Risks and Insurance for a Home-Based Business

When working from home, you have to make sure that the business activity you plan to perform does not violate any local zoning or business laws. 

The main concern is when customers would be entering your property. If you work completely virtually/remotely, such as meeting with clients over the phone or online, it is still an at-home business, but it is not a “home office and therefore it is not a concern for  zoning and regulations.

As home-based businesses have increased in number and popularity in the last years, many local governments have started to adopt home based business specific zoning provisions to control business activities in residential neighborhoods, in order to not create additional noise pollution, traffic or otherwise disturb the neighbors and neighborhoods in any way. 

A few locales actually forbid home businesses altogether, however most cities or towns will allow home businesses that have little chance of causing unwanted noise or traffic in the area. 

Writers, photographers, artists, accountants, attorneys, architects, mortgage or insurance brokers, tutors, even music teachers and different types of consultants, and yes, coaches, are examples of the types of businesses that are commonly allowed to operate from home. 

Types of businesses that are not typically allowed in residential areas are retailers, cafes, bars, restaurants, animal hospitals; anything that will create noise or any other type of disturbance. 

There are some houses, lofts or condos which could be zoned for both residential and commercial use like those studios, stores, restaurants, or bed and breakfast places whose owners live on premises, and the multi-use zoning can make life easier regarding the restrictions which may come along with running your business from a residential-only zoned neighborhood. 

Depending on where you live, whether it is in the city, a suburb, rural areas or in other countries, there will be many variations in regulations and requirements for home based businesses, from no restrictions at all, tonot being able to run even an Internet based business from your home. There is no standard set of rules that applies to doing business from home, so do your research to find out the specific home occupation rules that apply to your business by contacting the planning or zoning department for your city and ask as many questions as possible. You can also speak with other home-based business owners that live in your area. 

Here are some common types of restrictions:

Many cities may prohibit any non-residents of the home in which the business is based, to work as employees in that home, or if they allow the non-residents to be employees of the home business, they may restrict the number to only one or two people, in addition to yourself, the home business owner. So, make sure that before you expand your business and hire somebody to  work with you, from your home, find out if that is allowed in your in your location. Some cities have guidelines for specific neighborhoods as well.  So, do your homework.

Some cities may require that your clients can come to your Home Office by appointment only. In other words, clients cannot just stop by unannounced.  Walk-ins are NOT welcome.

Some cities may restrict the business use of the home to a percentage of the floor space, such as no more than 25% of the square footage of your house may be devoted to your home-based business. As an example: if you are considering teaching dance lessons or any kind of fitness class and turning one of your rooms into a little studio, you will have to make sure that this is allowed. 

Other locales may restrict the number of customers that may come to your house.. For example, your city zoning and business regulations may indicate that no more than two customers can come to your home office in a given day. 

Most cities in the United States prohibit in residential neighborhoods, signs outside of your house that advertise your business. In most residential areas, you can fly the American flag in front of your house, or a flag with the colors of your favorite football team or something more decorative, but you cannot fly a flag or hang a sign with your business name or logo on it because if you do, you run the risk that if a city official drives by and sees it, that can result in significant fines from the city. You also risk that a neighbor maybe not like that you are running a business from home and could report you directly. 

Of course, advertising and promoting your business is extremely important for your business to be successful, but please make sure that you remain compliant with your local, home-based business requirements. 

Some cities do not require any special permits for you to operate your home-based business as long as your business complies with all the rules and regulations contained in the city’s planning and business administration code.  Other cities however, require all home-based business owners to get a home occupation permit. Home occupation permits are usually obtained by simply filling out a form provided by the planning department and paying whatever fee may be required by the city.Keep in mind that depending on where you live and how restrictive the rules are in your area, if you don’t meet all of your city’s rules for operating a home business, you may not be allowed to run your business from home. 

Here is an example of someone who plans to open a home-based business;

Jessica is a fitness and Wellness coach and she plans to see clients in person at her house, which she owns. Her plan is to offer individual sessions Monday through Friday with approximately 4 appointments per day. She also plans to offer one group sessions on both Tuesdays and Thursdays, core fitness classes with five students per class. Under her city’s home occupation statute, no permit is necessary to run a home business as long as the business sees no more than two clients per day. In Jessica’s case, a home occupation permit is required, and if she gets this permit, the limit of clients that she may see at the house per day increases to ten. Jessica files and obtains the home occupation permit and makes sure to never have more than ten clients at her house in any one day. However, for holidays like Christmas, if Jessica would like to celebrate and have a big group session with all her clients, she will need rent a room for this event, perhaps at her local community center, , in order for her home-based business to remain compliant. The Community center is a city property and is zoned for commercial use which can accommodate Jessica’s larger group class 

If you do not own a free-standing home, please note that condominium associations or apartment buildings, as well as co-ops, rental properties and other types of residential developments may have much more restrictive rules or outright prohibit in-home businesses. 

If you want to run your business from a home you rent, make sure that you read your lease, rental agreement or association rules to be sure it does not prohibit home businesses all together, or if it allows the type of coaching business that you want to run. As an example; If your lease specifies that the premises are ‘for residential purposes only’ and you are planning on running your business which includes having clients meet at the house, be sure to first talk to your landlord and explain to them what you’re trying to do before you move ahead with your plans.   If you determine that you cannot hold in-person sessions in your home, as an alternative, your plan can be to operate your business from your phone and your computer. If you plan to meet your clients face to face, and do so at the local coffee shop, lunch place, gym, or any other location other than your home, then you should have no problem. 

The reason many multi-residential communities do not allow, or limit at home businesses on property, is when you have clients coming on the premises on a regular basis, the owners of the complex fear that an incident or injury may occur when a client is in your home.  If some home businesses are allowed in your development, your landlord may require that you obtain certain types of liability insurance that will protect their property, but it is also to protect you and your business. 

Home businesses can be just as vulnerable to theft, fire, or personal liability claims, as a storefront studio or a business operating in an office building.

Sometimes, home-based businesses present even more risk because if somebody breaks into your office, when your office is in your house, they have access to your personal assets as well. Please refer back to the section on liability insurance to assist you with getting the right insurance coverage for your own home-based business. You should not assume that business related claims will be covered by your homeowner’s insurance policy or your renter’s policy. Check with your insurance company because many of them can provide coverage to home business, by issuing an endorsement to your current policy that specifically authorizes coverage for home-based business.  

These riders or endorsements to your homeowners or renters insurance will typically require, you to pay extra in your insurance premium If you do not, or are unable to secure a rider or endorsement,  your insurance company may deny any claims related to your home business.

In some cases, an insurance company may choose to terminate your coverage altogether, even for claims that are not business related, if they discover that you’ve been running a business from your home without them knowing. 

Due to the continued growth in the home business market, home business coverage it’s becoming more widely available. A policy endorsement for a home business it’s typically no more than $1,000 a year and sometimes, much less than that. Another option is to secure a separate, home business type policy, which are now becoming more common and more popular.  A separate policy keeps your business liability separate from your residence. Remember, when it comes to ensuring your home-based business, that you have options.  It is strongly recommended that you talk to an insurance broker for more details.

Author: Sanda Kruger

Sanda is an entrepreneur, real estate investor, health coach and professional dancer. Sanda is an entrepreneur with more than 20-year experience in business development and project management in the fields of life, health and fitness coaching. She is also a real estate investor and a banker, who learned outstanding adapted business strategies, sales and marketing techniques, communication, and goal setting skills, hands-on, through life and work experiences. She is a certified fitness professional and is the creator of two original fitness programs, called BellyCore® Fitness and AquaCor®.