ACCOUNTING

Home-Based Sole Proprietors Generate $102 Billion in Revenue

Such business owners make less on average, but have higher return on revenues, according to a new study.
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Home-based sole proprietors generate $102 billion in combined annual revenue, and their ranks are expected keep growing, according to a new study by the Small Business Administration's Office of Advocacy.

While home-based  sole proprietors bring in almost $15,700 less on average than their non-home-based counterparts -- $22,569 in net income versus $38,243 -- they earn a higher return on gross revenues because of lower overhead costs.

The study examined 2002 federal income tax data from sole proprietors who deducted home-office expenses. The study does not include firms that opt not to take the home-office deduction or those that deduct for both a home office and rent. However, if such businesses were included, "the total annual revenue may be over $500 billion," said Joanne H. Pratt, a small-business consultant and researcher who authored the study. 

"Sole proprietorships are a vital part of our economy," Thomas M. Sullivan, chief counsel for the Office of Advocacy, said in a statement. "Many are home-based micro businesses; collectively they generate a significant amount of economic activity. For the average sole proprietor, their business provides benefits of entrepreneurship that go beyond just income and revenue."

Operating a business from home offers unique advantages, including low overhead costs and the flexibility to work at home while raising a family. The study found that such business owners work fewer hours per week and days per year, while relying on their business for 25% of their total income compared to 33% of non-home-based owners.

"My business started out of my home mostly because I didn't want to work for anyone but myself," said Bill Hermann, owner and sole DJ for Blue Chip Productions, located in Prior Lake, Minn. "I wanted to be my own boss. My wife works full time. I'm a husband and father of two girls under the age of four. Right now it's a lifestyle choice."

The study suggested that self-employment may rise due to demographic, technology, and lifestyle factors. Pratt also cited longer average lifespan, which has encouraged some retirees  to explore second careers. "What are they going too do with all those years?" she said. "I think they'll pursue hobbies and turn those hobbies into home-based businesses."

Emerging technologies have made it easier to work at home, while the stigma associated with home-based businesses has also faded somewhat. "It's possible to run the tech dependent home-based business anywhere," Pratt said. "It's gotten so that we're a mobile workforce. It's become so commonplace now it's accepted. You work in the car, in the home, in the Starbucks line."

Last updated: Jun 6, 2006




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