Starting a home business gives you the freedom and flexibility of running your own organisation without the high cost of renting a commercial space.
However, it is not without challenges. Here is everything you need to know about home-based businesses—from how to start a home business in Australia to all the legal requirements you need to be aware of.
What Is a Home Business?
A home business is defined as one that is operated from the owner’s home, i.e. the home serves as the place of business (such as a hair salon) or as a base for the business (if you are working as a solo electrician). A home business can be a full-time job or run as a side hustle, depending on the nature of the business.
There are hundreds of home business startup ideas you can develop into a lucrative business—you can adopt a dropshipping business model (ideal for those low on space who don’t want to hold a lot of stock or inventory) or use your house as an office where you can meet clients. You could set up an online business or a physical shop like a personal gym or dog grooming service from your home—as mentioned earlier, the opportunities are endless, you just need to put your idea into practice.
How to Start a Home Business in Australia: 10 Steps to Follow
Not all businesses are the same, but there are a few steps you can take to make sure all the bases are covered.
Before you get started
There are things you need to consider right from the start.
Am I eligible to start a business in Australia?
You may not be aware, but some people are automatically disqualified from starting a small business in Australia. If you are bankrupt or previously convicted of certain offences, such as theft or fraud, you are disqualified from managing a company for five years. The ASIC has a full list of criteria that you can look at here.
Are you ready to run a business from home?
Running your own business, even as a side gig, will take up a lot of your time and effort. If you are not ready to invest your energy, dedication and finances into your business right now, it might be better to wait a few years until you have sufficient capital, time and experience.
Have you analysed your business idea?
Research and analyse your business idea to see if it has any potential. Look into the market and the competition—is there demand for the product or service you are offering? Will it be hard to put your idea into practice? Is it financially viable considering market conditions and future forecasts?
Remember that according to entrepreneurship statistics, as many as 35% of new businesses fail because there is no market for their services or products.
How do I start a small home business
Once you have researched your business idea and feel that you are mentally and physically ready to start a home business, these are steps to follow.
1. Decide on a business structure
This is one of the most important decisions to make when starting up a business from home, as the structure of your company will determine your legal requirements, tax liabilities and reporting obligations. Since this is a big decision, you might want to consult a lawyer.
There are three main types of business structures you can choose from:
- Sole trader is the cheapest and simplest structure to set up. As the name implies, sole traders, even ones that employ other people, are legally responsible for all aspects of the business, including any debt that the business incurs.
- Partnership is a venture made up of at least two people that share the responsibilities, income and losses of a business. Like sole traders, the partners in a business are personally liable for all the debts and obligations of the business.
- Company—This is a separate legal entity that has the same rights as an individual person, i.e. it can incur debt, sue or be sued, although liability is limited. A company is one of the most complex structures (you will need to register a company with ASIC) and has high set-up and administrative costs.
It is important to consider the type of business you want to start as some structures are better fitted to certain businesses than others. For example, if you want to work as a painter, becoming a sole trader might be the right choice.
If you don’t want your personal finances involved in the business, it may be better to set up a company—this way the company’s profits will be taxed separately from your individual income, and you will get a lower company tax rate. You also won’t be liable if the business is loss-making.
2. Make a business plan
A well-prepared business plan will ensure that you are ready for any possible challenges and setbacks, as well as outline your business goals for the next 6 or 12 months. It will also identify your financial and staffing needs, help you get financing (a business plan is a must if you are applying for a loan) and make sure that your organisation is on track.
Your business plan should contain the following:
- An elaboration of your business goals
- Details about the goods or services you’re going to sell
- The need for your product or service on the market
- Details about your target audience
- Key players and employees in your business
- Your pricing strategy
- The capital required and sources of funding, as well as current finances, balance forecast and cash flow forecasts.
In addition to a business plan, you will also need a risk management plan that will help you deal with unplanned events, a marketing plan to reach new customers and an export strategy (if you are planning on exporting products or services abroad).
3. Register your business
When starting a small business in Australia, you will need to register for an Australian Business Number (ABN). Your ABN number is unique to your business and is used by customers, suppliers and the ATO to identify your company or organisation. As such it is a must if you want to send invoices and receipts to your clients and customers, avoid PAYG tax on the payments you receive or claim goods and services tax credits. An ABN also allows you to register an Australian domain.
Note: If your business name is not the same as your personal name or you are starting a company, you will need to generate a business name and register it with ASIC.
4. Check licenses and registration requirements
There are certain licences and permits that you need to obtain depending on your state, territory or local government, as well as the industry you are operating in and the structure of your business.
For instance, if your business affects your neighbours (noise, posting of signs etc) you will need special permits from your local council. There may also be some environmental regulations you will have to meet.
Check with the Australian Business Licence and Information Service for the licences and permits you might need.
5. Secure capital
Unless you have saved over the years, chances are that you will need funding to get your business up and running. There are several sources you can use to obtain finances for a startup in Australia, including taking out a business loan from a bank, obtaining venture capital or crowdfunding. You could also apply for grants and funding programs—there are some that might provide capital for your type of business.
You need to carefully weigh out each option—there are pros and cons to both debt and equity financing and you need to find the right balance between potential earnings and liabilities to make your business work.
6. Insure your business
Whether you run a business from home or from an office you need to have insurance, such as product liability, professional indemnity insurance (or compulsory third party insurance if you own a vehicle). If you have clients coming to your home as part of your business setup, you might be required to take out public liability insurance, covering you for third-party death or injury.
Insurance requirements vary across states and territories, so check your local laws to ensure you are covered for any potential losses or damages.
7. Become familiar with legal requirements and terms
To avoid hefty penalties, you must ensure that your business complies with all the required laws and regulations.
If you are interested in selling products, here is a list of the best online marketplaces in Australia.
Fair trading laws are one of the regulations you need to adhere to. Designed to protect your business and your customers, the Competition and Consumer Act 2010 is a national law, although states and territories have additional rules within their own legislation. You can check here for the relevant regulation for your place of residence.
You also need to understand and negotiate the terms of a contract to protect yourself and your business from legal liability.
There are other legal requirements that you need to meet depending on the nature of your business—for example, If your business has a turnover of more than $3 million a year or you provide child care services, you need to comply with the Privacy Act.
It can be hard to navigate all the rules and regulations, so it might be a good idea to consult a legal professional for advice.
8. Get on top of taxes
There are several tax exemptions and deductions that apply to home businesses. These include occupancy expenses (such as mortgage repayments, home insurance and land taxes) and running expenses (motor vehicle expenses, electricity and phone bills).
At the same time, you will have specific reporting obligations regarding your income and expenses. If you miss any of the reporting deadlines or fail to provide relevant documentation, you may face negative tax implications and penalties, fines and even bankruptcy proceedings.
It might be best if you outsource this segment of your home business to a professional accountant who will not only make sure all your financial obligations are met, but will also ensure you don’t miss out on any tax deductions.
You can learn more about business taxation here.
9. Develop a marketing strategy
In this digital age when 9.1 million Australian households shop online, you need an online presence. Here are some things you can do to promote your home business:
- Make sure your site stands out—If you can’t afford to hire someone to spruce up your homepage, there are ways to create a website for free.
- Establish your brand—this will make it easier for customers to remember and recognise you.
- Set up a good customer service system—Your customers need to be able to reach you with any queries or issues, so make sure you have an effective way to communicate with them.
- Considering online advertising channels—from Facebook ads to paid posts on TikTok, you can utilise several ways to market your home business online and capture your target audience’s attention.
10. Hire employees
Going forward you might decide to expand your business, in which case you need to learn more about your legal responsibilities as an employer, such as paying super to your employees, PAYG withholding, and health and safety measures.
Bottom Line: Is Starting up a Business From Home Worth It?
There are several perks to running a home-based business. For one, you will have lower overheads as there is no need to pay rent or invest in traditional shop fronts. You will also be able to enjoy a flexible working schedule and cut down on the daily commute. Best of all, there are several tax deductions for home businesses that can help you save on mortgage repayments, electricity bills and even car expenses.
Related reading: How is PAYG withholding different from PAIG instalments?
However, there are challenges as well. You are personally responsible for meeting government regulations and council laws, as well as keeping track of financial obligations—failure to comply with any of these can be disastrous for your business. Plus, it may prove difficult to keep your personal and work life separate.
In the end, it is up to you to decide. If you think you have the discipline and commitment level to set up and operate a home business, follow the steps outlined above to get your business off the ground.
1. Can I run a business from my home in Australia?
Yes, you can run a business from your home in Australia provided you are not bankrupt or have been convicted of fraud or theft before. You will need to look into local council requirements and regulations, as well as consider tax implications and financial reporting duties before you get started.
2. Do I need permission to run a business from home?
It depends on the type and nature of your business and how much it affects the surrounding area. There are some instances when you might need council approval, for example, if you are putting up a sign or selling goods that are not manufactured in your home.
3. Can you run a business from a rental home?
It is possible although you first need to check your lease as some residential tenancy agreements specifically prohibit the use of the property for business purposes. You might also be required to obtain the landlord’s permission before setting up your business.
4. How to start a home business in Australia with no money?
There are several businesses you can set up in your home without paying a fortune—such as getting into freelance writing or editing, starting a blog, providing consulting services, taking up house and pet sitting or even becoming a delivery driver for takeaway food services.
