Home Computer Business – The Dirty Dozen – Mistakes To Avoid (#1 and #4)

This article is one of a series, collectively titled “The Dirty Dozen: Mistakes That Could Ruin Your Business.” Making these mistakes can be very costly in both time and money, but all of these possible mistakes can be easily avoided by some advance knowledge and planning ahead. Although I think the information in this series of articles can be very valuable to home business operators, it is very important for you to know that I am writing this series of articles solely from a “lessons learned” perspective. I am not a legal, tax, or accounting professional. You should consult an appropriate professional for detailed advice that is specifically relevant for you and your business.

In this article, I am going to discuss the potential problem areas of setting up your home computer business identity and not carrying adequate insurance.

Let’s start with properly setting up your home computer business identity. No clue what this means? Welcome to the club! It was all pretty much a mystery to me when I got started running my own business.

The situation is basically this: your business must have its own “self,” just like you do. But here’s the difference. You didn’t get to choose who you would be, select your own name, etc. You can (and must) make all those choices for your business.

To begin with, you must decide what kind of legal and tax identity your business will have. There are two big possibilities: a sole proprietorship, or a corporation (Inc. or LLC). Each of these possibilities has advantages and disadvantages, which may vary a lot based on your own tax situation, your expected business income, and even the state in which you live (in the United States).

Many, perhaps most, small businesses are operated as a “sole proprietorship.” This essentially means that you are the “only owner” of your business. It is usually the easiest type of business to set up, and it generally requires no “set up” costs other than perhaps a business license if your local government (city, county, etc.) requires you to have one. Under a sole proprietorship, you and your business are seen as being one single entity. All business records will include your name, your Social Security number, etc. Your personal income (say, from your existing job) and your business income will be counted together when you do your taxes, which minimizes number of IRS forms you need to fill out.

However, one of the big reasons that some business owners invest the time and money to set up a different type of business ownership is precisely because, in a sole proprietorship, you and your business are regarded as a single “being.”

Here’s one potential problem with that type of business identity. Let’s say you own a little ice cream shop, and you operate it as a sole proprietorship. You’re not making a huge amount of money after expenses, but it’s working, and it’s getting better week by week, and you have actually set aside $10,000 in profits.

Then, one awful day, little Joey comes in, slips on melted ice cream you haven’t wiped up yet, gets a complicated break in his right arm, and the fall gives him a concussion. You could be responsible for the costs of all of that — Joey’s hours in the emergency room, the consultation with pediatric neurosurgeons, the orthopedic surgeon who specializes in setting really bad bone fractures, Joey’s X-rays, his MRI and CAT scans, his two days in the pediatric intensive care unit – I think you can probably add even more. And that is all hoping that Joey’s mother doesn’t sue you for negligence (being careless or irresponsible) in addition to paying for all of his medical bills!

Those costs could burn through your $10,000 in profits in a couple of days – and that’s not even the worst of it. Because you and your business are seen as one entity in a sole proprietorship, you and your business share both income and liabilities. That could mean that after you have spent your $10,000 in business profits, you could be required to start paying the rest of Joey’s medical costs with your “own” money. In effect, all of your personal income and assets could become vulnerable to being used to cover your business costs.

It doesn’t even have to be a big dramatic situation like little Joey to create big problems for you. What if you ordered a gigantic amount of ice cream for the summer, and it rains most of the time from June until September? Your business income will probably go way down below what you expected, and your profits may not be enough to cover the cost of all that ice cream that is still in your freezer – not to mention that you’re having trouble covering your store rent and utilities with only a few people buying ice cream in a rainy summer. Same problem. After you’ve used up your saved $10,000 in profits, you could be required to use your own savings etc. to pay those bills.

Pretty scary, huh? Now, admittedly, those are pretty extreme made-up examples. But the point remains. In a sole proprietorship, your personal assets can be taken to cover your business expenses.

Enter corporations. A huge difference between designating your business as some type of corporation vs. a sole proprietorship is that your incorporated business is seen as being a separate entity from you and your personal income and assets. To make this seem more real, consider again little Joey and his accident in your ice cream store. If your ice cream business was set up as a corporation, Joey’s medical bills would belong to your corporation – not you personally. Then when you used up your $10,000 in corporate assets to pay his bills, your personal assets could be protected from being taken to cover any of Joey’s remaining bills. Same thing with all the ice cream from the rainy summer. Even if your corporation owes money to your ice cream supplier etc., those people cannot take your personal assets to pay your corporation’s bills.

As an internet entrepreneur, you are probably way less vulnerable to physical injury and unsold merchandise problems than “real business” owners are. So it may make perfectly good sense to start your home business as a “paperwork-simple” sole proprietorship. The important thing here is to be aware of alternatives and get good professional advice about the best choices for you. And do it before your business is already well underway – playing catch-up is no fun – especially when it involves tax and legal issues.

Get help here:


SCORE (Service Corps of Retired Executives) is group of (guess what?) retired executives who will share their years of experience and expertise with you, for free!!

One more time, please remember that what I am giving you here is only my personal understanding of these topics. I advise you to get professional assistance.

Not Carrying Adequate Insurance

Back to little Joey and his ice cream disaster. If you had bought liability insurance for your ice cream shop, probably your insurance company would have paid a good part of little Joey’s medical bills – and helped defend you against a negligence lawsuit if Joey’s mother decided to sue you.

Again, you will not likely have a “Joey” experience as an internet business owner, but you still could find yourself in a situation where someone is claiming that something you did cost them time, money, inconvenience, pain, etc., and they want you to pay them for it. Just think about all you hear about malpractice suits against physicians.

To help protect themselves against similar lawsuits, many professionals who sell their ideas, advice, or expertise (think accountants, attorneys, business advisers, etc.) carry a specialized type of insurance called “Errors and Omissions” (E&O). Discuss this with your insurance agent.

If you expect to have business clients visiting you (either in an office away from your home, or in a home office), you should think about liability insurance. Your basic homeowner’s insurance may or may not cover people who come to your house as clients of your business.

Guess what I’m going to say now? Yep! Be sure to consult with an insurance professional to find out exactly what you need to protect yourself and your business.

Success vs Failure in a Home Based Business

Recently, I was speaking to a group of Entrepreneurs when I was once again asked; “why do so many people fail at home businesses”. This is, without any doubt, the most frequent question I am asked. And, although I see the answer as very simple, I am astounded at how many people just do not “get it”.

Let’s look at the question at a deeper level (what are they really wanting to know). “Why do some people make tons of money easily and so many others make no money at all”?

The answer to that question is three things; desire, belief and commitment. Now, before you say to yourself, “here we go again”, I want to take this deeper than just the desire, belief and commitment, but into the reasons why these three answers are so important to your own success.

Anytime someone starts a home based business, the reason behind it is usually 1 of 2 things. Either they want to make extra money or they want to have time freedom. Personally, I believe the 2nd reason is the same as the first, because in order to have lots of free time and be with your family, you must be making some money!

Anyway, I have digressed.

This is what happens. You find a business you like and you get started. You either jump right in and start marketing your business or you are in an unending “ready to get ready mode”. But wait, where is your plan of success? Did you take a serious look at what you really wanted to accomplish with your business?

Did you then look at the business model to determine what it will take to get what you want from that business. Are you looking for microwave success or slow cooker success? Does this business have true potential to create a 6 figure income the first year or will it take a long time to build to that level? What is your plan to accomplish this level of income?

For example, if you are looking for just a few extra dollars and willing to put in years of time to build a highly profitable money machine, you might look at a Multi Level model. You must take into consideration how long it will take you to have what you want. Don’t get me wrong, MLM is a sound business model. But, historically, it generates income at a slow cooker pace.

Another example is Direct Sales, usually this model involves higher profit margins (these can be upwards to thousands of dollars per sale) and can create substantial income much faster with a microwave potential.

Decide which model you want, and then find a company with that model. Also look at the evidence of success for the product and company. Are there people who are getting what you want? Look at the people who are living the life you want. Did they accomplish it within months, or within years? The fact is simple, if anyone has made what you want to make in the time you want to make it, then you can too, anybody can!

I can’t stress this enough. I did not say “is everyone” getting what you want, because regardless of the business, many people will still fail, because of the points I am discussing here. The key in business success is knowing that if anyone can do something, so can you.

Now, back to the three reasons. Did you take a look at your level of belief in the business (do you really believe it can take you to where you want to go) and did you make a commitment to succeed at it?

Now get this; “Most people start a business, playing to not lose, instead of playing to win”. The difference between these two things is the underlying desire, belief and commitment.

This is exactly why 80% of businesses fail. Regardless of the venue, home businesses or brick and mortar businesses. The owners never decided to play the business game to WIN IT!

But to play to win takes those 3 elements; desire, belief and commitment.

Everyone has some idea of the things they want in life. Few however, get emotionally connected to having what they want. They go through life “wanting” and what do they get, “more wanting”. The difference here, among a few others is primarily getting emotionally connected to the desire.

In order to really have something you want, you have to focus on it, give it lots of energy and lots of attention. But the emotion comes from seeing yourself already in possession of it. And the emotion is what drives the level of success. Not a negative of want, but a positive emotion of have.

So what does this have to do with the new business owner? They want to succeed (and make money) but rarely see themselves already having business success. They go through their days hoping for customers and sales, hoping for a profit and more importantly, make decisions based on hope instead of belief.

When in business, you must play to win. This means taking some chances. Look at people like Trump and Gates. Do you really think they started businesses hoping, or did they have a deep, undying belief they would be successful? No one ever became a successful business owner or even wealthy, without taking chances. But the ability to take chances comes from belief. Belief in yourself, belief in your business, belief in your business model and your compensation plan. If there is any lack of absolute belief in any of these areas, then you are doomed.

At this point, you are unable to make good business decisions because you do not absolutely believe in your own success. Any decisions made are made out of hope, not out of belief. And, when you make decisions from hope, you are playing to “not lose”.

But what about commitment? Based on desire and belief, you then take ownership of your business. You decide to do whatever it takes to have your success (with absolute integrity of course). Most people fail simply because they give up. Of course, then come the excuses… (that business did not work, the product was bad, the company was bad, I was scammed and on and on and on…) The only reason, if you have found the right company to meet your desires (based on compensation, product and others having what you desire) is that you gave up. Period!

There are so many stories in history of people who gave up seconds before success, inches before success on so on. In most businesses, it takes only one sale to turn the tide completely. If you bail out before that one sale appears, then you are just giving up on yourself, your desires and your dreams. And unfortunately, when you bail on one business, you are going to bail on many until you finally “get it”.

Just a brief point I feel I must share with you. When people are trying to lure you into their business with the “I tried xx amount of businesses before finding one that worked” routine. RUN, RUN FAST… they are failures and will not be good leaders to guide and assist you in being a success. Do not buy into their excuses.

Determine what you want, how you are going to get it. Believe you will have it regardless. And then, make a commitment to yourself and your business.

Success is not hard, making money is not hard. But learning to deal with what is inside you can be. I will end with one of my favorite quotes, but do not know who coined this… “Work a job and make a living, work on yourself and make a fortune”!

To your success…

Success is in the Details – A Quick Guide to Starting a Small Business

Thinking about starting a business? Make planning for the success of your business a priority to avoid common mistakes small business owners historically make. What does planning for the success of your business mean? It means taking the time to research and plan every aspect of your business.

Who is your market? What type of business structure will best meet your needs, short- and long-term? Do you have enough start-up money or require funding? What equipment do you need to start your business? Are there any licenses or permits required to start your business? Are you prepared to perform all of the functions of your business or will you need to outsource services? The list of questions is endless.

Create a check list for the set up your business or use the one included here as a quick guide to plan your small business. Revise and expand it as needed. Develop a relationship with local, state and federal entities such as the State Comptroller’s office and the Internal Revenue Service. It is your responsibility to know and follow all governing rules, regulations and tax laws pertaining to your business. These agencies can provide valuable information and resources to help your business succeed.

Seek local area professionals for guidance and services in areas such as taxes, bookkeeping, contracts, employment law, business development, marketing, and so on. Develop a core group of “go-to” advisors and resources to help you take care of the details of your small business and plan for success.

Easy to Use Checklist

Business Set-up

  • Identify your market
  • Identify and list your core products or services
  • Contact local, state and federal agencies for regulations, tax and permit requirements
  • Select a business location (address and contact information)
  • Name your business, select a business structure and file appropriate forms
  • Create a business plan
  • Procure funding (if needed) for business start-up

Business Operations

  • Open a business bank account
  • Set up and furnish your business office
  • Set up bookkeeping or outsource
  • Set up processes and procedures
  • Create business forms and invoices
  • Establish vendor accounts for services, products and inventory
  • Establish a business schedule and hours of operation
  • Identify and list all functions required to run your business
  • Hire staff or outsource functions as needed

Business Marketing

  • Create a business identity
  • Develop a marketing plan
  • Create marketing materials such as business cards, brochures, etc.
  • Market, advertise and promote your business