And how you can avoid them

Even if you have years of experience at the helm of a conventional business, operating a home-based business presents challenges. In addition to the issues that come with starting any business, such as writing a killer business plan and hiring a dependable staff, hidden hitches often lurk, waiting to catch you unaware.

Find out how you can make sure the walls don’t start caving in on your home-based business by avoiding these fatal rookie mistakes:

You forgot about insurance

According to a survey by the Independent Insurance Agents & Brokers of America, 40% of people who work from home believe their homeowners insurance automatically includes coverage for their home-based business. Unfortunately, they’re completely mistaken.

The fine print of most standard homeowners insurance policies specifically excludes business-related claims on your property, which means you won’t be covered if the guy delivering your office supplies slips and falls on your porch – even if you’ve invested in a home insurance policy.

If you don’t want to be liable for huge lawsuit expenses, property damage costs and other major financial losses that could tank your new venture, experts at HomeInsurance.com recommend adding an endorsement to your home insurance policy or investing in a separate business insurance policy.

Here are a few types of insurance you can’t forget to help protect your investments in your home-based business:

  • Business property insurance: Consider the losses a caterer would face if his or her commercial refrigerator failed overnight. In addition to thousands of dollars’ worth of food and inventory that would have to be replaced, the venture might have to be shut down until the problem is solved. With business property insurance that includes loss of use coverage, the caterer could file a claim to help recover the lost inventory and loss of income.
  • Business liability insurance: Consider the delivery example above or a case in which a home-based accountant makes a serious clerical error that results in major financial loss for a client. In addition to compensating what was lost, the business could also be liable for punitive charges and other fees. Altogether, a lawsuit could easily cause your business to go under if you’re not protected with liability insurance.
  • Workers’ compensation insurance: This type of insurance covers loss of income and medical benefits to employees injured on the job, and it’s legally required for most businesses with employees in most states. A graphic designer who works from home could be held liable for medical bills if his or her assistant trips over some loose wires in the office. The caterer who hires extra help for an event could also face problems if one of the employees suffers an injury on the job.

Insurance laws and regulations vary by state, so it’s extremely important to get your coverage in order before your business launch.

You forgot about zoning

Everything’s going great – your business plan is flawless, your employees are top-notch and your home business is booming. Then the neighbors start to complain.

If you neglect to look into zoning laws and city ordinances before you start accepting clients into your home, you could be in for an expensive surprise. Here are just a few common restrictions listed by the U.S. Small Business Administration that every prospective home-based business owner should research:

  • Physical changes to your home: Many residential zoning codes prohibit exterior physical changes to a home for business purposes, as well as outdoor business activities, storage, signs and more.
  • Traffic: In order to prevent disruption in residential neighborhoods, your city also could restrict the number of visitors or employees you may have at your home-based business. Be prepared to deal with parking issues if you expect a crowd.
  • External effects or nuisances. If your business could potentially generate hazardous materials or produce loud noise, strong odors and other nuisances, it may be illegal in residential areas.

Consider the cost of proceeding with your business without looking into your city ordinances and zoning laws – in addition to huge potential losses from closing business for an extended period of time, you’ll have to scout a new location and spend even more to open up shop somewhere else.

You forgot about the future

Savvy business owners plan ahead and leave plenty of room to grow. Whether your music lesson business grows from two clients to 20 or your basement startup explodes into a full-fledged successful company, here are a few key things to consider as you look ahead:

  • Equipment: As your business grows, you’ll likely need more equipment to keep up with the higher demand. Make sure there’s room in your budget to accommodate your growing equipment needs over the life of the business.
  • Employees: Similarly, consider the possibility that you may need to hire additional people to help run your business as it becomes more successful.
  • Space: As your need for more equipment and employees increases, your home-based business may outgrow your home. Even if your business is still in its early days, you should always keep an eye out for potential locations that would serve your business and clients well when the time comes.

While every home-based business is different, one principle is applicable across the board: Before you even think about launching any kind of business – from a one-man arts and crafts show to a big-budget interior design business – your first job as the owner of any business is to double check that you’ve done everything in your power to minimize risk and prevent hiccups down the road.

For more information on what stunts Home Based Business and Small Business Growth see the infographic below from NFIB.com