New SBA Study Examines Home-Based Businesses
Study Compares Home-Based Businesses Claiming The Home Office Deduction To Those Who Rent Space
A new study by the Small Business Administration (SBA) shows home-based businesses have lower revenues but higher profit margins than comparable non-home-based businesses. The study compared 2002 tax returns for sole proprietorships claiming a home office deduction to sole proprietorships not claiming the deduction.
Sole Proprietorships are also known as Schedule C Businesses because individuals operating a sole proprietorship file Schedule C along with their personal tax returns. Incorporated businesses weren't included in the survey.
According to the study, the average home-based business had revenue of $62,523 and a net profit of $22,569. The average profit margin of home businesses was thus 36%.
With revenue of $62,523 and net income of $22,569, the average home business had total expenses of $39,958. Included in these expenses: Cost of sales, $14,228; Average home office deduction, $3,686; Travel costs, $4,797; and Marketing expenses, $1,054.
Some travel might actually be marketing. For example, making sales calls. But, it appears home businesses spend relatively little on marketing, only about $1,000, less than 2% of receipts. Possibly, home businesses could benefit from more marketing.
Overall, 1.6 million sole proprietorships claimed the home office deduction with a total revenue of $102 billion.
Businesses renting office space had average revenue of $178,194 and an average income of $38,243. Their average profit margin was 21%.
The most profitable home businesses included wholesale trade businesses and travel accommodation businesses, such as operating a bed and breakfast. Only one in four home business owners relied upon a home business to provide their entire income. Over 90% of the home business owners had no employees.
The study noted that middle-age and older workers make up a relatively large percentage of the self-employed. Home business owners typically worked fewer hours.
Many people who start home businesses are looking for lifestyle businesses. They don't want to work sixty hours per week. They want to be able to take time off. Operating a home business allows them to scale the business to a size they find comfortable.
The Impact of Location on Net Income: A Comparison of Homebased and
Non-Homebased Sole Proprietors (http://www.sba.gov/advo/)