the way to go -- and still be in compliance of zoning laws (as well as impress your new, small client base).
If you won't be entertaining/working with clients in your home, screw it. Get yourself a fat pipe, a few terminals, and a big whiteboard -- and get yourself to work.
Support a few technologists in Washington.
...and this isn't the right place to ask about the application of the law in your local area.
I've run a software company out of my home since 1997.
Generally speaking, regulations prohibiting the operation of a business from a residential zone only come into play if you're mucking about in your neighbors' quality of life *and* one of them complains about it. IOW, having a semi deliver stock to your house twice a day is probably against regulations, but no one is going to say anything unless your neighbors complain.
For a software business, even one with a couple of employees, none of that is going to matter. You'll won't be getting deliveries, you won't have customers coming and going, and you don't even really need a sign out front.
Note that I'm talking about municipal regulations, not neighborhood covenants. If you've made the unwise decision to purchase where anyone but you (and, as usual, the government) has the authority to dictate what *your property* may be used for...well, that's your own fault.
Exactly what I do. But you can't use a PO box. You have to use a PMB (private mail box) like you can get at "The UPS Store" or any other commercial mailing store with boxes for rent. You can then specify your address like 111 Main st. #123 instead of indicating that it's a box.
Check out a nolo press book on the subject here: nolo.com
Here's a quote:
"In some residential areas -- especially in affluent communities -- local zoning ordinances absolutely prohibit all types of business."
In the next line:
"In the great majority of municipalities, however, residential zoning rules allow small, non-polluting home businesses, as long as any home containing a business is used primarily as a residence and the business activities don't negatively affect neighbors."
They sell many books specifically for the small / home buisiness.
Hope this helps, and good luck!
While I have never used their services, this company www.intelligentoffice.com lets you rent a "virtual" office where they handle incoming phone calls and mail, and if needed can set you up with conference rooms, etc. if you have clients you need to meet with. Again I've never tried their services, but I really like the idea :).
I also base my software company out of my home. I didn't notify anyone. In fact, notifying the city your in will probably just lead to more taxes for you to pay.
I read an article in the LA Times awhile back that some cities are now doing data mining on tax returns to go after home businesses so they can pay all the local taxes. Los Angeles is now doing this.
Your biggest choice is what kind of company are you going to be? I chose to be a LLC. Go to Nolo books to get any legal books you need (I incorporated myself rather than pay 500 bucks to some lawyers). If you don't incorporate then your going to have to post a fictious business notice in the paper.
I don't know about the zoning rules, but I can't imagine it's a real issue.
...
BUT, having started my own software company about 7 years ago, which is now doing about $3M/year, employs 17, here's my 2 cents, in the category of "other" advice
Get a lawyer. Won't cost that much really and the thousand dollars you might spend now will save you tens or hundreds of thousands or more later. You're bound to run into something, some deal, some license issue, something - that you'll regret later if you didn't have an attorney at your side. I HATE LAWYERS - but I now consider them a necessary evil (and the other side always has one).
Hire an accountant from day one. This will save you thousands of dollars, if not a lot more, in the long run. Not having an accounting firm day one has probably cost my business over $1M. (in my case, as with most small companies, I should have been an S corp and double taxation on C corp dividends has cost me, big time)
I didn't have an accountant, I didn't have an attorney, when I started my business... and again, if there is any advice I would give someone starting out, it is that you can't afford NOT to have them by your side.
I started my own e-commerce and computer consulting company (see sig). I started it out of my house. That was a mistake.
I'm all for working from my house. I work from there three days a week. But running a business out of the house is not good. From zoning issues, to mailing issues, to clients that want to show up at the office, to spousal issues, etc. etc. etc.: there are a lot of disadvantages.
I know it's scary starting your own company. I've been there. But if you seriously cannot afford up front even $100-$200/month for a year of rent, or you have so few connections (or marketable talents) that you cannot exchange some sort of service for office space, I strongly encourage you to re-think your decision.
My company takes advantage of free office space from one of our clients. They are our *tiniest* client. We would make no real money from them, but they give us an office for our use, in an attractive building, a nice lobby, a receiptionist, someone to sign for packages, etc. It's a good trade.
I would also say the exact same thing about setting up your business properly (with an S-corp or LLC), and an accountant (at least for taxes and such). It might cost you a couple of hundred dollars to get a lawyer to draw up the corp. paperwork, and it might cost you a couple of hundred a quarter to have an accountant handle your taxes, but it's work it.
Again, not to be harsh, but if you can't afford $500/month for the first year up front ($6000 or so, say) for setup paperwork, rent, phone (do *not* use your home number!) and such, you do not have enough resources to start the company.
I wish you much success! I certainly enjoy having my own company. It was a couple of rough years, but things are much more stable now. I've grown to the point where we have a few employees and long-term relationships and contracts. People talk about the lack of job security when you work for yourself. I disagree. I think that I have more security: I know exactly what the books say, and what my prospects are. I know that right now I have enough cash for several months even if I don't invoice a dime, and I know how much I'm going to invoice. That's a lot more information I've ever had from any other employee. And I can't get escorted off the premesis at 4:30 on Friday and told that my personal belongings will be shipped to me... :)
Linux IT Consulting and Domino Development in Michigan
Do your self a favor, and please don't listen to people on slashdot who say that you don't have to worry about zoning.
Chack the laws in your area (duh!). Visit the local city hall and ask them. They are the people who know, not Slashdot.
I have no idea about your area, but here's my experience:
In 1999 I started doing web design and consulting, etc. out of my house. I had a website with my contact info (address) on it, and my domain's WhoIs information was accurate. The business was also registered to the same address. I never had a customer or client come to my house. Early one Sunday morning, I got a knock on the door. I stumbled out of bed to find the local code enforcement officer at my door. He asked if I was running an "Internet" business out of the residence, and I (not knowing any better) said "yes". He then told me how it was not legal without rezoning the house as a multipurpose, yada yada yada. He didn't give me the fine he was supposed to, but instead gave me one week to sort out the issues or close up shop.
I went down to the local city hall, and found out that rezoning the house would cost a lot more than I had to spend, and by rezoning, I would also incur many other additional costs.
In the end, I just closed shop (I only had a handfull of customers anyway).
On the other hand, my wife is currently running a small business from the same house, and she hasn't had any problems at all. She registered under a DBA/Fictitous Name (I incorporated), and used a PO Box as the address.
"A terrorist is someone who has a bomb but doesn't have an air force." -William Blum
Partner Jody and I wanted to create a consulting business, and decided for various reasons a Limited Liability Company was the right way to go. We visited the state small business office and picked up a very helpful booklet on how to start a small business in Utah. This little book had information on all the various forms you need, who to talk to at City Hall, and how to get a business license if you're not in an incoporated city. Very helpful.
Note: don't think about scamming the business license if you're going to do enough dollar volume to file taxes on. The state tax people will report your income to the city, who will make sure you have a business license. The business license doesn't cost much and is very little additional hassle.
We filed the LLC paperwork with the state first. (An LLC doesn't have to be a business so that paperwork had no prerequisites.) Everything went smoothly and a few days later we got a nice form letter from the State office of something or other notifying us our business name was now registered. The next step was to apply for the business license.
At this point we decided we should get a business bank account and run the checks for all these applications through that account. We tripped down to the local bank that was just up the street from the town hall to open an account, only to be informed we couldn't open an account without a business license. See what I mean about not skipping on the paperwork?
So Jody wrote the check for the business license and we finished our application. In South Jordan home business licenses have to guarantee not to generate business-related traffic; you're not allowed to meet or entertain customers at your home, for instance. Not a problem for us, we were going to sell information and services over the web and do our work on-line or at customer facilities. The hook is, your neigbhors, anyone within 500 feet of your home, get the right to comment at the next town meeting before your license is granted. So the city gave us a list of addresses, we had to write a note to them inviting them to comment at the town meeting and pay the postage. We printed the invites on post cards, got them metered at the Post Office, and brought them back to town hall a few days later. The town clerk looked at the stack, guessed it was about right, and chucked them into their out basket.
The town meeting was a couple of weeks later. Jody and I showed up, nobody else did. We said on our post card that we did our business online and planned to have very few deliveries and no customer traffic, but I doubt most people even bothered to read it. Our business license was approved that night, and the office mailed it to us the next day.
With business license in hand, we revisted the bank and our account was opened in a few minutes. It was shockingly painless. They were happy to add a second signature line on the standard checks for us. We were shocked to find out the same checks that cost $5/box for a residential account are $15/box for a business account, but the account itself was free and we only needed one box of checks anyhow. Be prepared to get charged more for everything from checks to phone lines if you tell them it's for business purposes. When dealing with phone companies, sometimes saying it's for a "home office" will get you the same features at residential rates. Caveat Emptor!
That was it. For the next 4 years we renewed the business license each year, for $35, and filed an annual report to the same State office of something or other with the $15 filing fee, and had no other interaction with the local authorities at all.
We did file for and receive an Employer Identification Number (EIN) from the Infernal Revenue Service (rat bastards), becaus
Agreed. Zoning regulations, I believe, usually apply to the type of business activity you can maintain; i.e. you can't open a retail storefront or gas station in a residential community. Inside your house, you can do as you please, and you can certainly have visits from clients/employees, just use common sense, don't try to run a 20 person operation out of your house.
Also, consider getting a postal box from a private company (Postal Annex, Mailboxes Etc, whatever) so you can keep business separate from personal affairs. Also, if you live in a city, you can get a postal box outside city limits so you can avoid the annual city business tax ($125 where I live).
Do you still have to put "PMB" as a line of the address? (To cut down on "Suite 7800" scams being run out of these private mail boxes.)
You can use number sign ('#') or PMB, those are the only options now allowed. So, do something like this:
John Doe
5675 Nowhere St., #5800
Somewhere, FU
zipcode
It works fine, never a problem.
When you speak to your attorney and accountant (if you don't have one of both, you should) look into the possibility of forming an LLC, S-Corp, or C-corp. Working as an independent contractor can cost you fortune come tax time. Also, remember that as a corporation (not sure about LLC)the company is allowed to "loan" you up to $10,000, upon which you are not obliged to pay payroll taxes. This little loophole has saved my butt more than once. Above all else, DO EVERYTHING BY THE BOOK, especially when it comes to taxes. Do not listen to those on this esteemed forum who would recommend that you not take care of zoning issues and the like--they have never been on the bad end of an inquiry. Granted, chances are, you won't get caught. If you do, THE RESULTS CAN BE CATASTROPHIC. It is so easy to take care of little issues like this that there is really no excuse for not doing so. Good luck.
Don't Panic!
The first thing you need to do is check with your local zoning laws. In some states/counties/cities you can run a small business if it is not 'retail' out of your home, ie: as long as customers don't come by.
Here in NC, we had to go to the county zoning board, request a variance for a similar problem. It takes from 60 to 120 days in most places I know of, unless you live in a major city. Houston, on the other hand, only recently introduced zoning laws and it may not be an issue at all there.
If you do not have customers that come by, I would not worry so much. Unless your neighbors complain, there is no issue, and if you have no commercial traffic, there is nothing to complain about. A good relationship with your neighbors is more important than minute details of zoning laws, and if you have one or two customers come by a day, it is no more traffic than many people normally have anyway.
If you do have to go to a zoning board meeting, bring notes, be polite, be forceful but not rude, do your homework first and find comparible cases to present. Most of these guys want just don't want hassles, and if its easier to give you what you want than to deal with you if they think you will be back and back and back, then your odds are better. If they have done this variance before for someone else, you can present the case where they would rather quietly grant it for you than not.
If you get turned down, learn who is on the board, find a connection. Lion's club, Elks, Rotary, etc. and do a favor. Or find a way to do a favor directly, such as fixing a problem, or writing some small software program, whatever, not in exchange of course. In otherwords, schmooze him a bit. Then request the variance again.
Say what you want, but local govt. IS more corrupt that way, very small petty things. You can spend thousands fighting it, or get what you want first, then fight it.
Tequila: It's not just for breakfast anymore!
Just what my brother and I have done for our business interests. Check your local laws to see how they work where you live.
:)
First, let me give my specifics so you can know where we're coming from. We are living in Titusville, FL. Both unemployed since the tech bust.
My bro is a high level web designer who used to work for a BIG company out of DC. He's worked on nike's website, timberland's and exxon mobile's. So he's got the skills. I've been doing backend programming and database type stuff for a while... so we're a good pair to do a web design business.
Additionally, we're into kite flying and run sort of a hobby business off of our kite site. (see sig) So this is a second business.
Beyond that, my bro's wife... my sister in law... does medical transcription. So this is a third business.
Anyway, we knew there were going to be a multitude of businesses that we were going to have our noses in. So, we incorporated. For a fee (forget how much offhand, but not TOO much) we filled out the articles of incorporation for a Limited Liability Company (LLC). Thus began the company Lutter Enterprises, LLC. (lutter being our surname). The LLC then filed a fictitious name of Kitestop.com.
With a company, and a name (and the documents to prove it) it was easy enough to go to city hall and get a business license for our home. We had to get one from the county as well. They require that we don't have any employees that don't live here. We can't have signs or outwardly recognizeable business items. Can't be having trucks coming or going all the time either. After that, we registered with the feds to get a Fed Tax ID and the state to get a sales tax certificate (which is what all our manufacturers look for before they will wholesale us anything)Pretty easy to have a business structure, huh?
After this, we needed to give the bank about a million documents and forms before we could talk them into giving us a business account and merchant account in the company name.
Then, when we decided to expand a bit, we got an office space in Cocoa, FL for cheap. Now we run all three business out of it. Of course we had to get new fictitious names for Lutter Interactive (web design Biz) and Far Out Transcription. We also had to go to Cocoa city hall to get permits and back to the county again. Plus it was a headache again dealing with the bank to get our accounts split up so the names all match up.
Cost a heap in fees and all that, but this gives us plenty of liability protection. The city, county, state and feds are all happy and we are 100%legal.
Now... just to make some money.
Don't tell anyone ...
/. is going to be all over the map. You could do the "tell no one" plan but your personal assets will be liable with out the protection of some type of corporation.
Is a bad idea if you have a nice house, car or other stuff that someone may sue you for over real or imagined damages.
Buy a couple of hours with a local attorney and accountant. Every state and municipality in the US has different regulations so the advice you are getting on
In my previous state I was up and running for less than $500. The attorney advised that zoning and association rules would not be violated if you were unable to tell I was running a business in my house and I could even use my home address. The possible problems he cited where signage and traffic. The accountant advised that it was very important to keep the business and personal monies separate and about tax strategies and their consequences.
In my current state I never made it past the attorney. The company was strictly for side work and not my main employment and I found that I would be taxed and feed out the wazoo by the state and the town. I would have to incorporate in Delaware and get a mail forwarding service and still get partially screwed by my state. So it is on the back burner for now.
If possible make your wife or mother 51% owner of the business so you can be a minority owned business. Good luck.
Simply put, you should probably list "do enough business to have zoning problems" as one of your business goals. You have to be doing business before you have to worry about whether doing business from your home--and the Number One issue for startup companies is doing business. Here's a list of things you need to worry about, ranked in order of how often I obsess about them:
The big employers in town worry about "booking the sale" or "shipping the product." You have to worry first, last, and always about getting paid. You have to deliver the goods, you have to send the bill--but you have to make sure to follow up if the check is late, continue to follow up through a dozen excuses, and even drop by to pick up the check if need be. The grocery store does not accept accounts receivable.
Forget what the slick TV ads tell you. If you're doing project work for a limited number of clients, your cash flow (see #1) is at the mercy of your client's accounts payable people. MasterCard doesn't take accounts receivable, either. Use debit cards, require clients to front money for travel, etc., and do not (NOT NOT NOT) float yourself money from a credit card. Loan sharks offer better rates.
Big Charlie from Queens, my sometime employee (and sometime employer) reminds me frequently that if I'm not spending 40% of my time marketing my buns, I'm going to go hungry. In project consulting work, that's a tad high--but not much: even if you are hip deep in a killer project with a fabulously wealthy client, keep networking, keep hustling, keep looking out for the next gig and the one after that.
Working from home can do funny things to your relationships. For some people (including my wife and me) working at home can be a terrific thing--and it can be very stressful. When you're both in that state of just-got-the-big-check euphoria (I'm a programmer, she's a book editor) long walks in the woods while the kids are in school can be a blast. But when you're on deadline, and so is she, the stress level can soar. (When the kids start complaining about having too much junk food, and asking to have things like salad, that's a cue.)
You're not "self-employed," a "small entrepreneur," or "on the cutting edge of new working/living patterns." To 99% of your potential clients you're "some guy who works out of his basement." They've all see the Dilbert "clothing optional" comic strip (and they will all ask you about it) and your choice of working patterns will mean that some of them will never do business with you. Buy a tie, wear a suit, bathe. Shave. Learn to eat with utensils--all the things CDWS (cubicle-dwelling wage slaves) do. The more you look like them, the more you sound like them, the more comfortable they will be.
You have to do more than walk right and talk right. You have to D-E-L-I-V-E-R. Every single time. You will have a tough time to start: your business will start to prosper when you start doing repeat business: because there is no marketing, advertising, or sales promotion like a long list of clients that have hired you repeatedly. A key performance metric should be how often you have worked for the same client.
Lots of startup consultants charge way too little. WAY too little. Worse, lots of startup consultants confuse "being busy" with "working." You need to market. You need to network. You need to find projects to try out new concepts and ideas--and usually those are pro bono gigs. But you need to nail down a chunk of billable hours each and every week. You cannot bill more than 30-32 hours per week without seriously hurting your marketing and networking time--and all the stuff like taxes and billing and collections, etc. You have to bill enough to make enough in those thirty hours. And you have to hit those thirty hours week after week after w
He obviously haven't. That's probably why he writes: "Of course, there's always exceptions, and that's why we still interview people..."
If someone else won't say it, I will: "You are a racist."He isn't, though. He wrote: "It's amazing the difference in talent between American vs Indian (graduated undergrad and/or grad in India, not of Indian decent) programmers." (emphasis mine). He explicitly states that programmers of indian descent (or, if you prefer the archaic term, "race") are no worse or better than others, but those who are educated in India tend to have some problems. He is criticizing India's education system, not making a slur against Indian people.
I hate racists as much as the next guy, but to pull that term out whenever someone makes a comment about a completely non-racially related aspect of a foreign people is just silly.
Six sick