Home Free While their friends stick it out in corporate America, thousands of young entrepreneurs are heading home--today's hottest start-up spot.

Eric Poses was standing in his parents' Miami home, bottleof champagne in one hand, envelope in the other. It had been morethan a year since Poses, then 23, had loaded up his '92 HondaAccord with camping gear and 30 T-shirts emblazoned with"Loaded Questions," the name of a board game he hadinvented.

With six cases of the game stashed in the trunk, Poses spentfour months on the road, visiting toy stores and game shops andbegging retailers for shelf space for the game he'd inventedfrom his home office in Miami's trendy South Beach.

To launch the enterprise, Poses had tapped his life savings--andthe $30,000 he'd hit mom and dad up for to cover thedifference.

So here he was at his parent's home to pay back the tab inone lump sum. It was all that was left of the fat check Toys`R' Us had sent a few days before--after he'd cleared otherdebts.

"It was a nice day," admits Poses, now the 25-year-oldpresident of All Things Equal Inc., his burgeoning gamebusiness.

It's a nice day for a lot of Gen X entrepreneurs. Althoughtheir parents and older siblings heard the siren songs beckoningthem like drones to the corporate towers downtown, many in theyounger generation have chosen to proclaim instead, "NotI." They've ditched business attire, daily commutes andcorporate camaraderie and decided to launch their own companiesfrom home.

"Those in the 20-something generation are startingbusinesses at rates previously unheard of," says Lisa Rogak,author of more than a dozen books on starting a business, includingThe Under 35 Guide to Starting & Running Your Business(Upstart, $14.95, 800-235-8866) and The 100 Best Businesses forthe 21st Century (Williams Hill Publishing, $15.95,603-523-7877).

"This is the first generation that has been able to flauntthe Establishment rules, make money and get respected for it,"Rogak says. "They know nothing is written in stone, whetherit's a job with a corporation or their own business."

Lonely At The Top

If working from home is anything, it's a '90s version ofthe game of "Life." But what's most likely to makeyou move back two spaces or jump ahead three is how you deal withthe three key issues that dog homebased entrepreneurs: theisolation of working alone, the distractions that abound there andthe difficulties in convincing people you're actuallyworking--not just watching cable in your sweats.

For Poses, single and working alone, isolation is the biggestcurse. He combats it by scheduling lunches with friends to get outof the house. And when it's time for research and development,he invites friends to spend an evening playing his prototype gamesover pizza and drinks.

The '95 Emory University history grad had no businessexperience when he started. Poses had spent just seven months incorporate America--three of which were with a public relations firmso he could learn how to pitch his product.

But for a business greenhorn, Poses has adapted to the isolationof an at-home gig pretty well: Loaded Questions has sold some55,000 copies and grossed more than $600,000 since 1997. He'sfinally in the black and has just finished his second game, GroupPhoto. Along the way, he's created a lifestyle he can livewith--even if it does get lonely on occasion.

"My business is very simple," Poses says. "Iproduce games based on order potentials and expectations. I alsotry to create interesting stories behind my games. [After] I seethe [finished] product, I start all over again."

Attitude Adjustment

Poses claims he was too naive to recognize problems that mighthave spooked a more sophisticated entrepreneur. Jim McCarthy saysthe same liberal arts background stymied his back-office businessacumen--but not his desire to succeed. The 31-year-old president ofMcCarthy Communications Inc., a homebased public relations firm inWashington, DC, left a large PR firm and borrowed $5,000 to startone of his own. His first employee was a bookkeeper--a grad studentfrom Georgetown University who interned for experience and a meagerpaycheck.

McCarthy was also smart enough to realize he needed clients. Sothe then-27-year-old approached his soon-to-be-former boss andasked if he could take a pair of low-budget American-Indian clientswith him. The boss obliged and continued to steer additional workto the fledgling entrepreneur. Today, McCarthy's nichespecialty has blossomed: His company now represents 12American-Indian tribes and interest groups. Three accountexecutives--and his bookkeeper--work from McCarthy's rentedhome.

McCarthy's pet peeve? The perennial problem of homebasedbusinesses owners: As Rodney Dangerfield would put it, theydon't get no respect. First, it was other companies figuring hecouldn't be "a real business" because he worked fromhome. He combated those prejudices by delivering results in aprofessional manner. Then the condo association refused to letMcCarthy receive FedEx packages at his door. The "pettydictatorship" issued a warning for him to cease and desistcomplaining about their rules.

"I said, `Cease and desist this,' " recallsMcCarthy, who's still homebased. "The next week, I renteda house and moved."

Today, McCarthy enjoys a lax dress code; he often goes for dayswithout wearing shoes. Each afternoon he naps for an hour or sowhile the troops hold down the fort. (He's the boss; he can dothese things.) After that, his batteries are recharged and his mindis clear.

He's found success breeds success: The Winnebago tribe ofNebraska spread the word about his business, and McCarthyCommunications' sales are set to top $350,000 this year.

For a time before he left his job, McCarthy wondered how hewould make a go of it and whether his start-up would be successful.Like some peers who never make the leap, he was fearful of"jumping the wall" and leaving corporate America to go italone.

"I'm an arts and letters grad from Notre Dame and hadutterly no idea how to run a business when I started,"McCarthy says. "I've never balanced a checkbook or beenable to fill out a tax return. But my salary quadrupled overnight.There's no office politics or corporate ladder. It's justamazing to me the list of things that got markedly betterovernight."

Balancing Act

Like the condo commandos at McCarthy's first home office,the neighbors in North Yarmouth, Maine, near Sarah Steinman'sfirst homebased designer soap manufacturing gig, were miffed at heroperation. The city didn't require a permit and welcomed herarrival. But her neighbors complained about the 18-wheelersdelivering 55-gallon drums of essential oils, says Steinman,35.

So when she moved to Cumberland, Maine, with her husband, Adam,and their two daughters, Steinman polled her future neighbors aheadof time to gauge reactions. Thumbs up, they told her. So she gother city occupational permit.

But Steinman is sensitive to the impact her business has on thecommunity. She now schedules the semis to arrive on a single dayeach week and makes sure the empty drums are stashed in the new$3,000 shed she bought. Her only foes now: the sanitation workerswho truck away her debris. "The garbage [collectors] don'tlike me very much," she admits.

Casco Bay Herb Co. will gross about $80,000 this year, sellingto everyone from Jacobson's, a department store in the Midwest,to TV shopping channel QVC. Achieving success, though, requiredSteinman to master a delicate balancing act between business andfamily life.

Although her scented soap company is run from her garage andbasement, paperwork is completed in a common area where home andbusiness often chafe. Batches of products ruined by chemicalreactions, slow-paying clients, even the need to bring on 10part-timers when QVC ordered 20,000 bars of soap--all theseproblems were easy to deal with compared to her daughters'demands on her time.

"Nordstrom's personal-care buyer is no match for a2-year-old's tantrum," Steinman says. "I've lostclients because my child was out of control."

Today, Steinman has learned to work around 7-year-old Jessalynand 5-year-old Theo Jane's needs. If a crisis is erupting,she'll delay calling a customer or let voice mail pick upincoming calls until the episode passes.

She's also learned not to take it personally when a clientcan't accept the way she does business. "You have to sayto yourself, `I'm not going to lose sleep over the fact thatsome people have a problem with [a homebasedbusiness],' " Steinman says. "[It's better]to let those jobs go."

Loosen Up

Going with the flow, as Steinman found, is key for homebasedentrepreneurs. If you get freaked out by the unique rhythms ofworking at home, then maybe you should go back to corporateAmerica. The most successful homebased businesspeople learn toadjust their businesses to the texture of their lives, and viceversa.

For Steinman, that means letting her daughters work with her,wrapping soap. For McCarthy, it means bringing employeesin-house--literally. And for Poses, it means inviting pals over forpizza and R&D. Success at home requires nontraditionalthinking, and that's exactly where Generation Entrepreneurexcels.

"[Gen E] cares less than their predecessors about how[their businesses] look," Rogak says. "I thinkthey're more likely to succeed because they can follow theirinherent quirks and not have to squish their square-peg selves intosomebody else's round hole. They can start a business fromhome, work all hours, eat pizza at 2 a.m. and stillsucceed."

Cover Your Assets

If a fire swept through your home office or a thief stole theequipment vital to your business, would an insurance company bethere to cut a check? Has your data been backed up and safelystored at another location? What if one of your clients fell andgot injured on your property? What if you injured yourself?

These are some of the most important questions entrepreneursneed to ask themselves. And yet, insurance is one of thenecessities most overlooked by homebased business owners, saysTrina Pulliam, a homebased sales trainer and founder of SOHOStation (http://www.sohostation.org), anassociation for people who work from home. Pulliam recommendsentrepreneurs look close to home for the three crucial areas ofcoverage:

1. Medical: A spouse or parent whosehealth insurance policy can extend to cover you is the idealoption, Pulliam says. Otherwise, investigate joining your industrytrade association or local chamber of commerce; many offersignificant savings on health insurance.

2. Business equipment and liability:To insure your equipment and protect your home office againstliability if a client is injured on site, contact the company thatissued your existing homeowners or renters policy and see if youcan purchase a rider on your current policy to provide property andliability coverage. If you're getting new coverage, shop aroundfor a price, since costs vary widely.

3. Data: Backing up data is anotherform of insurance, says Pulliam, who uses Iomega Zip disks to storehundreds of her business's files.

Pulliam's final insurance recommendation: Make sure you keepa fire extinguisher handy. "It's such a no-brainer and soinexpensive," she says.

The following groups and associations can provide helpfulresources for homebased business owners seeking insurance:

The American Home Business Association: (800) 664-2422,http://www.homebusiness.com

Co-op America: (202) 872-5307

Home Business Institute: (888) Dial-HBI, http://www.hbiweb.com

National Association for the Self-Employed: (800) 232-NASE,http://selfemployed.nase.org/nase

Small Business Service Bureau: (800) 343-0939

Zoning In

Before Jim McCarthy launched McCarthyCommunications in Washington, DC, he checked with district codeofficials to see if having employees and client visits would betolerated. It would, they told him. Ditto for Sarah Steinman, whoruns Casco Bay Herb Co. from her home in Cumberland, Maine.

Both entrepreneurs benefited from local governments attuned tothe needs of the modern working family, they say. In fact, with DCin dire financial straits, Congress created dual-use or enterprisezones to keep white-collar workers in the city. "I'mlocated in one of these, so zoning hasn't been a problem,"says McCarthy.

Many cities nationwide allow homebased businesses--with a fewcaveats. In the most restrictive areas, expect bans on signage,customer visits, manufacturing or storage of goods on-site--oranything else deemed to negatively impact a residentialneighborhood. Your first call should be to the county or city codeenforcement office to learn how your neighborhood is zoned andwhether--or what type of--home offices are allowed. If your cityprohibits homebased businesses--or your type of businessspecifically--you can appeal to the zoning board or citycommission. Create an argument that outlines how your business willbenefit the neighborhood and what little negative impact it willhave.

If homebased businesses are allowed in your area, expect to payfor an occupational or business license from both the county andmunicipality. Hiding out to save on license fees isn't wise,warns Trina Pulliam, founder of SOHO Station, an association forpeople who work at home. "You're setting yourself up for afine," she says. License fees vary widely, from $10 to a fewhundred dollars annually. Whatever the cost, it's a small priceto pay for staying on the right side of the law.

Smart Deductions

To be deductible, your home office must be used"exclusively and regularly" as a home office--and not dodouble duty as a bedroom or playroom. It must also be the principalplace your business functions are performed, or at least the siteof significant administrative or managerial functions such aspaperwork, billing, appointments and other record-keepingduties.

If your situation fits, a percentage of your monthly mortgage orrent can be deducted as a business expense. Say the room you usesolely for business is 100 square feet, and your home is 1,000square feet. Your home office takes up 10 percent of the home. Justusing the corner of a room isn't deductible, according to IRSguidelines, says Lewis Weinstein, president of TaxLogic (http://www.taxlogic.com), an onlinetax service.

Using IRS Form 8829, compute the allowable, deductible share ofutilities, maintenance, real estate taxes and insurance, mortgageinterest and other expenses. Business telephone lines--or businesscalls made on personal lines--are often completely deductible. IRSPublication 587, Business Use of Your Home, explains thenitty-gritty. (Call 800-829-3676 or download it at http://www.irs.gov)

While deducting your home office reduces the amount of incomeyour business pays taxes on, it also reduces the cost basis on theresidence. That means greater capital gains liability when you sellyour home. (If you rent, you're off the hook.)

Whether or not you take the home office deduction, officefurniture, equipment and supplies are all deductible--just keepyour receipts. And if you entertain customers at the home office(and such visits are allowed by municipal zoning), home upkeepmight be partially deductible.

A tax deduction for health insurance premiums is being phased inover the next several years. By 2003, you will be able to deduct100 percent.

Trina Pulliam, founder of SOHO Station, an association forpeople who work at home, says she saves $1,000 a quarter by doingher own taxes with QuickBooks (http://www.intuit.com) and accountingsoftware from Peachtree (http://www.peachtree.com). Don'tthink you're that tax-savvy? Consult an accountant or taxattorney for specifics on your situation.

Contact Sources

All Things Equal Inc., (305) 538-1103, http://www.loadedquestions.comCasco Bay Herb Co., (207) 829-4071, soapmaker1@aol.com McCarthyCommunications Inc., 5022 Klingle St. N.W., Washington, DC 20016,mccomm@clark.net Jeffery Zbar (jeff@goinsoho.com) is the author ofHome Office Know-How (Upstart Publishing, $12.95, 800-235-8866) andpublisher of Home Office Success Stories, a free e-zine aboutworking from home (http://www.goinsoho.com).