When the Virtual Storefront Is the Home Front

One of the virtues of e-commerce has always been its low barrier to entry. For little investment of time or money, anyone can set up shop online, whether selling advice or widgets.

But can something so easily accomplished really be a business? In other words, when someone says that she started a business, does she really mean it? Will an entrepreneur run something out of her spare bedroom the same way as if she had venture capitalists peering over her shoulders, demanding a business plan, financial statements, budgets, marketing plans and everything that a bricks-and-mortar retailer has (except the expense of leasing space)? If not, she may treat it as just another hobby, something to handle in her free time.

A Business or a Hobby?

Whatever the owner may think she is doing, the recent “Bloggergate” flap in Philadelphia proved that the opinion of the taxing authority ultimately matters quite a bit. Philadelphia recently dunned owners of Web-based businesses, identified through matching of federal income tax returns with city addresses, for permit fees for online businesses that generated revenue ' no matter how little was earned. Anyone working on a blog online, from home, that sold ads, had to buy a flat-fee permit that for many cost more than the total amount of revenue they had received (see, www.philly.com/inquirer/local/20100824_Is_Philly_taxing_bloggers_.html).

Old and new media alike quickly erupted with howls of protest, invoking everything from the traditional freedom of the press, to warnings of censorship of bloggers. In reality, however, the city did nothing remarkable ' it simply quickly identified a potential new class of taxpayers to whom to apply long-standing rules that tax gross business earnings, rather than the Net (see, http://marketplace.publicradio.org/display/web/2010/09/14/pm-no-blog-tax-in-philadelphia/#).

Although the protests remind me of my teenage daughter's indignation at her first withholding tax payment, as a taxpayer in the City of Philadelphia,
I applaud the diligence given to collecting revenue due from e-commerce firms, in the ordinary course of tax collection. After all, why should any business, “e” or traditional, not be subject to the taxes that every other business is required to pay? Whether one agrees or not with flat-rate taxes, like Philadelphia's business privilege license, that charge certainly should not have come as a surprise to a business owner who has consulted with competent business advisers, or done the required diligence before opening the virtual door. Whether a blogger collecting micropayments, or a retail store owner with minimal foot traffic for months until established, the fee is due, regardless of the level of revenue. A city spokesman defended its position:

(I)n response to questions from the arts community, the city provided outreach on what would be considered a business.
“There's often a blurry line when someone's passion becomes their profession,” Mayor [Michael] Nutter's spokesman Doug Oliver said. A blog is not a business unless it starts selling ads or otherwise generating revenue, Oliver said.
“It is the same standard for any business operating in Philadelphia,” Oliver said.
(See, www.philly.com/inquirer/local/20100824_Is_Philly_taxing_bloggers_.html#ixzz11WDtTRZG.)

The Bloggergate episode raises the question of how to treat a business that, in many ways, looks like a hobby. And that question is itself big business. Statistics, albeit sparse, suggest that there are quite a few people working online from home (although the data does not separate e-commerce from other home-based businesses, in a 2004 study, the most recent I could find available; see, www.bls.gov/news.release/homey.t05.htm). I want to be clear, though, that in this article I am not discussing concerns related to employees who choose or are required to work from home for a business that has another physical location (see, “Working at Home and at Play,” in the August 2004 edition of eCommerce Law & Strategy, at www.ljnonline.com/issues/ljn_e-commerce/21_4A/news/143283-1.html).

Instead, my focus is the entrepreneur who owns an e-commerce business that has no location other than her residence, whether to save costs, or by lifestyle choice.

What Some Sources Say

Although not a statistically valid sample, simply perusing the sale listings at Amazon.com, Facebook.com, eBay.com and other online sales venues, reveals many people who do not appear to be traditional sellers. In fact, Amazon.com provides a complete tutorial on the steps necessary for a small business to sell through that site (see, www.amazonservices.com/content/sell-on-amazon.htm?ld=AZFSSOA). Yahoo! and eBay offer similar advice (see, http://smallbusiness.yahoo.com/ecommerce and http://pics.ebaystatic.com/aw/pics/business/pdf/New_Business_Seller_Guide_May2010.pdf). Many of these tips are simply sound advice for any e-commerce firm, whether home-based or not.

For a social media perspective on business sales, the revamped Facebook Marketplace allows sales in a medium where, according to the site, “the other person (in Facebook Marketplace) is as important as what's being sold” (see, http://mashable.com/2008/12/03/oodle-facebook-marketplace). (Facebook Marketplace is outsourced to “Oodle Pro,” which, according to Facebook, “better suits professional sellers,” with “better reporting, deeper social media integration, (and) multiple listings support” (see, www.oodle.com/info/faq).)

Sellers through Facebook must be careful, however, to establish a sales site as a Facebook “Page,” not a “Profile” (as many firms have done). Profiles “that represent businesses and organizations ' are in violation of Facebook's policies” (see, http://gigaom.com/collaboration/facebook-pages-groups-and-profiles-explained).

Google's Advice

Google's “Places” also provides small sellers a venue to set up shop online (see, www.google.com/support/places/bin/answer.py?hl=en&answer=107528). Google puts it this way:

Your Google listing is an easy way to maintain an online presence, even if you don't have a Web site. You can visit Google Places anytime to edit your information or see how many people have seen and clicked on your listing. ' If you own a business, share basic info about your business with potential customers, such as your address and phone number. You can add extras like photos and descriptions if you have them handy, or come back to add them later. At the end of the sign-up, we'll ask you to verify your submission by phone or postcard. We do this to make sure only the right people are able to change public data about your business. (See, www.google.com/support/places/bin/answer.py?hl=en&answer=143059.)

Google also explains how it assembles content for Google Place:

Each business listing on Google is in fact a giant “cluster” of information that we get from a few different places: Yellow Pages, for example, as well as other third-party providers. However, the basic information that you submit through Google Places is the information that we trust the most. (See, www.google.com/support/places/bin/static.py?hl=en&page=guide.cs&guide=28247&topic=28292&answer=142902.)

The “ready-made” sales sites are not the only way for a home-based e-commerce seller to get online. For example, another Web site offers “an advanced online community for home-based entrepreneurs and business owners; people who work from home; and telecommuters ' loaded with content to help you start up and succeed in a home-based business” (see, www.homebusinessmag.com/about-us). The articles on the “home office” tab of the site cover many of the topics I mention in this article, albeit from a “how-to” focus, rather than a legal one.

Of course, from a business's perspective, fair questions remain: How effective any of these shortcuts to getting online will be, absent traditional business marketing, and are they a worthwhile effort compared to other ways of conducting an e-commerce business from home?

If It's a Buisiness, Make It So

Also, just because it has become popular for a home-based business to sell online does not mean that it is easy ' or safe. A simple search for “home-based business” will lead to many sites that promise success ' provided that you first buy that site's advice. Consider a few of the marketing hooks I found in a brief search:

• Home Internet Businesses ' everything you need to get started;
• Guide to Making Money on Twitter;
• Success from Home in our Internet-Based Business; and
• How to Start a Small Business Online: About [Web Site] 101 Ecommerce Tutorial.

Sellers of “start a business at home” advice, often mixed with “get rich quick” shortcuts, clearly have found their own market niche in customers willing to pay for that advice, rather than engage in the hard work familiar to any entrepreneur, whether in a storefront, an office or in front of a laptop. It is critical to avoid the scams and frauds that litter the Internet, by relying on the same skepticism with which one should approach any online research.

In other words, don't forget that in a home-based e-commerce business, the owner's primary focus must be on the “business” part, rather than “home-based” or “e” part. The best practices for operating any small business online will be similar to the best practices for operating a bricks-and-mortar business, rather than to the cutting-edge concerns of e-commerce firms featured in tech journals and the business press. As the owners of one home-based e-commerce firm describe:

Once we did make the commitment to grow our own business beyond a part-time endeavor, we set out to operate as if we were a multi-national conglomerate. We set aside a room in our house just for our office. We managed our accounting, sales, and production as professionally as we could, and set normal work hours as well. We got a business-class phone system and computer network. In short, we had all the trappings of business without the office lease and overhead. ' In short, if you want to create a profitable home-based business, treat it as a business, not a hobby. Hobbies are for those who have passion without income. A successful business is for those who want to passionately make money. (See, http://brecyn.com/_blog/E-Commerce_Blog/tag/home-based.)

One mother, whose self-started baby boutique business evolved into a firm that helps others start home-based online businesses, stated her “hands-on” view of this concept. “I find the most successful are those who put a lot of elbow grease into it” (see, www.ocregister.com/common/printer/view.php?db=ocregister&id=267001).

Of course, the person starting a home based e-commerce business will not want ' or need ' to spend for the same level of infrastructure as a “multi-national conglomerate” would do when launching a start-up. Nonetheless, there are still many other legal concerns that small sellers should not ignore when starting to sell online.

Tax Concerns

As the Philadelphia Bloggergate story suggests, taxes are a critical place to start. Making sure that the business pays all that it owes, and, in the first place, has registered for all necessary tax identification numbers (and filed all returns), can help prevent problems from arising later as the business becomes successful. The particular registrations necessary will vary from location-to-location, but these all must be covered:

• Sales tax withholding;
• Payroll tax withholding;
• Local business privilege taxes;
• Workers compensation charges; and
• Unemployment compensation charges.

To help business owners, the IRS makes basic guidance available in Publication 583, “Starting a Business and Keeping Records” (see, www.irs.gov/pub/irs-pdf/p583.pdf). For those working exclusively from their home, the IRS has detailed rules on tax benefits from business use of a dwelling, such as Publication 587, “Business Use of Your Home” (see, www.irs.gov/pub/irs-pdf/p587.pdf). Other tax guidance tailored for the small business (although not specifically for
e-commerce firms) is collected at the “Small Business and Self-Employed Tax Center” (see, www.irs.gov/businesses/small/index.html, with listings of free small business-oriented publications at www.irs.gov/businesses/small/article/0,,id=99200,00.html and www.irs.gov/businesses/small/article/0,,id=101169,00.html.)

However, claiming tax benefits from business use of one's own home has been a source of such abuse through fraudulent deductions that the IRS cautions against “Abusive Home-Based Business Tax Schemes” (see, www.irs.gov/businesses/small/article/0,,id=106515,00.html). More generally, the IRS warns of “Tax Scams ' How to Recognize and Avoid Them” (see, www.irs.gov/businesses/small/article/0,,id=106788,00.html). (For more on such fraud, also see, www.justice.gov/tax/txdv03722.htm and www.webcpa.com/news/Ex-IRS-District-Director-Gets-2-Years-for-Tax-Fraud-51526-1.htm, a case in which the IRS vigorously prosecuted a firm that “promised to reduce the tax liabilities of home-based business owners ' based on claims that business owners could legally reduce the taxes they paid by converting their personal expenses into business deductions”). Therefore, competent advice from professional advisers remains critical ' the wide availability of “do-it-yourself” tax software for business doesn't mean that do-it-yourself (“DIY”) is the best way to go for complex matters. (For other e-commerce DIY risks, see, “DIY e-Commerce Law,” in the May 2010 edition of e-Commerce Law and Strategy, at www.ljnonline.com/issues/ljn_ecommerce/27_1/news/153647-1.html.)

Other Home-Based Considerations
Inc., Co., Corp., LLC, LLP?

The owner of a home-based business may also unwisely try to economize by not forming a limited liability entity through which to conduct the business, whether a limited liability company (“LLC”) or a corporation, or (less likely) a limited partnership (“LLP”). A seller who just begins selling online, without affirmatively taking steps to create an entity, will be a proprietorship ' leaving all of the owner's personal assets at risk for business losses. A business operating out of the proprietor's house may put the residence at risk to business creditors (depending on how the deed is titled). Why should anyone take that risk when the home can easily and inexpensively be protected through a lease to the business entity?

While the choice of the appropriate entity for tax, liability and business reasons was once a complex analysis far beyond the scope of this article, today, in almost all cases (particularly those involving small businesses), an LLC will be the correct choice ' and an LLC can be formed easily, cheaply and quickly in most states. Given the minimal cost in time and money to obtain limited liability, an entrepreneur willing to forgo the benefits of limited liability, just to save the relatively nominal expenses of forming an entity, may simply not have the business savvy necessary to operate a successful business, online or off.

Privacy

Far more than in a traditional firm, home-based sellers must also plan to protect their own privacy. Just as many individuals register alternative e-mail addresses to use when posting comments at online sites, owners of home-based e-commerce businesses should think carefully about what contact information they provide online ' in case it becomes necessary to dispose of it, whether because of hacking, a decision just to change the business focus or (if all goes well) a sale of the business in which that contact information has become valuable intellectual property. A personal e-mail address or cell phone number used for other family matters could be compromised, or at least become cumbersome to use. As Google warns in the instructions to Google Places: “It's a good idea to create a Google Places account using an e-mail address that you don't mind sharing with others or passing along, in case you wish to transfer ownership of your listings” (see, www.google.com/support/places/bin/answer.py?hl=en&answer=143059). No one wants an angry customer at her literal front door. (As noted below, commercial office-center vendors can provide an inexpensive form of third-party addresses for clients and vendors to use.)

Technology and Other Issues

Of course, there are many other technical and business choices that must be made to launch an online site. A mistake at this stage could be fatal to the business. While the panoply of business decisions facing the owner of a tech start-up is well beyond the scope of this article, I cannot emphasize enough the critical importance of “infrastructure” decisions (see, “e-Getting Your Back,” in the February 2010 edition of e-Commerce Law & Strategy, at www.ljnonline.com/issues/ljn_ecommerce/26_10/news/153327-1.html). The person or people involved in a start-up home-based e-business will already have to work hard to convince potential customers (much less vendors and lenders) to trust it and to extend credit, compared with established firms such as Amazon.com, or online outlets for well known bricks-and-mortar sellers. “Lowest-cost bidder” versions of the services needed by the firm, such as hosting, Internet access and shopping-cart software, should be carefully considered, to avoid handicapping the firm with vendors who cannot meet the needs of the site and its customers.

Regulation and Compliance

Similarly, all the regulatory and compliance concerns applicable to a business conducted in an office or more traditional worksite must be examined for applicability to the home-based business. The Occupational Safety and Health Administration (“OSHA”), for example, issued extensive guidance on the applicability of its rules to home workers several years ago, albeit at a time when today's possibilities for e-commerce work from home did not exist (see, www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=directives&p_id=2254).

The OSH Act

The OSH Act, administered by OSHA, applies to work performed by an employee in any workplace within the United States, including a workplace located in the employee's home. All employers, including those that have entered into “work-at-home” agreements with employees, are responsible for complying with the OSH Act, and with safety and health standards.

Employers May Be Responsible for In-Home Circumstances

Even when the workplace is in a designated area in an employee's home, the employer retains some degree of control over the conditions of the work-at-home agreement. An important factor in the development of these arrangements is to ensure that employees are not exposed to reasonably foreseeable hazards created by their at-home employment.

Take Steps to Comply, and Lower Liability

Ensuring safe and healthful working conditions for the employee should be a precondition for any home-based work assignments. Employers should exercise reasonable diligence to identify in advance the possible hazards associated with particular at-home work assignments, and should provide the necessary protection through training, personal protective equipment, or other controls appropriate to reduce or eliminate the hazard.

In some circumstances, the exercise of reasonable diligence may necessitate an on-site examination of the working environment by the employer. Employers must take steps to reduce or eliminate any work-related safety or health problems they become aware of through on-site visits or other means.

Work Materials

Certainly, where the employer provides work materials for use in the employee's home, the employer should ensure that employer-provided tools or supplies pose no hazard under reasonably foreseeable conditions of storage or use by employees. An employer must also take appropriate steps when the employer knows or has reason to know that employee-provided tools or supplies could create a safety or health risk.

Safe Workplace vs. Safe Home

An employer is responsible for ensuring that its employees have a safe and healthful workplace, not a safe and healthful home. The employer is responsible only for preventing or correcting hazards to which employees may be exposed in the course of their work. For example: if work is performed in the basement space of a residence and the stairs leading to the space are unsafe, the employer could be liable if the employer knows or reasonably should have known of the dangerous condition (see, www.osha.gov/as/opa/foia/hot_4.html).

Even though OSHA pulled back from its original, stronger, rules to protect employees in home-based businesses, the concepts underlying the rules still make sense to avoid liability to employees, vendors or others coming into a home-work space, or increased workers compensation insurance rates. They are also a reminder, as noted above, of the importance of having the proper back office functions in place, such as the full portfolio of business insurance required today. (I am not trying to single out OSHA as a better or worse regulator of home based e-business; I am using the agency as an example of a regulator that would certainly be considered when opening a traditional office, but which has been applied ' with modifications ' to the work-at-home world as well.)

Zoning and Covenants

Another area of concern will be local zoning rules, and, similarly, deed covenants. Even though you will be working solely from home, that work may be prohibited to prevent commercial traffic in residential areas from delivery trucks or clients (see, www.entrepreneur.com/management/operations/location/article79464.html).

Even if local zoning laws allow planned activity, development may be subject to restrictions against commercial activity placed in a deed or bylaws, especially if you live in a planned community (such as a condominium association, or gated community). Often, you can forestall any problems by relying on the omnipresent business service centers, such as a UPS Store, FedEx Kinko's, Mail Boxes Etc., or similar vendors, and limiting daily trips to ship and pick up packages. (Such vendors can also help solve the seller's privacy concerns noted above.)

Stamina, and Keeping It Together

Perhaps an even greater cost to the entrepreneur than the expense of all of the tangible and real world needs of a new e-business, however, will be the intangible and psychological costs he or she must face, every moment, in the proverbial 24/7 week. He or she can't “escape” the office by “going home,” when home is
just another door down the hallway. Consider the frenetic blend of family and work life described by one such business founder:

I certainly put in more hours in this business than I have at any job I've ever had. Combine that with being an involved parent, and it's overwhelming. There's a lot of times that, I'll be honest, I'm exhausted. You have to be willing to make those sacrifices of yourself in order for your business to grow. If you're not willing to work, then it's not going to happen. (See, www.practicalecommerce.com/articles/1815-Quick-Query-Work-at-home-Mom-Runs-CandlesAndSuch-com.)

And the Answer Is '

Let me close with the question posed at the start of this article: Is a home-based e-commerce firm a business, or a hobby? The answer will depend on the owner's approach. Some will choose to run it as a business, plan accordingly, and receive the profits (or losses) commensurate with their effort and performance.

But those who choose only to live their “passion” (to quote the Bloggergate tax official), rather than insist on a businesslike approach, may end up (to paraphrase Alice in Wonderland's March Hare when chastising Alice to say what she means) liking what they get ' tax audits and legal liability, instead of getting what they like: a profitable business.

One of the virtues of e-commerce has always been its low barrier to entry. For little investment of time or money, anyone can set up shop online, whether selling advice or widgets.

But can something so easily accomplished really be a business? In other words, when someone says that she started a business, does she really mean it? Will an entrepreneur run something out of her spare bedroom the same way as if she had venture capitalists peering over her shoulders, demanding a business plan, financial statements, budgets, marketing plans and everything that a bricks-and-mortar retailer has (except the expense of leasing space)? If not, she may treat it as just another hobby, something to handle in her free time.

A Business or a Hobby?

Whatever the owner may think she is doing, the recent “Bloggergate” flap in Philadelphia proved that the opinion of the taxing authority ultimately matters quite a bit. Philadelphia recently dunned owners of Web-based businesses, identified through matching of federal income tax returns with city addresses, for permit fees for online businesses that generated revenue ' no matter how little was earned. Anyone working on a blog online, from home, that sold ads, had to buy a flat-fee permit that for many cost more than the total amount of revenue they had received (see, www.philly.com/inquirer/local/20100824_Is_Philly_taxing_bloggers_.html).

Old and new media alike quickly erupted with howls of protest, invoking everything from the traditional freedom of the press, to warnings of censorship of bloggers. In reality, however, the city did nothing remarkable ' it simply quickly identified a potential new class of taxpayers to whom to apply long-standing rules that tax gross business earnings, rather than the Net (see, http://marketplace.publicradio.org/display/web/2010/09/14/pm-no-blog-tax-in-philadelphia/#).

Although the protests remind me of my teenage daughter's indignation at her first withholding tax payment, as a taxpayer in the City of Philadelphia,
I applaud the diligence given to collecting revenue due from e-commerce firms, in the ordinary course of tax collection. After all, why should any business, “e” or traditional, not be subject to the taxes that every other business is required to pay? Whether one agrees or not with flat-rate taxes, like Philadelphia's business privilege license, that charge certainly should not have come as a surprise to a business owner who has consulted with competent business advisers, or done the required diligence before opening the virtual door. Whether a blogger collecting micropayments, or a retail store owner with minimal foot traffic for months until established, the fee is due, regardless of the level of revenue. A city spokesman defended its position:

(I)n response to questions from the arts community, the city provided outreach on what would be considered a business.
“There's often a blurry line when someone's passion becomes their profession,” Mayor [Michael] Nutter's spokesman Doug Oliver said. A blog is not a business unless it starts selling ads or otherwise generating revenue, Oliver said.
“It is the same standard for any business operating in Philadelphia,” Oliver said.
(See, www.philly.com/inquirer/local/20100824_Is_Philly_taxing_bloggers_.html#ixzz11WDtTRZG.)

The Bloggergate episode raises the question of how to treat a business that, in many ways, looks like a hobby. And that question is itself big business. Statistics, albeit sparse, suggest that there are quite a few people working online from home (although the data does not separate e-commerce from other home-based businesses, in a 2004 study, the most recent I could find available; see, www.bls.gov/news.release/homey.t05.htm). I want to be clear, though, that in this article I am not discussing concerns related to employees who choose or are required to work from home for a business that has another physical location (see, “Working at Home and at Play,” in the August 2004 edition of eCommerce Law & Strategy, at www.ljnonline.com/issues/ljn_e-commerce/21_4A/news/143283-1.html).

Instead, my focus is the entrepreneur who owns an e-commerce business that has no location other than her residence, whether to save costs, or by lifestyle choice.

What Some Sources Say

Although not a statistically valid sample, simply perusing the sale listings at Amazon.com, Facebook.com, eBay.com and other online sales venues, reveals many people who do not appear to be traditional sellers. In fact, Amazon.com provides a complete tutorial on the steps necessary for a small business to sell through that site (see, www.amazonservices.com/content/sell-on-amazon.htm?ld=AZFSSOA). Yahoo! and eBay offer similar advice (see, http://smallbusiness.yahoo.com/ecommerce and http://pics.ebaystatic.com/aw/pics/business/pdf/New_Business_Seller_Guide_May2010.pdf). Many of these tips are simply sound advice for any e-commerce firm, whether home-based or not.

For a social media perspective on business sales, the revamped Facebook Marketplace allows sales in a medium where, according to the site, “the other person (in Facebook Marketplace) is as important as what's being sold” (see, http://mashable.com/2008/12/03/oodle-facebook-marketplace). (Facebook Marketplace is outsourced to “Oodle Pro,” which, according to Facebook, “better suits professional sellers,” with “better reporting, deeper social media integration, (and) multiple listings support” (see, www.oodle.com/info/faq).)

Sellers through Facebook must be careful, however, to establish a sales site as a Facebook “Page,” not a “Profile” (as many firms have done). Profiles “that represent businesses and organizations ' are in violation of Facebook's policies” (see, http://gigaom.com/collaboration/facebook-pages-groups-and-profiles-explained).

Google's Advice

Google's “Places” also provides small sellers a venue to set up shop online (see, www.google.com/support/places/bin/answer.py?hl=en&answer=107528). Google puts it this way:

Your Google listing is an easy way to maintain an online presence, even if you don't have a Web site. You can visit Google Places anytime to edit your information or see how many people have seen and clicked on your listing. ' If you own a business, share basic info about your business with potential customers, such as your address and phone number. You can add extras like photos and descriptions if you have them handy, or come back to add them later. At the end of the sign-up, we'll ask you to verify your submission by phone or postcard. We do this to make sure only the right people are able to change public data about your business. (See, www.google.com/support/places/bin/answer.py?hl=en&answer=143059.)

Google also explains how it assembles content for Google Place:

Each business listing on Google is in fact a giant “cluster” of information that we get from a few different places: Yellow Pages, for example, as well as other third-party providers. However, the basic information that you submit through Google Places is the information that we trust the most. (See, www.google.com/support/places/bin/static.py?hl=en&page=guide.cs&guide=28247&topic=28292&answer=142902.)

The “ready-made” sales sites are not the only way for a home-based e-commerce seller to get online. For example, another Web site offers “an advanced online community for home-based entrepreneurs and business owners; people who work from home; and telecommuters ' loaded with content to help you start up and succeed in a home-based business” (see, www.homebusinessmag.com/about-us). The articles on the “home office” tab of the site cover many of the topics I mention in this article, albeit from a “how-to” focus, rather than a legal one.

Of course, from a business's perspective, fair questions remain: How effective any of these shortcuts to getting online will be, absent traditional business marketing, and are they a worthwhile effort compared to other ways of conducting an e-commerce business from home?

If It's a Buisiness, Make It So

Also, just because it has become popular for a home-based business to sell online does not mean that it is easy ' or safe. A simple search for “home-based business” will lead to many sites that promise success ' provided that you first buy that site's advice. Consider a few of the marketing hooks I found in a brief search:

• Home Internet Businesses ' everything you need to get started;
• Guide to Making Money on Twitter;
• Success from Home in our Internet-Based Business; and
• How to Start a Small Business Online: About [Web Site] 101 Ecommerce Tutorial.

Sellers of “start a business at home” advice, often mixed with “get rich quick” shortcuts, clearly have found their own market niche in customers willing to pay for that advice, rather than engage in the hard work familiar to any entrepreneur, whether in a storefront, an office or in front of a laptop. It is critical to avoid the scams and frauds that litter the Internet, by relying on the same skepticism with which one should approach any online research.

In other words, don't forget that in a home-based e-commerce business, the owner's primary focus must be on the “business” part, rather than “home-based” or “e” part. The best practices for operating any small business online will be similar to the best practices for operating a bricks-and-mortar business, rather than to the cutting-edge concerns of e-commerce firms featured in tech journals and the business press. As the owners of one home-based e-commerce firm describe:

Once we did make the commitment to grow our own business beyond a part-time endeavor, we set out to operate as if we were a multi-national conglomerate. We set aside a room in our house just for our office. We managed our accounting, sales, and production as professionally as we could, and set normal work hours as well. We got a business-class phone system and computer network. In short, we had all the trappings of business without the office lease and overhead. ' In short, if you want to create a profitable home-based business, treat it as a business, not a hobby. Hobbies are for those who have passion without income. A successful business is for those who want to passionately make money. (See, http://brecyn.com/_blog/E-Commerce_Blog/tag/home-based.)

One mother, whose self-started baby boutique business evolved into a firm that helps others start home-based online businesses, stated her “hands-on” view of this concept. “I find the most successful are those who put a lot of elbow grease into it” (see, www.ocregister.com/common/printer/view.php?db=ocregister&id=267001).

Of course, the person starting a home based e-commerce business will not want ' or need ' to spend for the same level of infrastructure as a “multi-national conglomerate” would do when launching a start-up. Nonetheless, there are still many other legal concerns that small sellers should not ignore when starting to sell online.

Tax Concerns

As the Philadelphia Bloggergate story suggests, taxes are a critical place to start. Making sure that the business pays all that it owes, and, in the first place, has registered for all necessary tax identification numbers (and filed all returns), can help prevent problems from arising later as the business becomes successful. The particular registrations necessary will vary from location-to-location, but these all must be covered:

• Sales tax withholding;
• Payroll tax withholding;
• Local business privilege taxes;
• Workers compensation charges; and
• Unemployment compensation charges.

To help business owners, the IRS makes basic guidance available in Publication 583, “Starting a Business and Keeping Records” (see, www.irs.gov/pub/irs-pdf/p583.pdf). For those working exclusively from their home, the IRS has detailed rules on tax benefits from business use of a dwelling, such as Publication 587, “Business Use of Your Home” (see, www.irs.gov/pub/irs-pdf/p587.pdf). Other tax guidance tailored for the small business (although not specifically for
e-commerce firms) is collected at the “Small Business and Self-Employed Tax Center” (see, www.irs.gov/businesses/small/index.html, with listings of free small business-oriented publications at www.irs.gov/businesses/small/article/0,,id=99200,00.html and www.irs.gov/businesses/small/article/0,,id=101169,00.html.)

However, claiming tax benefits from business use of one's own home has been a source of such abuse through fraudulent deductions that the IRS cautions against “Abusive Home-Based Business Tax Schemes” (see, www.irs.gov/businesses/small/article/0,,id=106515,00.html). More generally, the IRS warns of “Tax Scams ' How to Recognize and Avoid Them” (see, www.irs.gov/businesses/small/article/0,,id=106788,00.html). (For more on such fraud, also see, www.justice.gov/tax/txdv03722.htm and www.webcpa.com/news/Ex-IRS-District-Director-Gets-2-Years-for-Tax-Fraud-51526-1.htm, a case in which the IRS vigorously prosecuted a firm that “promised to reduce the tax liabilities of home-based business owners ' based on claims that business owners could legally reduce the taxes they paid by converting their personal expenses into business deductions”). Therefore, competent advice from professional advisers remains critical ' the wide availability of “do-it-yourself” tax software for business doesn't mean that do-it-yourself (“DIY”) is the best way to go for complex matters. (For other e-commerce DIY risks, see, “DIY e-Commerce Law,” in the May 2010 edition of e-Commerce Law and Strategy, at www.ljnonline.com/issues/ljn_ecommerce/27_1/news/153647-1.html.)

Other Home-Based Considerations
Inc., Co., Corp., LLC, LLP?

The owner of a home-based business may also unwisely try to economize by not forming a limited liability entity through which to conduct the business, whether a limited liability company (“LLC”) or a corporation, or (less likely) a limited partnership (“LLP”). A seller who just begins selling online, without affirmatively taking steps to create an entity, will be a proprietorship ' leaving all of the owner's personal assets at risk for business losses. A business operating out of the proprietor's house may put the residence at risk to business creditors (depending on how the deed is titled). Why should anyone take that risk when the home can easily and inexpensively be protected through a lease to the business entity?

While the choice of the appropriate entity for tax, liability and business reasons was once a complex analysis far beyond the scope of this article, today, in almost all cases (particularly those involving small businesses), an LLC will be the correct choice ' and an LLC can be formed easily, cheaply and quickly in most states. Given the minimal cost in time and money to obtain limited liability, an entrepreneur willing to forgo the benefits of limited liability, just to save the relatively nominal expenses of forming an entity, may simply not have the business savvy necessary to operate a successful business, online or off.

Privacy

Far more than in a traditional firm, home-based sellers must also plan to protect their own privacy. Just as many individuals register alternative e-mail addresses to use when posting comments at online sites, owners of home-based e-commerce businesses should think carefully about what contact information they provide online ' in case it becomes necessary to dispose of it, whether because of hacking, a decision just to change the business focus or (if all goes well) a sale of the business in which that contact information has become valuable intellectual property. A personal e-mail address or cell phone number used for other family matters could be compromised, or at least become cumbersome to use. As Google warns in the instructions to Google Places: “It's a good idea to create a Google Places account using an e-mail address that you don't mind sharing with others or passing along, in case you wish to transfer ownership of your listings” (see, www.google.com/support/places/bin/answer.py?hl=en&answer=143059). No one wants an angry customer at her literal front door. (As noted below, commercial office-center vendors can provide an inexpensive form of third-party addresses for clients and vendors to use.)

Technology and Other Issues

Of course, there are many other technical and business choices that must be made to launch an online site. A mistake at this stage could be fatal to the business. While the panoply of business decisions facing the owner of a tech start-up is well beyond the scope of this article, I cannot emphasize enough the critical importance of “infrastructure” decisions (see, “e-Getting Your Back,” in the February 2010 edition of e-Commerce Law & Strategy, at www.ljnonline.com/issues/ljn_ecommerce/26_10/news/153327-1.html). The person or people involved in a start-up home-based e-business will already have to work hard to convince potential customers (much less vendors and lenders) to trust it and to extend credit, compared with established firms such as Amazon.com, or online outlets for well known bricks-and-mortar sellers. “Lowest-cost bidder” versions of the services needed by the firm, such as hosting, Internet access and shopping-cart software, should be carefully considered, to avoid handicapping the firm with vendors who cannot meet the needs of the site and its customers.

Regulation and Compliance

Similarly, all the regulatory and compliance concerns applicable to a business conducted in an office or more traditional worksite must be examined for applicability to the home-based business. The Occupational Safety and Health Administration (“OSHA”), for example, issued extensive guidance on the applicability of its rules to home workers several years ago, albeit at a time when today's possibilities for e-commerce work from home did not exist (see, www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=directives&p_id=2254).

The OSH Act

The OSH Act, administered by OSHA, applies to work performed by an employee in any workplace within the United States, including a workplace located in the employee's home. All employers, including those that have entered into “work-at-home” agreements with employees, are responsible for complying with the OSH Act, and with safety and health standards.

Employers May Be Responsible for In-Home Circumstances

Even when the workplace is in a designated area in an employee's home, the employer retains some degree of control over the conditions of the work-at-home agreement. An important factor in the development of these arrangements is to ensure that employees are not exposed to reasonably foreseeable hazards created by their at-home employment.

Take Steps to Comply, and Lower Liability

Ensuring safe and healthful working conditions for the employee should be a precondition for any home-based work assignments. Employers should exercise reasonable diligence to identify in advance the possible hazards associated with particular at-home work assignments, and should provide the necessary protection through training, personal protective equipment, or other controls appropriate to reduce or eliminate the hazard.

In some circumstances, the exercise of reasonable diligence may necessitate an on-site examination of the working environment by the employer. Employers must take steps to reduce or eliminate any work-related safety or health problems they become aware of through on-site visits or other means.

Work Materials

Certainly, where the employer provides work materials for use in the employee's home, the employer should ensure that employer-provided tools or supplies pose no hazard under reasonably foreseeable conditions of storage or use by employees. An employer must also take appropriate steps when the employer knows or has reason to know that employee-provided tools or supplies could create a safety or health risk.

Safe Workplace vs. Safe Home

An employer is responsible for ensuring that its employees have a safe and healthful workplace, not a safe and healthful home. The employer is responsible only for preventing or correcting hazards to which employees may be exposed in the course of their work. For example: if work is performed in the basement space of a residence and the stairs leading to the space are unsafe, the employer could be liable if the employer knows or reasonably should have known of the dangerous condition (see, www.osha.gov/as/opa/foia/hot_4.html).

Even though OSHA pulled back from its original, stronger, rules to protect employees in home-based businesses, the concepts underlying the rules still make sense to avoid liability to employees, vendors or others coming into a home-work space, or increased workers compensation insurance rates. They are also a reminder, as noted above, of the importance of having the proper back office functions in place, such as the full portfolio of business insurance required today. (I am not trying to single out OSHA as a better or worse regulator of home based e-business; I am using the agency as an example of a regulator that would certainly be considered when opening a traditional office, but which has been applied ' with modifications ' to the work-at-home world as well.)

Zoning and Covenants

Another area of concern will be local zoning rules, and, similarly, deed covenants. Even though you will be working solely from home, that work may be prohibited to prevent commercial traffic in residential areas from delivery trucks or clients (see, www.entrepreneur.com/management/operations/location/article79464.html).

Even if local zoning laws allow planned activity, development may be subject to restrictions against commercial activity placed in a deed or bylaws, especially if you live in a planned community (such as a condominium association, or gated community). Often, you can forestall any problems by relying on the omnipresent business service centers, such as a UPS Store, FedEx Kinko's, Mail Boxes Etc., or similar vendors, and limiting daily trips to ship and pick up packages. (Such vendors can also help solve the seller's privacy concerns noted above.)

Stamina, and Keeping It Together

Perhaps an even greater cost to the entrepreneur than the expense of all of the tangible and real world needs of a new e-business, however, will be the intangible and psychological costs he or she must face, every moment, in the proverbial 24/7 week. He or she can't “escape” the office by “going home,” when home is
just another door down the hallway. Consider the frenetic blend of family and work life described by one such business founder:

I certainly put in more hours in this business than I have at any job I've ever had. Combine that with being an involved parent, and it's overwhelming. There's a lot of times that, I'll be honest, I'm exhausted. You have to be willing to make those sacrifices of yourself in order for your business to grow. If you're not willing to work, then it's not going to happen. (See, www.practicalecommerce.com/articles/1815-Quick-Query-Work-at-home-Mom-Runs-CandlesAndSuch-com.)

And the Answer Is '

Let me close with the question posed at the start of this article: Is a home-based e-commerce firm a business, or a hobby? The answer will depend on the owner's approach. Some will choose to run it as a business, plan accordingly, and receive the profits (or losses) commensurate with their effort and performance.

But those who choose only to live their “passion” (to quote the Bloggergate tax official), rather than insist on a businesslike approach, may end up (to paraphrase Alice in Wonderland's March Hare when chastising Alice to say what she means) liking what they get ' tax audits and legal liability, instead of getting what they like: a profitable business.