Quick checklist (one-page view)

  • Choose a business entity (LLC, S-corp, sole proprietorship) and file properly.
  • Confirm local zoning rules and obtain required licenses/permits.
  • Buy appropriate insurance: general liability, business property, professional liability (E&O), business interruption, and workers’ comp if you hire.
  • Create written contracts and documented policies (refunds, privacy, product safety).
  • Separate business finances: business bank account and credit card.
  • Maintain records, review policies annually, and consult an attorney and insurance agent.

Why a focused checklist matters

Starting a business at home lowers overhead but raises special risks: your homeowner’s insurance may not cover business property or third-party claims, neighbors can bring liability claims, and local rules can restrict certain activities. In my 15+ years advising small-business clients, the most common avoidable problems stem from assuming personal coverage is adequate and delaying legal structure decisions. A clear checklist forces decisions and documents them — that helps with insurance claims, tax filings, and legal defenses.

Authoritative resources to confirm local and federal requirements include the U.S. Small Business Administration (SBA) and IRS small business pages (see links at the end). Use them as rule-of-thumb starting points before hiring professionals.

Insurance: what to consider and why

Insurance needs depend on activity, customer interactions, inventory, and revenue. Below are the most commonly relevant policies for home-based businesses, with plain-English explanations and when you’ll likely need each.

  • General liability insurance (Covers bodily injury or property damage claims by third parties.)

  • When you need it: If clients visit your home, supply products to customers, or you could be sued for bodily harm or property damage.

  • Business (commercial) property insurance (Covers business equipment, inventory, and stock located at home.)

  • When you need it: If you store equipment, inventory, or a dedicated workspace not covered under a homeowner policy.

  • Professional liability / Errors & Omissions (E&O) insurance (Covers claims of mistakes, negligent advice, or incomplete work.)

  • When you need it: If you provide services, consultation, or digital products where professional advice could be alleged to cause harm.

  • Business interruption insurance (Covers lost income and some operating costs if you cannot run the business after a covered loss.)

  • When you need it: If a covered event (fire, storm) would pause your operations and you need to replace lost income or cover ongoing fixed costs.

  • Workers’ compensation insurance (Covers employee injuries on the job.)

  • When you need it: If you hire employees (states vary on rules for family members and independent contractors). Many states require WC from the first employee.

  • Product liability insurance (Covers claims from a defective product causing injury or illness.)

  • When you need it: If you sell physical products, especially food, cosmetics, or toys.

Note on homeowner’s insurance: Most homeowner policies exclude business property and commercial liability. Some insurers offer limited business endorsements, but these often fall short of full commercial coverage — confirm in writing with your insurer.

Approximate cost ranges (U.S., 2024–2025 estimates):

  • General liability: $350–$1,500/year for small, low-risk home businesses.
  • Professional liability: $500–$2,000/year depending on risk and revenue.
  • Business property: $200–$1,000/year based on replacement value.
  • Workers’ comp: highly variable by payroll and state; $1,000+ annually if you have employees.

These numbers are estimates — premiums depend on location, revenue, claims history, and business activities. Ask an insurance broker for quotes tailored to your situation.

For a deeper dive on interruption coverage tailored to home-based firms, see our guide: Business Interruption Insurance for Home-Based Businesses.

Legal steps and entity choices

  1. Choose the right entity and register it
  • Sole proprietorship: simple, but no personal-liability protection.
  • Limited Liability Company (LLC): common for home businesses — keeps personal assets separate in most cases, subject to state laws.
  • S corporation or C corporation: useful once profits and payroll grow; consult a CPA for tax tradeoffs.

Forming an entity reduces personal exposure but does not replace insurance. Also follow state filing rules and maintain corporate formalities (separate bank accounts, minutes if required) to preserve liability protections.

  1. Licenses, permits, and zoning
  • Check city/county zoning rules — many municipalities restrict commercial signage, deliveries, or certain customer-facing businesses from residential districts.
  • Register for required business licenses (e.g., retail sales tax permit) and health permits if you prepare food.
  1. Written contracts and policies
  • Use clear client contracts and vendor agreements that define scope, payment terms, warranties, and dispute resolution.
  • For online sellers: a terms-of-service, privacy policy, and refund policy protect you and reduce disputes.
  1. Intellectual property and safety compliance
  • Protect brand names and logos with trademarks as your business grows.
  • Follow product-safety labeling and testing rules for regulated goods (food, cosmetics, children’s products).
  1. Tax registrations and employer responsibilities
  • Register with state tax authorities if you sell taxable goods or have employees.
  • Track deductions correctly — business insurance premiums are usually deductible as a business expense; consult IRS guidance and your CPA (see IRS small business pages).

For entity and liability options specific to home-based operations, our related resource is useful: Risk Management — Home-Based Business Liability: Insurance and Entity Options.

Operational controls and documentation

Insurance and legal steps work best when backed by clear operations:

  • Separate your business bank account and credit card immediately.
  • Keep digital and physical records of sales, contracts, receipts, and insurance policies for at least three years (longer for tax or legal disputes).
  • Implement safety measures (fire extinguisher, product testing, proper storage) to reduce claim likelihood and lower insurance costs.
  • Maintain an emergency plan for interruptions (backup suppliers, cloud-based data backups).

Sample action plan for the first 60 days

Day 0–7: Decide on business structure and open a business bank account.
Day 7–21: Check local zoning and license requirements; apply for permits.
Day 21–40: Get insurance quotes for general liability, business property, and professional liability as applicable.
Day 40–60: Draft basic contracts and privacy policies; separate bookkeeping; schedule an annual insurance review.

Common mistakes I see in practice

  • Assuming homeowner insurance covers business losses or customer injuries.
  • Waiting to form a legal entity until revenue ramps up — early formation is inexpensive and clarifies tax and liability treatment.
  • Not documenting client agreements in writing, which makes disputes costlier to resolve.
  • Failing to update coverage as inventory, staff, or revenue scales.

Frequently asked questions (short answers)

Q: Do I need workers’ comp if I only hire family?
A: It depends on state law. Many states require WC for any paid employee, including family. Check your state’s department of labor.

Q: Can I list my business property on my homeowner policy?
A: Some insurers allow a business endorsement, but the limits are often low. A commercial policy or separate rider is usually safer.

Q: When should I consult an attorney?
A: When you form an entity, draft contracts, face a regulatory question, or respond to a claim or demand letter.

Professional tips (from practice)

  • Work with a small-business insurance agent who understands home-based risks; independent agents can compare carriers.
  • Review policies annually and after major business changes (staffing, new products, higher revenue).
  • Keep product liability and E&O limits aligned with the real-world risk from your customers’ potential damages.

Disclaimer

This checklist is educational and not a substitute for tailored legal, tax, or insurance advice. Laws and insurance terms vary by state and insurer; consult a licensed attorney, CPA, and insurance professional for decisions specific to your business.

Authoritative sources & further reading

Related FinHelp articles:

By following this checklist and consulting qualified advisors, you’ll reduce the odds that a single accident or regulatory misstep becomes a business-ending event. Take the seven actions above in the first 60 days to create a durable foundation for growth.