Forget picket fences and pensions. The most modern incarnation of that nebulous beast, the American Dream, is being your own boss.
The number of entrepreneurs and small business owners in the U.S. has been steadily rising since 1994 (minus a dip following the 2008 recession), and 27 million Americans identified themselves as entrepreneurs in a 2015 study. The be-your-own-boss bug is beginning young, too. A 2017 Gallup poll found that 40 percent of students, grades 5 to 12, plan on starting their own business at some point.
But considering that just over half of small businesses fail within the first four years, the prospect of creating one can justifiably be daunting. Here are nine steps anyone who’s considering joining the ranks of the self-employed should definitely consider taking.
1. For starters — have an honest conversation with yourself.
The worst mistake you can make is underestimating just how much of a lifestyle change starting your own business will be. Do you have the necessary qualities, like being extremely self-motivated, tenacious, and risk taking? How about time — are you willing to let this business dominate your life? A lot of people assume that being your own boss means having all the schedule flexibility you could want, and maybe it will be that way — eventually. But that’s certainly not what to expect for the first few or even several years.
Make sure your motivation is coming from the right place, too. Is starting a business something you specifically *want* to do, or is what you’re really after simply the permission to quit a job you hate?
2. Assess if there’s truly a market for your idea.
Is your potential market large and growing, or is the space crowded already? Shop your idea around to (trusted) family and friends. Do they see a real need for it? If the service or good you want to provide is already out there, figure out what would set yours apart.
You could also fork out the cash for market analysis data from a research firm.
3. Make a budget, then find investors.
Even though startup costs have fallen dramatically, you still need to budget for and finance a good idea. Depending on the type of business you're starting and the business model you adopt, startup costs can vary dramatically. How much money will you need to spend before you start seeing a return?
It’s a tried-and-true fact of business that before you can make money, you’re going to have to spend it. If at all possible, talk to those already established in your desired field about their expenses, including any hidden costs they’ve encountered, and plan to include in your budget an extra 20 percent for incidentals.
If you’re intending to seek financial support from an investor or bank, you’ll also need to write a formal business plan (though you should really plan to do that regardless of investment needs).
4. Choose your business structure.
Will you have a Sole Proprietorship, Partnership, Limited Liability Company (LLC), or Corporation? Your structure will impact several things, including your business name, liability, and taxes. As you test your business’ viability in the beginning, it’s often suggested to go with a Sole Proprietorship. You can always change the structure later on if you determine another would better suit your needs. Limited liability companies have their benefits too, especially if you intend to start a business with a partner. The right kind of business structure is important depending on your goals and the number of shareholders and stakeholders you have.
5. Register your business name — and secure your social media accounts and website domain while you’re at it.
Small businesses in the U.S. are still lagging behind when it comes to web presence; a 2016 poll found that 46 percent don’t yet have a website, surprisingly. But given that more than 80 percent of consumers do online research before making a purchase, this isn’t an area you can afford to overlook.
If you have your heart set on a certain name for your business, make sure it can be translated to an available web domain and social handles. Otherwise you’re setting yourself up for a major headache down the road — and limited marketability.
6. Acquire the necessary permits and licenses.
There’s a lot of red tape out there. Rolls and rolls of it, in fact. This may be the least exciting part of laying the groundwork for your new business, but it’s one of the most important. The U.S. Small Business Administration has tons of resources out there for prospective business owners, including information on state and federal permits and licenses. You may have to register as a business and receive a business registration certificate from your county clerk office or other local authorities, depending on what kind of business idea and target market you have.
Will you have employees? You may know you have to pay wages but did you know you can also be liable for worker compensation taxes and fees such as paying into your state unemployment insurance fund? Your business plan should account for these kinds of expenses.
Even if your business doesn't make a cent of profit, for example, you will have to think about registering as tax entity and getting an employer tax identification number. If you start selling goods or services, you will also have to think about your sales tax collection and reporting and accounting systems. The answer to whether you have to charge tax (and how much) will be to some extent based on who your customer is and where he/she/it resides.
7. You’ll need insurance, too.
Check out this handy list of types of insurance that every small business owner should have, and plan on getting General Liability Insurance at the very least.
8. Adding a separate bank account for your business is also wise.
Mixing your personal and business funds, even in the beginning when your business is young, will likely culminate in a lot of stress on your end, especially when it comes time to file taxes. You should be able to set up a free business account at your local credit union or bank pretty easily.
9. Determine the location for your business — but only if you absolutely need one.
Some businesses — like a restaurant, for example — mandate having a brick-and-mortar location. If your business requires a storefront, you’ll have several factors to consider in choosing the most fitting one, including accessibility, proximity to competing businesses, ordinances, and targeted demographics.
If your business doesn’t technically necessitate a storefront or office space, though, then consider circling back to this step once you’re working with some actual revenue. Plenty of people are launching successful, even billion-dollar businesses from their home’s spare bedroom or garage. Don’t take on unnecessary expenses you can’t yet sustain for appearance’s sake.
10. Finally — make sure you have a stellar support system in place.
Be it friends, family, or professional advisers (like a lawyer or accountant), you should be heading into your new venture fully acknowledging you’ll require a helping hand — or, more likely, several — along the way. If asking for help is something you struggle with, now’s the time to recognize that behavior as counterproductive to your success and therefore part of your pre-entrepreneurial life. You’ll need plenty of guidance during the inevitable trying moments ahead — and people to toast to your successes with, too.
Keep these things in mind as you perfect your business idea and elevator pitch. These are the important logistical points that will bring your idea from dream to reality!
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