(MONEY Magazine) – NEXT TIME YOU RUSH OUT the door at 6:45 a.m., nervous that the car won't start or that you'll miss the 7:06 commuter run, think about Millie Szerman, 49, phoning clients from her tub (on the cover) or sealing deals from her patio (at right). While you're eager to get to work, she's home free. "It was six o'clock in the morning a few Decembers ago," remembers Szerman. "The phone rang, and I rolled over in bed to pick it up. It was a guest coordinator from the Today Show asking if one of my expert clients could appear that week. She couldn't believe I was already in my office at that hour. If I didn't run my public relations business from home, she might have moved on to some other expert on their list."

In business for herself for seven years now, Szerman has doubled her income since she quit as West Coast regional sales director for Gifts & Decorative Accessories trade magazine and launched her own Redondo Beach, Calif. firm. Within the next three years, she expects to boost the $70,000 a year she currently pays herself to six figures (see page 83 for more about her start-up).

She's in good company. More than 13 million Americans--25 million if you count part-time moonlighters--are now running their own businesses from home. Roughly half of these are service firms, from consulting practices to graphic design, according to a recent AT&T survey. The rest: sales (17%), technical and administrative support (15%), repair services (11%) and the arts (5% or so). Another 6 million Americans work for corporations from home an average of a day and a half a week.

As those numbers attest, a high-income home business is within your reach more than ever before. Sound like a fantasy? Guess again. The majority of the new biz soloists are career veterans, well paid at about $45,000 in their old jobs and well educated: 37% are women, 63% men. They're typically around 49 years old and are twice as likely to have a college degree (40%) than the average adult (20%).

Home entrepreneurs also make good money. Full-time home-business owners earn an average of $58,000 annually, according to the New York City market research firm IDC/Link. Many do much better. "It's not uncommon to find six- and sometimes seven-figure incomes among people working at home," says Paul Edwards, co-author of The Best Home Businesses for the 90s (Tarcher/Putnam, $12.95). Indeed, in an exclusive MONEY poll conducted a few weeks ago by the ICR Survey Research Group based in Media, Pa., 20% of U.S. home entrepreneurs reported that their businesses grossed between $100,000 and $500,000 last year, while 14% paid themselves annual salaries of $50,000 to $250,000. In all, we can calculate that, today, about 500,000 home-business owners as well as 1.2 million telecommuters earn more than $100,000 a year (see the box on page 80 to learn how you can telecommute).

The fact is, there's little you can't do from home. "I can do the same work that huge companies do," says Todd Abrams, a 46-year-old former senior vice president and group account director for the advertising firm D'Arcy Masius Benton & Bowles. Abrams launched a strategic marketing practice from an airy loft in his suburban St. Louis home last year (see his profile on page 79).

To find the best way to help you join the ranks of home-business top earners (see the box below), MONEY interviewed dozens of mar- keting pros, economists, accountants, lawyers, trend spotters and home-business consultants as well as 30 hands-on home-business owners. Here's how you can take the plunge and survive in style:

NAILING THE IDEA: BEFORE INSTALLING ANY HIGH-TECH HARDWARE, INVEST IN TARGETED RESEARCH

You can't walk into CompUSA without feeling a surge of technolust. But 16 megabytes and a 28.8-baud modem won't power you up to a six-figure enterprise. The substance of your business is the product or service you offer, so focus first on finding a viable concept. And proceed with caution.

"There are thousands of get-rich-quick schemes aimed at aspiring entrepreneurs," says Timothy Hughes, a senior staff attorney for the Federal Trade Commission (FTC). Obvious losers include such opportunities as servicing pinball machines or bronzing baby shoes. And the only one you'll enrich by calling a 900 number promoting work-at-home ventures is likely to be the swindler at the other end of the line.

You should also guard against sophisticated scams, particularly franchisors that charge suspicious initial fees of $495. The reason: The FTC requires franchisors who charge $500 or more to file disclosure documents that must include the franchisor's background plus the names, addresses and phone numbers of other franchisees. (For more information, see "What You Need to Know to Get into Franchising," MONEY, September 1995.)

If a pitch seems suspect, check whether any complaints have been filed with your local consumer-protection agency and the state attorney general's office.

You should also be trolling for your home-business brainstorm by scanning trade association newsletters, canvassing business contacts and investigating futurist books. While you're at it, keep these pointers in mind:

FIRST BUILD ON YOUR SKILLS

Start exploring opportunities where you can leverage your experience and contacts. And before quitting your regular job, be alert to special projects. For example, a two-year assignment to create a new marketing branch gave Todd Abrams "the experience and insights into how I could work as a consultant after 22 years in corporate America." He adds: "I always wondered whether I could earn as good or better a living on my own. Well, I can." Less than a year into his new venture, he's already making six figures. He adds: "I think I'll eventually outearn what I made at the agency."

Similarly, Julie Kaufman, 44, turned her 10 years of experience in market research--the last two for CooperVision in San Jose--into a successful business at home. Unlike Abrams, Kaufman was pushed out of her job in 1986 when the contact lens firm reorganized. "Specializing has helped me get contracts," she says. By focusing primarily on market research for pharmaceutical companies, she now consistently earns more than $100,000 annually, better than double what she made at CooperVision. Moreover, she can arrange her 25- to 60-hour workweeks around her husband and kids, ages 11 and nine. "I don't miss the corporate life at all," she says flatly.

A home business may also be an inexpensive way to parlay an avocation into an occupation. That's what Elizabeth and Franklyn Cyran, 44 and 48, of Ware, Mass. did. Four years ago, she was an insurance auditor and he was a radio disk jockey when they began their Silver Ridge Photography firm in their 10-room colonial farmhouse. "We're doing something we love, and people are paying us to do it," says Elizabeth, whose company now grosses $50,000 a year in commercial and special-event photography.

FIND OUT WHAT YOUR CUSTOMERS WANT

Just because you invented a musical refrigerator doesn't mean anyone is going to want to sing along with it. "Your business has to fill a need--or it will fail," says Philip Kotler, professor of marketing at the Kellogg Graduate School of Management at Northwestern University in Evanston, Ill.

How do you identify which services or products will be in demand? Create your own focus group, suggests Kotler. Invite several friends and potential customers to discuss what you might sell. "By listening to them talk about your product," says Kotler, "you'll gain a clearer idea of what they would likely buy."

TAP INTO THE TRENDS THAT WILL PAY OFF

Successful entrepreneurs possess an uncanny ability to foresee economic and social shifts. Just look at 10 of the top income-producing home businesses listed in the table on page 76. Most build on such current trends as corporate outsourcing, technological advances and the nation's increasingly diverse marketplace. Marie Racioppi, 50, of Cranbury, N.J., for instance, grosses "well into six figures" teaching global companies like AT&T how to market to women, minorities and other underserved customers. A former systems analyst for Prudential Insurance, Racioppi was introduced to the training field when she teamed with Katherine Kish to start Excel, a statewide entrepreneurial training program offered by the New Jersey Association of Women Business Owners. "We enjoyed the program so much we thought there had to be a business in there somewhere," she says.

That training program gave them contacts and a high profile. Still, getting businesses to sign on for their services took persistence--and many working hours, which is not unusual. Home entrepreneurs average nine more working hours per week than do corporate managers--53 vs. 44, according to the AT&T study and the Bureau of Labor Statistics.

"We did it the old-fashioned way," says Racioppi, with a laugh. "You knock on the door, and you knock on the door, and you knock on the door."

Robert O'Kelly, 57, found his niche by investigating the rapidly changing health-care industry after being forced into early retirement by Transamerica Insurance Group. The former systems programmer figured that medical billing perfectly complemented his experience. Two years ago, he moved from L.A. to Las Vegas to start his business (see page 81 for more about O'Kelly).

While you're spot-checking trends, don't sell yourself short because you lack experience. Darwin Stephenson, 35, of Dana Point, Calif., for example, launched a home business creating Websites for sports and entertainment companies, even though his background was in computer sales, not programming. Stephenson knew the jargon but little more. When he needs help, he hires freelance pros and graphic designers. "I'm not a code cruncher," he admits. "I just bring in hired guns." After four months in business, Stephenson is grossing $60,000 and has $500,000 in projects lined up for '96.

CHECK THE LOCAL REGULATIONS

Before investing much money or time, call the local zoning board, community development office or planning department to learn about any restrictions on home businesses in your area. While zoning regulations rarely trouble typical home-business owners, most cities do prohibit some enterprises from operating out of the home--particularly those that may cause pollution or traffic problems. Municipal regs also usually limit your home business to two employees, says Marya Morris, a senior research associate with the American Planning Association, a national city planner's group in Chicago. For instance, Carolyn Vertin, 60, who, along with her husband Len, 64, runs a home-based software and accounting business in Santa Cruz, Calif., says, "Our city planning department was delighted to give us a business permit, but we can have only one employee and no more than six client visits a day."

EARLY STRATEGIES:

DON'T QUIT YOUR DAY JOB, AND FOCUS ON TAX AND BENEFIT PLANS

If you think coming up with a moneymaking idea was tough, brace yourself. Next up: securing funding, setting up an accounting system and purchasing health, disability and life insurance, perhaps for the first time in your life. That could take months and eat up lots of cash. So unless you've already been pink slipped, "keep your present job and ease your home business into a full-time venture," suggests Carolyn Tice, executive editor of Home Business News, a quarterly magazine of the American Home Business Association in Salt Lake City (free with $39 enrollment fee and $119.76 annual membership; 800-664-2422). Ideally, take these four steps to put your business on solid ground:

WRITE A DETAILED BUSINESS PLAN

Describe your business and customer base, a marketing plan, estimated start-up costs, operating expenses and projected income. "More than anything, our five-page business plan forces us to decide how we are going to market our business," says Racioppi. It should also tell you how much money you need to launch your enterprise--and keep it going until it becomes profitable. John Jagoe, a 59-year-old home-based export agent in Bloomington, Minn., earns $200,000 today, but poor planning made his initial years rough. "My biggest mistake was not having a detailed, three-year plan when I started," says Jagoe, who has been in business at home for more than a decade.

"Entrepreneurs must know where they're going," says Marvin Garellek, whose software program Plan-a Business Plan provides a prewritten, 90-page business plan you can customize ($69.95; 800-644-4892). "If you ask how much they plan to make this year," continues Garellek, "nine out of 10 new-business owners won't have an answer."

Need more guidance? Check out How to Prepare and Present a Business Plan by small business expert Joseph Mancuso (Simon & Schuster, $15). A detailed written plan is your best shot at convincing someone you're worth backing. You'll also need six months' worth of living expenses or more, depending on when your enterprise starts paying you enough to live on. (Note: Your business plan should include an estimated and conservative break-even date and six months to five years of projected revenue.)

Besides your local bank, consider applying for a loan to the Small Business Administration's Microloan Demonstration Program (202-205-6490). These loans of up to $25,000 carry interest rates of about 10.4%, depending on the amount of the loan and the payback schedule. But persuading lenders to finance your start-up is difficult. That's why "people overwhelmingly end up self-financing," explains home-business expert Paul Edwards.

ALWAYS RUN YOUR BUSINESS LIKE A PRO

Don't expect to get by with a tinny answering machine and a typewriter. Almost any home start-up requires roughly $3,600 to $8,500 for the basics: a Pentium PC with a modem, fax machine and laser-quality printer. The telephone is critical too. You will need a dedicated phone line so the kids can't pick up while you're talking to a client. Subscribing to the local phone company's voice-mail system can also be a help, advises Aimee Stern, editor of the newsletter the Marketing Report ($264 for 22 issues a year; 800-220-5000). "It's important to make your home-based company look as big as you possibly can," she explains.

Once you've furnished your digs--ideally a separate room in your house for privacy and tax-deduction purposes--get a policy to cover your equipment and inventory ($150 to $225 a year, depending on your business and location for $5,000 on-premises and $1,000 off-premises coverage). Phone your local insurance agent for an in-home business policy.

PREPARE FOR THE IRS

The Internal Revenue Service is especially suspicious of small businesses. Audit rates of unincorporated businesses earning less than $25,000 doubled in the past year or so--from 2.2% in 1993 to 4.4% in 1994. If that's not enough motivation to maintain organized records of your expenses and income, just listen to Tom Wotherspoon, a 43-year-old advertising copywriter in Delray Beach, Fla. whose $6,500-a-month, 10-year-old home business was audited in 1986 and again in 1991. "The agent looked at every page in my mileage log and pointed at random to a trip and asked why I needed to go," he says. Fortunately, Wotherspoon kept a detailed appointment book. "I have a page devoted to each day," he says.

But Wotherspoon tripped up in one place: He failed to keep separate accounts for business and personal expenses. "In 1991, all my business expenses were written on personal checks," he says. "I needed a better division on paper." Fortunately, the IRS did not penalize him, though the agent strongly suggested that he keep his accounts separate in the future.

One of the biggest tax advantages to running your business from home is the home-office deduction. To qualify, however, you must 1) use the office regularly and exclusively for business and 2) maintain it as your principal place of business. If you meet these tests, you can deduct a portion of most home expenses, such as flood or casualty insurance, utilities, wages for a house cleaner, maintenance, property taxes and your mortgage interest (or rent).

To calculate what percentage of these items you can deduct, first figure the square footage of your office and then the percentage that is of your overall home. For instance, if your office occupies 400 square feet in your 2,000-square-foot house, you can deduct 20% of the household expenses listed above. One cautionary note: Congress is considering legislation that would require you to pay taxes on any home-office depreciation expenses you claimed in the past when you sell your house. To keep abreast of legislative proposals affecting your business, you may want to join the Small Business Survival Committee, which offers a bimonthly newsletter ($25 basic annual dues; 800-223-7526; http://www.sbsc.org).

Because home-office deductions have become an audit trigger, says Martin Kaplan, an accountant and author of What the IRS Doesn't Want You to Know (Villard Books, $13.95), you may want to incorporate your business. "Owners of a partnership or an S corporation aren't required to fill out a special form to report home-office deductions," says Kaplan. But they can still claim the same expenses. In fact, S corporations are similar to regular corporations in that they have limited liability against creditors, but like sole proprietorships, they receive favorable tax treatment. Yet they boast audit rates of only 1%, compared with as much as 4.4% for unincorporated businesses earning less than $25,000.

You don't necessarily need a lawyer to incorporate your business. Simply get in touch with your state agency that handles corporations and request a form to incorporate. Once you fill out the form, it can take up to six weeks to become a corporation. That will cost you from $35 to $900, depending on your state. For a more complicated setup, a lawyer can take it on for $250 to $1,000, in addition to state fees.

But before you make the choice, consider these two disadvantages to incorporating: 1) you'll have to fill out corporate tax returns or have an accountant do it for $500 or so a year and 2) you may have to pay annual state fees--usually $30 to $800--to maintain your corporate status. If you still want to incorporate, says Kaplan, then name your business anything but your own name or initials. If you do, the IRS may assume that you are operating a home business, which is more likely to trigger an audit.

SECURE YOUR BENEFITS

Losing health insurance is a major reason people don't want to leave their jobs, says Jeff Smedsrud, executive director of Small Office Home Office/America, a Minneapolis trade group. Unless a spouse or partner can carry you on his or her employer's plan, health insurance takes a big bite. To find affordable coverage, call your chamber of commerce or professional and fraternal associations, many of which offer group plans. Or try calling Wilkinson Benefit Consultants (800-296-3030), which charges $270 to analyze the best three carriers' policies for your needs.

Then, don't forget about retirement. However much you love working at home, you may want to hit the greens someday. Consider setting up one of the following: a simplified employee pension (SEP) that allows you to stash up to 13% of your net annual earnings but no more than $22,500 (after you've deducted half of your self-employment tax and if you're unincorporated), an Individual Retirement Account, to which you can contribute $2,000 a year, or one of two types of Keoghs. To learn more, check with your accountant.

GROWING THE BIZ INTO SIX FIGURES: LEARN TO NETWORK AND TO SELL, SELL, SELL

Now for the fun. To run a home business, you must perform every role--from product developer to bookkeeper--with the finesse of a proven pro. But you can't pull that off without also becoming a first-rate salesperson. No one's likely to believe your product, skills or service is better than the next guy's unless you convince him. "If you own a business, you are in sales," agrees Shawn Amara, 28, of Plantation, Fla., who started a personalized children's book business with his wife Stephanie, 28, in 1993 (see page 77 for their story).

Unfortunately, many people are uncomfortable peddling a product. If so, consider signing up for what marketing professor Philip Kotler dubs charm school--that is, an evening course in sales from a local university or college. You might also look into the effective Dale Carnegie sales, negotiating and management classes (800-231-5800 for locations nearest you). But only practice will give you the confidence to keep knocking on doors. "I recommend that home-business owners devote one whole day a week to sales," says Karen Wilson, president of the Momentum Group, a marketing and advertising firm in East Longmeadow, Mass.

And get used to rejection. "I'm a guy, but I'll say it anyway," confesses Amara. "There are days you feel like crying. But there are also days when you come home and pop the cork on champagne." To increase your chances of making the sale, follow these three commandments:

KNOW THY CUSTOMER

Kotler evaluates potential customers as cool, warm and hot prospects. Businesses, he says, spend far too much time trying to warm up the coolest folks. His advice: "Spend your energy finding and wooing hot prospects." And get to know your customers intimately--from the magazines they read to the associations they join. Shawn and Stephanie Amara, for instance, turned their family and friends into a market test. They passed out personalized books and surveys to learn the type of person most likely to buy their kids books.

TEST-DRIVE YOUR MARKETING IDEAS

Ask friends and potential clients for feedback on your advertising and promotion materials too, whether it's a Web page, a direct-mail package or a newspaper ad. Even run your sales letters by people you know. If you plan to rent a list of prospects from a direct-mail company, Stern recommends you test that as well. "Buy a small quantity--10% to 20%--of names and see what kind of response you get," she says. "Before laying out any cash, ask the mailing house for a list of clients to call for a reference check."

DON'T BECOME HOUSEBOUND

At the least, get out to meet customers. For instance, joining dental associations and attending medical conferences keeps Garrett Ludwig, 47, of Hartford, who designs dentists' offices, plugged in. "You have to build faith before people invest thousands of dollars," says Ludwig. He also gains confidence by offering seminars on office design to clients.

IDENTIFY YOUR STRENGTHS AND LEVERAGE THEM AFTER THE FIRST FEW YEARS

As your business grows, stay focused on what you do best. Then hire the expertise--freelance, if need be--that will let you do more. Bookkeepers, lawyers or clerical help can handle time-consuming tasks. "People who work 90 to 100 hours a week are not necessarily doing well," says Edwards. "You need time to renew." Most important, don't undersell yourself. "To make six figures, you have to charge adequately," advises Edwards.

In the end, though, the rewards of being your own boss aren't measured only in dollars and cents. "When that check arrives from a client," says a fired-up Todd Abrams, "it's much more gratifying than when you receive a paycheck. That's because you earned it from something you created on your own."