Corporate America has changed. Job security is largely a nonexistent, benefits (if offered) are not nearly what they used to be, and starting your own business is looking a lot less risky. However, starting a small business is no small decision. It may have a major financial and quality of life impact on you and your family. There are often two misconceptions around small business ownership: you’ll get rich and you’ll be your own boss. There is some truth to both, but mostly these are misjudgments for new small business owners. If these are your motivating factors, it’ll be hard to start and run a successful business.
For example, according to the U.S. Treasury’s Office of Tax Analysis, 75% of small business owners make less than $200,000 per year. According to PayScale, small business owners make between $34,000 and $106,000 per year. If getting rich is your main motivation, you may be in for a shock.
That said, despite the countless sacrifices and challenges small business owners face, an overwhelming 84 percent of small business owners would do it all over again. If you’re thinking about taking the plunge and starting a business of your own, there are some key things to consider:
Evaluate your motivation
If you are thinking of starting a business because you lost your job and are having trouble finding a new one, then think about improving your job search. Hire a career coach or get some training. Starting a business is much harder than getting a job, so it's worth the extra effort to look for employment more effectively if that's your true preference.
Also, think about whether you have what it takes to start a business in these terms: No one will tell you what to do (except your customers). You have to be self-motivated, willing to make many sacrifices and be able to last for the long term while your business goes from startup to maturity.
If you want extra money, maybe you should start a side hustle. If you want more freedom, maybe it's time to leave your 9-to-5 job and start something new.
What skills do you have? Where is your area of expertise? How much can you afford to spend, knowing that most businesses fail? How much capital do you need? What sort of lifestyle do you want to live? Are you even ready to be an entrepreneur? Be brutally honest with your answers.
What type of business
Once you decide you have the right motivation for entrepreneurship, you need to figure out the type of business you should start.
Franchise or independent? Service or manufacturing? Brick-and-mortar retail or online? Consumer or business-to-business? There are dozens of different types of businesses, each with its own benefits and drawbacks.
Think of a business idea
Do you already have a killer business idea? If so, congratulations, you can proceed to the next step. If not, there are a ton of ways to start brainstorming for a good idea. The web is full of resources and articles on the top 10, 15 or 50 business ideas, successful businesses to start, fastest businesses to start, etc.
Once you look through these resources, decide on an idea for your business. Methodically, diligently research your idea. Is anyone else doing it the way you want to approach it? What's the competition like? Do consumers and businesses have viable substitutes if they don't choose your product? Does your product really solve a pesky problem? Is the demand going to be great enough in the future, not just for a year or two? Once you're completely convinced you have the virtual better mousetrap, then you can proceed.
Develop a powerful message
What customer problem are you solving that potential customers are willing to pay for? This is often called the value proposition.
Understand your strengths, skills and time availability
Know when you need to engage an accountant, lawyer, insurance agent, marketing specialist, web page designer, or other professional. This will start your management process as a business owner.
Write a business plan
A business plan is a written description of how your business will evolve from when it starts to the finished product. There are dozens of business-plan-in-a-box resources available online. Many are free. Writing a business plan forces you to answer critical questions that you may otherwise ignore if you want to have a strong chance of success. The business plan does not have to be long. You can make it a single page if you don't have the patience to do more. But it should answer these questions:
- What is the purpose of the business?
- Who are my customers?
- What problem does my product/service solve?
- Who is my competition and why is my product/service's advantage?
- How will I price, position, market and support my product?
- What are my financial projections for the business for the next 3-5 years?
Look for how you are going to finance your business
There are many ways you can go about financing your business. I would suggest funding your startup yourself if you can. Bootstrapping your business might take longer, but the good part is that you control your own destiny (and equity). If you require more capital, you may consider reaching out to your friends and family. I like to keep business and personal relationships separate, but there are circumstances that may make this a favorable option for you.
There are traditional funding options as well. These include banks loans, lines of credit, grants, angel investors, venture capital, joining a startup incubator/accelerator, crowdfunding, or even something like Kickstarter.
Manage the Legal and Financial Paperwork
Along with starting a business come a variety of paperwork requirements that can't be overlooked, including:
- Filing for applicable licenses and registrations from the federal and your state's government. Get guidance from your state's Office of Taxation website on which forms you will need to complete.
- Open a bank account. You will find that any business arrangements, including government, vendors, etc. require a bank account. This should be your first order of business after filing your legal name and securing your EIN (Employer Identification Number).
- Secure intellectual property. Even though filing for trademarks and patents is expensive, it's far more costly to battle someone over rights down the line. Also, make sure you acquire Internet domain names that may be important to your business.
- Purchase appropriate business insurance before you begin operations.
Final Thoughts on Starting Your Own Business
No matter what type of business you start—selling physical products, offering up your services on a contract basis, building a digital product, or launching a startup—there are going to be ups and downs. When going into business for yourself, it's incredibly important to set realistic expectations so that you're not winding up disappointed with your progress after the first few months of growing your customer base.
If you decide to take the plunge, then good luck with your new business venture! May you have much success in 2019!