Home-based businesses are part of the American entrepreneurial spirit. Disney, Apple, Microsoft, Google, and Amazon are just a handful of companies which got their start in a garage. If you’re thinking about starting a home-based business, use the guide below to assist you before investing your time, money and effort, in your new venture. Even if your home-based business has been up and running a while, use the guide to give your business a quick audit.

Choose Business Entity

One of the first things you will need to do is establish a business entity for your new enterprise. Most people favor the LLC, over a corporation for various reasons including ease of administration and taxation matters.

It is highly recommended to do a search for your businesses’ name on the Colorado Secretary of State’s website. Also you may want to search for your business name as well as do a national trademark search. The last thing you’ll want to do is be forced to change your business name after you’ve started doing business.

CAUTION: The Colorado Secretary of State‘s website does not tell you if you’ve filled out the business registration form correctly. As a result, I have come across countless of registration forms that we’re filled out incorrectly exposing the business owners to personal liability. You should know exactly what your doing when registering your business with the secretary of state.

Consider starting your business as a sole proprietor to float a “trial balloon” to discover whether your idea will work. Or even if it’s something you want to do. This is perfectly fine, but as soon as you start getting new customers or clients, you’ll definitely need to form a business entity.

Whether you decide to go with an LLC, or corporation, taking this vital step will protect yourself and your company from liability.

Licensing

If your business is regulated by the state of Colorado then you will need to apply for a license on the Department of Regulatory Agencies (DORA) website. If your business involves buying or selling wholesale you will need to contact the Colorado Department of Revenue and get a tax license.

Also, if your business requires a professional license such as a daycare center, financial advisor or hairstylist, it’s best to make sure those are in place and up-to-date.

Permits

Depending on your business, you may need to get an inspection and permit from the local fire department. This type of permit is usually required if customers or clients come to your home to conduct business.

Less commonly required are health department permits. Colorado has The Cottage Foods Act allowing limited types of food products which are non-potentially hazardous (do not require refrigeration for safety) to be sold directly to consumers without licensing or inspection. In any event, check with the state health department to find out if your business requires any type of permit.

You may also need a signage permit. Check with your city, county and homeowners association, condo or apartment complex if signs are allowed. Also find out if there are rules concerning the size, type, and location of business signs. If you rent, obtain permission from your landlord.

Taxes

Your tax situation will change as you start your home-based business. Even if you’ve done your own taxes in past years, different tax laws apply to business owners. And different tax laws apply to business owners of small businesses. It will save you time and money to enlist the help of a CPA to make sure you deduct everything you can and are paying the correct amount of tax. There is no substitute for the sound advice of a tax professional.

Additionally, if you are retailer you will have to pay sales tax to local and state governments. Check with the Colorado Department of Revenue to see what your tax rate is. If you’re an online retailer, the amount of tax you charge your customer may differ depending on where they are located.

Finally, most banks require you to have an EIN number. You’ll need to get one from the IRS. It is also more professional to have an EIN.

Insurance

In addition to health insurance, you should also get liability and business property insurance. Perhaps take out a rider or umbrella policy on your existing homeowners insurance. This is especially true if you are having employees or customers/clients come into your home to do business.

Review your existing policy and see what’s covered. Consider the following: general liability, fire and premises, business interruption, professional liability, products liability.

Zoning and HOA

Zoning laws are an important consideration for a home-based business. Even though your local government isn’t going to inspect your home looking for a small business office tucked away in a corner of a bedroom. If a neighbor complains however, then the building inspector is obliged to enforce the zoning ordinances.

Hanging a small sign, having commercial vehicles, putting in more parking spaces, or having a lot of client or employee traffic is likely to trigger a complaint from neighbors.

Check with your city’s zoning commission. See if there are any limitations in your area before opening your new business.

Business and Registered Agent Address

If you’re working from home, you may not want clients or customers to know it. Since the legal address for your business will be on the Colorado secretary of state’s website for anyone to see, you may want your business address to be someplace other than your home. Fortunately, there are many companies offering a virtual business address.

Likewise, your registered agent address will also be on the secretary of state’s website. A registered agent is the individual or business responsible for accepting service of process. If you’re using a virtual address you’ll need to check and find out if they will accept legal service on your behalf. If they don’t, and most don’t, you’ll need to hire a registered agent company or use your attorney.

Legal issues can be overwhelming for the new business owner. Do your research ahead of time. You’ll clear many of the legal hurdles other small business owners get hung up on. You will be ready to face roadblocks that may arise and you’ll make your business a successful, legal operation.