More Americans are starting to work for themselves. The Kauffman Index tracks entrepreneurialism and found that small-business creation rose in 2015, reversing a downward trend that lasted six years. “Though small-businesses activity is increasing, activity has just surpassed pre-recession levels on some measures and collectively remains just above the historical norm,” the Kauffman Foundation reported.
The idea of being your own boss is very enticing. It’s the idea of creating something which you are passionate about, something which makes money and, in turn, allows you to spread the wealth.
However, before you quit your day job (don’t do it yet!), here are the top, best, most useful ways to go about starting your own business.
1. Ask yourself some tough questions
We all think we can run the show, but do we really have the right personality? Before starting a small business, ask yourself:
— Am I a risk taker?
— Can I live on peanut butter and jelly sandwiches for the next two years?
— Am I willing to have no life, take no vacations and work round-the-clock for the foreseeable future?
— Can I solve problems on my own, or do I need other people to help me?
— How much do I love this idea? As billionaire Mark Cuban once said, “Don’t start a company unless it’s an obsession and something you love.”
2. Make a plan
The Small Business Administration has a variety of tools to take you through the process of setting up a business. You need to create a three-to-five-year business plan, determine your target audience and how to reach it, realistically project revenue (which won’t be accurate, but at least try), estimate your start-up costs and figure out when you’ll break even based on fixed and variable costs.
3. Set up the business
What form will your business take? The most common form is “sole proprietor,” meaning YOU are the business. Other structures include becoming a corporation, limited liability company or S corp. Will you form a partnership? Figure out what percentage of the business each of you owns. The SBA explains the various business forms on its website, but you should also check with your tax specialist.
Next you’ll pick a business name and register it with state or local authorities if it’s different than your legal name. Also, make sure the name is legally available. Some websites will check name availability for free.
After this, open a bank account under the business name. Finally, check with local and state government to make sure you have all the necessary business licenses or permits to start. Sometimes you don’t need any … but usually you do.
4. Get funding
Bootstrapping your new business? Good for you! For those needing outside investment or loans, the choices range from a traditional bank to Kickstarter. The SBA provides information on special loans which the government will provide to things like minority- or women-owned businesses.
When approaching banks or investors, provide research proving your plan will make money. They’re not going to invest in an idea. Hone your pitch. One of the best examples of the evolution of the pitch is in the podcast “StartUp” by Alex Blumberg, where he chronicles how he created a company called Gimlet Media. Blumberg’s original pitch to super-investor Chris Sacca was horrible, and if Sacca had not taken pity on Blumberg and given him pointers, Gimlet might never have gotten off the ground. (One thing Blumberg also learned: investors seemed to react better once he got a partner.)
5. Work, work, work
Prepare to work harder than you’ve ever worked in your life. Harder than you thought possible, especially if you keep your day job as a safety net. You will learn things you never realized you needed to learn, very little will go according to plan and you will consider giving up. And then maybe, just maybe, you’ll turn a corner. Your risk will find its reward. As Cuban said, “Sales cure all.”