Home-Based Business... Is It For Me? (continued)

EB-44, August 1999

Insurance – Risk Management

As the owner and operator of a business, you have more exposure to liability and property loss than when living in a home used strictly as a residence. Homeowner's insurance will not cover claims related to business in your home. If a customer comes to your home and falls on the steps, your homeowner's insurance may not cover any legal action because the customer was in your home on business. It may also not apply if a customer's property or even your own equipment used in your business is lost or damaged by fire or theft.

Some insurance companies can add a rider or endorsement to a homeowner's policy to cover home businesses. A separate policy, which is more costly, may be needed for some types of business. Consult your insurance agent to determine the most appropriate coverage for your home business.

Consider the following insurance coverages when exploring your business insurance needs with your agent:

• Liability insurance to cover the property of others, bodily injury, damages such libel and slander, and operations of hired independent contractors for which you are held liable. A blanket liability insurance policy can also cover legal fees and court costs.
• Extended coverage rider for windstorm, hail, smoke, explosion or vandalism protection.
• Special protection to cover loss by fire or theft of business record, cash, other business documents and property, including tools and inventory.
• Product liability insurance for many businesses, especially food and clothing processing and manufacturing.
• An endorsement or rider to your personal automobile policy for business use if it's used to make deliveries or for other business.

An umbrella policy that covers all forms of liability can be purchased. The cost of the coverage varies depending on the business to be insured, location and the insurance company.

Worker's compensation insurance is required as soon as you hire an employee. Employers must contact the Worker's Compensation Bureau, 500 Front Avenue, Bismarck, North Dakota 58504, (701) 328-3820. As a sole proprietor or partnership, you are not required to pay Worker's Com-pensation on yourself or partner. It is optional but may be to your advantage to do so. If incorporated, you become an employee of the corporation and must pay for the coverage.

Remember the main purpose of insurance is to enable you to continue your business and lifestyle if a misfortune occurs. Identify and prioritize your risks to avoid being underinsured or overinsured. It may be necessary to consult with more than one insurance agent, compare the coverages, and determine what is adequate for you and your business. Always be certain to have something in writing stating what your business coverage is. This is especially important if your business liability is being insured under a personal homeowners or automobile policy.

Insurance risks will change over time. For example, an increase in your supply inventory may exceed your insurance coverage and signal a need to increase the coverage. Annually review your insurance coverage and the risks you face with your agent.

Time-Management Tactics

Time is a resource we all have the same amount of, yet some people seem to get more done in their 24 hours than other people do. Time is the one resource that can only be used, not saved, borrowed or wasted. Juggling time for home and work can be a special problem for those who work at home.

To plan better for time use, you need to know how you are currently using your time. Some things you may need to consider:

• Record how time is used.
• Analyze what you recorded to see how it related to the business.
• Look at each category and separate those activities that had to be done at a specific time and those that could be done anytime.
• Decide which are time wasters, controllable and uncontrollable.
• Determine if there are things that needed to get done that were left undone and why.
• Think about ways to improve the effectiveness of your use of time.

Keeping a daily log from time to time and analyzing it in this fashion will provide a reality check on how time is being used and provide incentive for "plugging the gaps" between how time is being used and the goals for work and home. Some basic suggestions for planning time include:

• Schedule based on your business plan and priorities.
• Look at what needs to done for the week and determine which of those items go in "today's schedule."
• ut items that have to be done at a certain time on the schedule first.
• Arrange storage areas and work centers so items used frequently are at your fingertips.
• Do more than one thing at a time. Some tasks require minimal concentration, and this time can be used to plan other activities.
• Learn to say "No" if your involvement in too many activities becomes a problem. Don't spread yourself too thin.
• Recognize the time of day when you are most productive. Do the important tasks during this prime time.
• Delegate as many tasks as you can. Identify certain jobs (home or business) that can be handled by other family members.
• Prevent a crisis. Don't procrastinate so that a failure to act becomes an urgent matter.
• Divide major tasks into many small, manageable tasks.
• Look at ways to improve every task you undertake. Try to find ways to make them quicker, easier, simpler and less tiring.
• Plan ahead and anticipate problems before they occur.
• Think through jobs so you can work efficiently. Careful organization can prevent the loss of valuable time.

Look at your schedule the first thing in the morning and don't become distracted. Time is a tool. It is one of the resources of your business. How you use this resource may be one of the most important factors in the success of your business. You may need to let family and friends know that just because you work from the home, you still have to maintain business hours.

Employee Relations

Most home-based businesses start out with only one person in the business. In some cases, family members may have certain duties relating to the business. As the business grows and becomes more successful, it may be necessary to hire people to work for you.

The people you hire represent your business to the public. Sloppy workmanship and lack of pride in the product or service can make a potentially good product or service unacceptable in the market place. The image portrayed and the ultimate success of the business depends on the people working for you.

A job description including all duties assigned to the position should be clearly outlined in writing before hiring an employee. An individual's skills should fit the job to be performed. Although friends and acquaintances are considered one of the best sources for new labor, caution is advised in hiring friends. Let the applicant's qualifications be the deciding factor.

Hiring an employee is just the beginning. The first few days on the job are critical in setting an employee's perspective and attitude and making the job meaningful. Orienting the employee to the job and the business will save time and money in the long run. Continuous in-service training may be necessary in some businesses to keep up with trends and to remain competitive.

Wages and any benefits should be agreed upon before the employee starts work. This should be formalized with a written document.

Employer expectations and the goals and objectives of the business must be clearly communicated to the new employee. Likewise, employee needs, goals and desires will need to be understood by the employer so that you can better motivate employees to be productive as well as gain self-satisfaction from the work that they do. This can be done through an annual performance appraisal.

Summary

This publication discusses several factors to consider in establishing a home-based business but not all of them. There are many others to consider that may be unique to a particular operation or situation. A complete study should be made to determine the feasibility of a home-based business prior to starting. A good place to start is by calling the Business Information Center at 1-800-544-4674 to find out about possible classes in your area and other available information.

Acknowledgments

Special recognition goes to the following individuals for their helpful suggestions and assistance.

Wally Kearns
State Director, N.D. Small Business Development Center, Grand Forks

Sharon Kickertz-Gerbig
Extension Agent for Stark/Billings Counties, Dickinson

Bridget John
Business and Marketing Specialist, Institute for
Business and Industry Development, NDSU, Fargo.

Additional information

Southern Rural Development Center, "CA$HING IN ON BUSINESS OPPORTUNITIES", SRDC #210, Mississippi State University, March, 1998.

Virginia Cooperative Extension Service,"Can You Live Where You Work...And Work Where You Live?", Publication 354-306, Virginia Tech, 1993.

Stephenson, Mary J., "Guide to Starting a Home Based Business," Bulletin 304, Extension Home Economics, University of Maryland, 1983-84.

Cooperative Extension Service, "Business for Profit" series 1149a-1149j, Iowa State University, 1984-85.

Cooperative Extension Service, "Starting a Business in Your Home" factsheets, Ohio State University, 1984.

Passewitz, Gregory, "Starting a Business In Your Home-Pricing," Ohio State University, Cooperative Extension Service, April, 1984.

Rice, Frederick H., "Starting a Home Based Business," University of Vermont, SBDC, 4A Laurett Drive, Winooski, VT 05404. Cost $4.

Home business/small business – online resources

Small Business Administration (SBA) - http://www.sba.gov/starting  

Service Corps of Retired Executives (SCORE) - http://www.score.org  

U.S. Business Advisor (one-stop access to federal government information, services and transactions)
- http://www.business.gov 

Internal Revenue Service (IRS) (downloadable forms and instructions) - http://www.irs.org 

U.S. Patent and Trademark Library - http://www.uspto.gov  

One Stop Capital Center of North Dakota - http://www.btigate.com/~onestop  

Small Business Exchange - http://www6.americanexpress.com/smallbusiness  

Entrepreneur Magazine - http://www.entrepreneurmag.com  

Trade Show Central - http://www.tscentral.com  

Home Business Works (long distance plans, travel, insurance, etc.) - http://www.homebusinessworks.com 

Home Office Assocation of America (HOAA) (benefits, resource articles and links) - http://www.hoaa.com 

CCH Business Owner's Toolkit - http://www.toolkit.cch.com  

Small Office - http://www.smalloffice.com  

Small Business Advisor - http://www.isquare.com  

The Small Business Journal - http://www.tsbj.com  

The Franchise Handbook - http://www.franchise1.com  

1800 My Logo (logos, slogans and jingles) - http://www.1800mylogo.com  

NDSU Community/Economic Development - http://www.ag.ndsu.nodak.edu/ced  

APPENDICES

Appendix A

Some money making ideas that have been tried include the following:

* Teach any skill you have that someone else wants.

Source: "Starting a Home Based Business" Fact Sheet 372, Mary J. Stephenson, Cooperative Extension Service, University of Maryland.

Appendix B

Home-Based Business Opportunities Questionnaire

Appendix C

My Home Business

Cash Receipts Journal

Appendix D

Sales Slip

Appendix E

My Home Business

Cash Disbursements Journal

Appendix F

Invoice

Appendix G

Auto Log (sample)

Business Mileage

Appendix H

Inventory Control Card

Appendix I. Cash Flow Projections (6KB PDF table)

Appendix J. Profit and Loss Statement (7KB PDF table)

Appendix K

Personal Income Statement

Income 

Wages or salary 
  Husband                          $__________________ 
  Wife                              __________________ 
Dividends and interest              __________________ 
Capital gains and losses            __________________ 
Rents, annuities, pension, etc.     __________________ 
Other ____________________________  __________________
TOTAL INCOME                                                 $__________________ 

Taxes 

Personal income taxes               __________________ 
Social Security taxes               __________________ 
TOTAL TAXES                                                  $__________________ 
                                    
Amount remaining for living expenses and investment          $__________________ 
                                                                
Living Expenses                           Fixed              Variable
                                                               
Housing                                                         
  Rent or mortgage payments        $__________________ $__________________ 
  Utilities                         __________________  __________________ 
  Insurance                         __________________  __________________ 
  Taxes                             __________________  __________________ 
  Maintenance and repairs           __________________  __________________ 
  Other_________________________    __________________  __________________ 
Food                                __________________  __________________ 
Clothing(including care and repair) __________________  __________________ 
Transportation                                                   
  Gas                               __________________  __________________ 
  Repairs                           __________________  __________________ 
  Licenses                          __________________  __________________ 
  Insurance                         __________________  __________________ 
  Auto payments or purchase         __________________  __________________ 
Recreation, entertainment                                       
  and vacations                     __________________  __________________ 
Medical                                                      
  Doctor                            __________________  __________________ 
  Dentist                           __________________  __________________ 
  Medicines                         __________________  __________________ 
  Insurance                         __________________  __________________ 
Personal                            __________________  __________________ 
Life insurance                      __________________  __________________ 
Other expenses                      __________________  __________________ 

TOTAL ANNUAL LIVING EXPENSES                                 $__________________ 
Amount remaining for savings and investments                 $__________________ 

Source: Mary J. Stephenson, Home Economics Department, Cooperative Extension Service, University of Maryland.

Appendix L

Personal Balance Statement

Year__________________

ASSETS

Cash
  On hand                   _______________
  Checking account(s)       _______________
  Savings account(s)        _______________ 

Money loaned to others      _______________ 

Investments
  Savings bonds             _______________
  Stocks and bonds          _______________
  Mutual funds              _______________ 

Cash value of:
  Life insurance            _______________
  Annuities                 _______________
  Retirement fund           _______________ 

Real estate                 _______________ 

Personal property           _______________ 

Automobiles                 _______________ 

Other
  ______________________    _______________ 
  ______________________    _______________ 
  ______________________    _______________ 

TOTAL ASSETS                _______________ 

LIABILITIES

Unpaid bills
  Taxes                     _______________
  Insurance premiums        _______________
  Charge accounts           _______________ 

Installment loans
  Automobile                _______________
  Other __________________  _______________ 

Loans
  Banks                     _______________
  Education                 _______________
  Other __________________  _______________ 

Mortgage loans
  Home                      _______________
  Other __________________  _______________ 

TOTAL LIABILITIES           _______________ 

TOTAL ASSETS (minus)        _______________ 

TOTAL LIABILITIES         - _______________ 

NET WORTH                 = _______________ 

Appendix M

MY HOME BUSINESS

Balance Sheet

Date_________________

Current Assets 

  Cash                            $__________________ 
  Other investments                __________________ 
  Accounts receivable              __________________ 
  Inventory                        __________________ 
  Other current assets             __________________ 

Total current assets                     $__________________ 

Intermediate and Fixed Assets 

  Equipment and fixtures          $__________________ 
  Automobiles                      __________________ 
  Real Estate                      __________________ 
  Other assets __________________  __________________ 

Total intermediate and fixed assets      $__________________ 

TOTAL ASSETS                             $__________________ 

Liabilities 

  Account payable                 $__________________ 
  Notes payable                    __________________ 
  Accrued expenses                 __________________ 
  Loans payable                    __________________ 
  Other liabilities                __________________ 

Total liabilities                        $__________________ 

Owners Equity                            $__________________ 

TOTAL LIABILITIES & OWNER'S EQUITY       $__________________ 

Source: Mary J. Stephenson, Home Economic Department, Cooperative Extension Service, University of Maryland

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EB-44, August 1999