Millions of businesses, billions of dollars crying out for business services. Are you a part of it?
by Rick Telberg
At Large
Some tax and accounting professionals, including solo practitioners, may think that sole-owner home-office businesses are too small to pursue actively as clients. Well, think again.
In fact, the small-office/home-office (SOHO) market is gigantic, and needs all sorts of management advisory services that are being overlooked by business service professionals.
There are between 10 million and 14 million home-based businesses generating $102 billion in annual revenue, and prevailing demographic and business trends could fuel growth by leaps and bounds in the years ahead, according to a new U.S. Small Business Administration study, “Impact of Location on Net Income: A Comparison of Homebased and Non-Homebased Sole Proprietors” (free PDF).
But because of SOHO’s “general invisibility (due to their lack of a storefront), this is a vast, largely under-served market, not only for agencies like the U.S. Small Business Administration, but for business-to-business commerce as well,” the SBA report notes. The report reviews federal income tax data from sole proprietorships’ Schedule C filings in 2002 and it cites reams of earlier research on SOHO trends.
One of the most obvious areas in which accountants and other business advisers can step in is to help SOHO managers decide whether to stay at home or move to larger rented facilities that are able to support growth.
The SBA study found that non-home-based sole proprietorships’ average net income is 69 percent higher than the average SOHO ($38,243 vs. $22,569), but the SOHO’s average return on gross revenues is higher: 36 percent vs. 21 percent. Costs are obviously a factor here since SOHOs don’t have rent or mortgages, and they typically have fewer, if any, employees.
Incorporation is another area in which help may be needed. According to the SBA report, the percentage of self-employed who are incorporated rose to 32 percent in 2002 from 25 percent in 1989, explaining that entrepreneurs are incorporating for benefits that include tax breaks, limited liability and the ability to land financing.
Great Need for Tech Consulting
Technology consulting, particularly on Internet and electronic commerce systems, may be where sole proprietors can most use assistance. The SBA report notes that the use of the Internet to work at home increased from 45 percent to 67 percent from 2001 to 2004, and that the proportion of total sales made online is greatest at companies with fewer than 10 employees.
While potential gains from electronic commerce are attracting entrepreneurs to launch home businesses, an equally significant demographic trend is pushing them there — the aging of the population. “The aging of the workforce as the baby boom cohort approaches retirement will almost certainly influence the size and characteristics of the self-employed,” the SBA reports says.
SBA says that people reaching retirement age tend to begin a business as a transition to full retirement, and that baby boomers are already prevalent sole proprietors. It cites a 2004 study finding that people aged 45 or older represented 38 percent of the workforce in total, but they made up 54 percent of all unincorporated sole proprietors.”