All businesses must start somewhere. While many startups seemingly pop up out of nowhere – fueled by venture capital and angel investors – others have more humble origins.

Many people operate small businesses out of their homes. Commonly referred to as cottage industry, modern home-based businesses function thanks to digital services and other technology.

But what happens when your so-called cottage industry outgrows your cottage? It’s time to turn your home-based business into something more established. What that entails will ultimately depend on the product or service you’re selling. However, virtually all cottage industries will need the following in order to graduate to small business:

Many home-based businesses operate without the proper licensing and other legal requirements. While you can probably get away with making candles in your garage, things get more complicated when the business grows into something more official. Consult the Small Business Administration’s guide to starting a business to learn what you need to do to make sure everything is nice and legal. From permits to zoning, the last thing you want is to have your expanded business shut down due to violations. With this in mind, make legal requirements the first thing you figure out when taking your cottage industry to the next level.

Order fulfillment

The majority of home-based businesses rely on e-commerce solutions to connect with customers. When these ventures expand into full-fledged small businesses, owners must scale their e-commerce tools accordingly. For instance, third-party order fulfillment services help keep logistics streamlined, letting small business owners focus on running their company rather than monitoring shipments. These solutions also help to keep costs low.

Better website

Chances are your cottage industry enterprise has some sort of online presence. While a basic website works for the side-hustle stage of your business, expansion means enhancing that presence to match your growth. You need a business website with functional design and a practical interface. Visitors shouldn’t be confused about where to go to make a purchase. Consider hiring a web designer to help build a website worthy of your newly established small business. Doing so will cost more than doing it yourself, but having a solid business website is too important to leave to chance.

Dedicated workspace

The most significant and noticeable change from cottage industry to small business is the transition from a humble home-based work environment to a dedicated facility. Finding the right workspace takes time, so don’t rush. We recommend local industrial courts, as these tend to be where the most affordable and practical commercial space options can be found. However, an unmarked facility buried behind dozens of other buildings might not be the best option if foot traffic is a factor. Consider working with a commercial real estate expert to find the best workspace for your small business.

Equipment upgrades

Another scalability concern involves the equipment and machinery needed to produce products at the rate required to serve more customers. For instance, a little inkjet printer will no longer be practical for printing labels. You’ll need an industrial-grade label maker. The good news is for most business equipment, scalability will be straightforward; you’ll need to swap small versions for bigger ones. Consider buying certified preowned machinery as a way to save money.

Hiring staff

Chances are if your cottage industry had workers, they were family members helping out. But now it’s time to hire legitimate employees. While the hiring process may seem difficult out of the gate, the experience will make it easier over time. The hard part will be getting people to apply for jobs at a company they’ve never heard of before. With this in mind, consider working with recruiters.

Getting insurance

Business insurance is an essential feature of any small business. Since most homeowner’s insurance policies don’t cover business-related activities, you should already have some form of separate insurance coverage for your cottage industry business. But now that you’re shifting into a full-fledged business, your insurance coverage will need to expand as well. The good news is most business insurance policies are relatively affordable.


The fanfare your company gets from its existing customer base will not be enough to spread sufficient brand awareness. You’ll most certainly need to invest in startup marketing to reach the desired audience. Fortunately, digital marketing solutions provide small businesses with an affordable way to increase brand awareness and boost sales. Given the high likelihood of your business having a predominantly digital presence, digital marketing will not only prove cost-effective, but practical as well.

Are you gearing up for your cottage industry or side hustle to graduate into a legitimate small business? If so, there’s a lot of work to be done. The good news is once phase one is complete, there’s a good chance your newly minted small business will hit the ground running.

Julie Steinbeck is a freelance writer from Florida. She enjoys covering topics related to business, finance, and travel.