Home-Based Small Business Challenges with Insurance & Regulation

Home Business

More and more businesses today are home-based. According to the US Small Business Administration, more than half of recent small businesses are run from home. It’s a convenient and cost-effective way of running certain types of businesses and can be a great way to start out. Corporate giants such as Apple, Ford and Hershey’s all started out as home-run enterprises.

As a budding entrepreneur, it can be hard to pay for office space immediately so starting from home might be the logical option. However, there are often restrictions on businesses operating from residential premises, especially if you live in a condominium association (condo). Here’s what you need to know about common regulations regarding home businesses, and what you can do as a business owner to reduce your risk.

Zoning Laws & Permits

If you are thinking of starting up a business from your own home, the first thing to be aware of is the zoning laws. These are state-level laws regulating what can be done within a property, including all privately-owned property. For example, there may be certain property that has to remain exclusively residential where no business activities are permitted.

Zoning laws regarding home-based businesses can be:

  • restrictions on changing the physical appearance of your home, including external signage or use of outside storage
  • restrictions on the flow of people and vehicles, including number of visitors, employees and parking spaces
  • restrictions on noise, odors or the use/storage of hazardous materials
  • restrictions on types of businesses allowed

You will need to check with your local planning office for details on any restrictions in place.

The next thing to consider is that home-based businesses are subject to the same license and permit laws as other businesses. Licenses vary according to industry and location, but can include:

  • General Business License – this permits you to legally operate as a business in your locality
  • Professional and Trade Licenses – these vary according to both state and industry
  • Home Occupation Permit – in some states and zones, all home-based businesses require one of these
  • Sales Tax Permit – usually required if you sell taxable goods or services
  • Health and Safety Permit – again, this varies between states and industries
  • Sign Permit – some areas have restrictions on signs placed on your property
  • Construction Permit – usually required if you need to make structural changes to your home to accommodate your business

You can check here to see what permits are required in your state.

Restrictions in Condominiums

You are likely to face additional restrictions to setting up a home business if you live in a condo. To protect the needs of many residents, many condos prohibit any type of business activity taking place. Rules are changing as more and more people start to work from home, but they tend to be more restrictive than other residential areas and courts will often side with condo associations when disputes arise.

You can reduce the risk of issues arising by reviewing the rules and regulations of your condo association and seeking advice before proceeding. You can also use resources available on the US Small Business Administration website which has a section dedicated to home-based businesses.

You can also make sure that you are covered against any risks associated with your home-based business by taking out suitable insurance coverage. Some companies may offer specific Home Business Insurance, which comes as an add-on to general Homeowners Insurance.

However, what this policy covers can be limited and you will probably still need to take out additional coverage. Home Business Insurance won’t cover areas such as public and employers’ liability, and contents coverage may be limited.

An often-recommended option would be to take out a Business Owners Policy (BOP) which can be used for home-based businesses. A BOP combines commercial property insurance with general liability insurance and is an easy and affordable way for small businesses to cover many property and liability risks. A BOP can be tailored to suit your needs as a small home-based business owner.