Entrepreneurialism is part of the American dream, and let’s face it, owning a small business is the best kind of independence there is.
According to Forbes and the SBA, approximately 543,000 new businesses get started each month. That’s the good news.
On the flip side, more employer businesses shut down than start up each month.
In honor of Independence Day, we’re focusing on how to make the leap to self-employment. Whether you’re looking to start a business right out of college or ready to make the move from a nine-to-five job, here are some tips and considerations for getting started.
Assess your personal readiness
As satisfying and rewarding as business ownership can be, it’s hard work and takes a certain type of character to succeed. The biggest thing you’ll notice is that the buck stops with you and the hats you’ll wear are many: salesperson, accountant, marketer, IT support, and so on.
Give it some careful thought. One way to break into business is to start out as a freelancer or consultant. Ask yourself these seven questions to gauge whether this could be the right approach.
The SBA also offers a number of resources that can help you assess your readiness, including 20 Questions to Ask Before Starting a Business and Is Entrepreneurship Right for You?
Check out organizations like SCORE and your local Small Business Development Center (SBSC). They can both help you prepare yourself.
Understand the costs
Can you even afford to start a business? Will you need financing to get you started? How much will you need? Calculating the cost of starting your business will help provide answers.
Startup costs fall into two buckets: expenses and assets. Expenses are incurred during the startup phase and include everything from office supplies to paying a designer to help you build your website. These costs are also tax-deductible. You can also throw in the cost of incorporating your business and other associated legal fees.
Assets are one-time costs, such as buying inventory, vehicles, property, etc. and, unfortunately, don’t typically qualify for a tax deduction, although some can be depreciated.
Take time to define your expenses and asset costs. For many businesses, especially home-based businesses and freelancers, these might be quite low. Don’t forget your living expenses too. Create a cash flow forecast so you can see when how the flow of cash in and out of your business will impact your cash situation for the next 12 months. Incorporate the results into your business plan and address how these costs will be recouped.
Have a series of mini plans for your business
Everyone needs a plan. The good news is that it doesn’t need to be encyclopedic.
Focus on the “planning” steps, and not the “plan” itself. Review your overall business goals and then think about how each function of your business can help achieve those goals. For this you’ll need mini-plans: one for marketing, one for IT, one for operations, one for sales, one for staffing, and so on.
If you have plans for growth overseas or into a new market, you’ll need a separate plan for that too. Set a budget, goals, and measurables for each mini-plan and revisit them once every week or two. Breaking your plans down into smaller chunks will help keep things manageable and keep you from feeling overwhelmed.
Get savvy about taxes and regulations
Business ownership comes with a legion of regulatory and legal responsibilities. Here are some of the things you’ll need to keep in mind:
- Registering your business name
- Incorporation (or not)
- Forming a partnership (see also How to Split Profits in a Business Partnership)
- Applying for the right licenses and permits (even home-based businesses need these)
- Registering with tax authorities (state, local and the IRS)
- Employment law
- Paying estimated taxes
- Intellectual property
- Contracts
- Business insurance (not the law, but highly recommended)
It’s a lot to take in. Educate yourself by talking to other business owners. Attend as much training as you can (SBA’s Learning Center and your local SBDC can help). Consult an accountant and tax preparer. That first consult is often free and can be very valuable, especially when you’re just getting started.
Build your entrepreneurial support system
Other business owners, mentors, and online communities are just some of the many sources of support for entrepreneurs. They can help you deal with your questions, challenges, and anxieties. Put one in place as soon as you can.
Rieva Lesonsky offers some tips as to who should be on your team and where to find support.
Bottom line
Independent business ownership and self-employment is massively rewarding. But do your legwork—plan, prepare, consult, and educate yourself. Even if you’ve done your research and know that there’s a market screaming out for your products or services, don’t neglect the backbone of your business: you. Get to know your obligations, needs, and aptitude before you make the leap.
