How to join the pyjama workforce A home business can be fun, but also risky. ABOUT two-thirds of all Australian micro and small businesses are based at home. The reasons are many and varied. The dream of being your own boss is a huge enticement. For some, it allows them the flexibility to balance family with a money-making venture. Some industries have re-engineered and replaced full-time staff with independent contractors or freelancers, while others have bought themselves a job after being made redundant and failing to find other work. The decision to start your own home business can be the best one you've made or an absolute financial nightmare. The risks are high but so are the potential rewards. To reduce the risks, a few steps need to be taken before you decide to put the "owning a business" wheels in motion. Personal questions Are you going into business for the right reasons? Have you sufficient evidence that your business can work, or are you just sick of working for someone else and want to take the first opportunity that comes along? These are vital questions. The most important action is to base all decisions on the merits of the business. This concept needs to survive out there in the market, not just inside your head. Owning a business and making it work is also likely to change your lifestyle and you need to be prepared. Much like raising a child, a home business will need nurturing and an infinite amount of attention. Self-discipline, determination and hard work are a few adjectives which spring to mind. So before launching into business ownership, evaluate your current lifestyle, and ask yourself (and your partner) if you're ready for that to change. Discipline can be a problem. Unless you discipline yourself to follow a strict work routine, distractions such as children, television, garden on a sunny day or visiting friends can eat into your time. You also have to make sure your home business has the professional image required by customers. Having a three-year-old answering the phone is probably not a good idea, so it might be better to divert to a professional answering service. Financial factors Are you in a sound enough financial situation to run your own business? Ideally you don't want to borrow more than 20 per cent of the business capital. Talk to your accountant to gain an independent assessment of your position. With sound financial advice, you'll at least know the limits. The last thing you want is to blow your accumulated wealth on a flash in the pan business idea. Once you've made the decision to test the water, a few sound business principles need to be followed. You may have a great business idea, but remember good ideas don't necessarily translate into a good business. Benefits at home One of the benefits of working from home is the low overheads: There is no expensive rent, no need for another phone and no complicated negotiations with landlords. There is also the advantage of reduced commuting time. The fact is, these days with a phone, internet and computer there is no need to feel isolated. Aside from this there are tax benefits, although not as many as one would like to think. The Australian Taxation Office's website (ato.gov.au) has a special section for home-based businesses with all the details to discover if your house can be a business address and whether you have a separate workroom or not. It's an important distinction. For example, utilities costs relating to the office can be a tax-deductible expense by proportioning the office usage to home usage. In addition, office expenses can be claimed against the rent you pay for a property, or the interest costs on a mortgage. Remember, though, that once you start claiming against interest costs there are capital gains tax implications, because your principal place of residence status may be compromised. Draw up a complete business plan. Choose and register a name. Decide on a secure legal structure. Create a brand. Use the best technology at hand. Market your message. A DETAILED business plan outlining the product or service, its market, competition, cost of production, price and extensive research should be the basic starting point of creating a home business. There is plenty of information out there to get started. Go to the Government's business.gov.au website, or Kochie's Business Builders website at au.smallbusiness .yahoo.com for business plan templates and lots of start-up information. The business plan should also answer: Is your home the best location for your business? Can you conduct the type of business you want under local council regulations? What legal obligations should you address? Will your home-based business allow you to balance your work and family life? Are there any town planning requirements of the local government authority that would impact your plans?