Starting a small, home-based business is one of the hottest trends in the United States today, but it doesn't have to be a full-time investment if you don't want it to be.

If you're trying to find a way to earn extra cash but want some control over how and when you work, starting a small business from your home might be just what you're looking for.

The following sections help you answer some important questions about starting a part-time business. WORKSHEET 11-2 can help you determine whether earning extra money by starting a small business is right for you.

WORKSHEET 11-2

Business Expenses

Expense	One-Time Costs	Monthly Costs
	$	$
	$	$
	$	$
	$	$
	$	$
	$	$
	$	$
TOTAL:	$	$

Finding the Best Small Business for You

The best small business for you is the one that you're enthusiastic and passionate about. This means that your business idea has to mesh with your skills, unique qualities, and personality.

If, for example, you're thinking about starting a catering business but don't really enjoy cooking, you probably won't succeed. If, on the other hand, you've always loved cosmetics and like dealing with people one-on-one, you might want to try your hand as a Mary Kay consultant or Arbonne representative.

Matching your work to your personality, qualities, and skills is the topic of hundreds of books. If you're unsure which business idea will work best for you, take a trip to your local bookstore or library and find one that offers self-tests and ideas about home-based businesses.

Determining Whether You're Passionate About Your Business Idea

Finding out whether you're passionate about a business idea is pretty simple — just decide whether you agree or disagree with this statement:

Now that I've come up with a potential business, the thought of not pursuing it seems impossible.

If you agree, you're plenty passionate. But if you disagree; that is, if you think your business concept is just okay or seems like too much work, don't bother pursuing it — you won't have the energy required to make it succeed.

Estimating Your Potential Income and Expenses

Estimating your potential income and expenses is always difficult. To keep the number realistic, come up with three scenarios for both income and expenses: Best case; average case; and worst case. If, for example, you think you can get three catering jobs per month, use that as your best case, but also figure out how much you'll make with just two catering jobs (average case) or one (worst case).

Do the same with your expenses. If you're planning to offer graphic-design services from your home and will rely heavily on a desktop computer and color laser printer, figure in the cost of paper, toner cartridges, and software updates in your best-case scenario. Also figure in repair expenses on that equipment in your worst-case scenario.

Keep in mind that many small-business owners underestimate how much expenses really cost. If you're running a business part-time, you may not need to get a second phone number or buy elaborate equipment. On the other hand, you may find that you need to set up a website, buy some basic office equipment, invest in business equipment, get inventory for your business, secure a booth at a local antiques mall, and so on. Use WORKSHEET 11-2 above to estimate your business expenses.

Whatever equipment will be essential to your business's success, include it in your worst-case scenario.

Keeping Your Overhead Low

After you think of all the possible equipment you'll need to make your business a success, determine which items would just be nice, which are absolutely necessary, and which you can buy secondhand. Too many first-time business owners spend hundreds or thousands of dollars outfitting their offices, only to find that those expenses don't increase business traffic one bit!

Suppose you decide that you don't need a fancy desk for your office — a small wooden one will do just fine. You read the classifieds and look through sale flyers from office-equipment stores and find one that's just $75.

That's a few hundred less than a new desk would cost, so it's a good deal, right? Not if you're planning to run a business that doesn't require a desk! If you can do your paperwork at the kitchen table, don't bother buying a desk until you find that you really need one.

Understanding Business Taxes

Too many small businesses have folded because their owners failed to estimate their taxes properly. The federal government (and, possibly, your state government, too) requires you to pay approximately one quarter of the taxes your business will owe for the year's income at four separate times throughout the year: April 15, June 15, September 15, and January 15. This is known as the “pay as you go” system.

In order to make these tax payments, you'll need to estimate how much you'll owe in taxes at the end of the year, divide that amount by four, and send a check for that amount by each due date. If you fail to do so, you may have to pay a penalty when you submit your next tax return.

Estimating these taxes can be a bit tricky, however. The best way to determine how much you'll owe is to do the following:

1. Estimate your income and business expenses for the year.

2. Locate a copy of last year's income-tax forms (or last year's tax software program) for both federal and state taxes.

3. Fill out Schedule C of the federal form 1040 by using your estimated income and business-expense data.

4. Using last year's income (from your and your spouse's jobs) and last year's federal and state income-tax forms, and adding in your business estimates, find out how much more you would have owed last year if your business had been up and running then.

5. Subtract the amount you actually owed from the amount you would have owed if your business had been in operation. This is how much more you estimate your taxes will be this year.

6. Divide that number by four and send that amount on each quarterly due date.

Continuing to use last year's tax-return forms, keep recalculating this number as you go through the year. If your expenses are higher or your income is lower than you thought, you'll pay less in taxes. If your expenses are lower or your income is higher than you anticipated, you'll pay more. Although tax forms change from year to year, using last year's forms will give you a pretty close estimate.

Deciding Whether You're Ready

The following questions can help you decide whether running a small business is the right idea for you. If you check off all of the following questions, starting a small business will probably be right for you:

• You're passionate about your business idea.

• You have the expertise and skills required to do this job well.

• You have a reputation in your community as someone who can be trusted to do a good job.

• You've estimated your expenses and income and feel that the business will bring in the extra income you need.

• Your business idea doesn't require a lot of up-front cash.

• You're willing to spend a lot of time getting your business off the ground.

• You can continue to excel at your full-time job while running your part-time business.

• You don't mind completing a few hours of paperwork once a month or so.

• You're disciplined enough to work during evenings and weekends, even when no one is looking over your shoulder or pressuring you to do it.

• Your family is enthusiastic about your business and wants to help.