Owning your own business may seem like the epitome of the American Dream. You can be your own boss, keep your own schedule, and answer to nobody but yourself – no wonder so many people idealize being a small business owner.
However, while working for yourself can seem ideal, most people are not prepared for the amount of time, money, patience, and research that starting a business entails.
What Do I Need to Start a Business?
To determine whether starting a small business is right for you, it’s essential to know what will be required of you to start and maintain your endeavor.
Having sufficient time is one of the biggest stumbling blocks for many people who want to start their own business. One of the most important skills you need when balancing a day job with running a small side business is good time management skills. Learning to prioritize tasks is difficult, but if you fail to do so, you may end up alienating customers and vendors that you need to work with. Learn to take care of jobs that must be done immediately as soon as possible, and delay doing the projects that you know can wait.
Prioritizing business tasks is key, but it doesn’t stop there. Prioritize personal tasks as well to make sure you can carve out sufficient time in your busy day to devote to your startup.
Starting a business requires cash (or credit) up front, and buying an existing business often requires a large lump sum payment. Unfortunately, many people want to start a business precisely because they don’t have any money. This can lead such unprepared entrepreneurs to bury themselves in debt.
It’s simply a fact that your business will need capital, and while investing more money in a business can’t guarantee its success, you can pretty much guarantee the failure of a business that doesn’t have enough. To avoid this situation, thoroughly assess how much you need to start your business and maintain operations. Then, treat that as your baseline, knowing that you will likely encounter several unexpected expenses along the way.
A few basic business expenses include:
- Business cards
- A website
- Advertising designs
- Accounting software
- Mailing supplies and postage
- A credit card processor account
Drive and ambition aren’t enough – sometimes the early bird gets the worm, and other times slow and steady wins the race. Be patient, and don’t fall prey to these common misconceptions:
- Don’t Expect to Turn a Profit Immediately. Many people get discouraged when they end each day with less money than they started with, even if they made sales. It takes time and a certain volume of sales to see forward progress, and there will always be days that are slow. Be aware of your monthly “nut” – i.e., the amount you need to clear in order to break even – and make that your goal, not cash in your pocket at the end of every day. When a business is getting off the ground, it can take a while before the profit reaches or exceeds the fixed monthly costs you incur to run it.
- Expect Mistakes. I’m still kicking myself for things I did wrong in the early days of my first business. But while those mistakes cost me money, I learned from them, and I have used that knowledge to prevent similar events from occurring again. Mistakes can be valuable experiences.
- Realize That You Can’t Make Everyone Happy. Unfortunately, the customer is not always right, but you can’t let it get you down. For example, if you let one credit card chargeback ruin your day, you may lose other sales because you can’t focus on your job or provide good customer service. Research your industry and market to get a sense of what the customer expects and what types of issues you may run into. When you encounter difficult customers, learn from the experience, and don’t take it personally.
- Some Tasks Are Monotonous. Patience is key even for people who get into a business based on a hobby they love. Many people who turn a hobby into a business really enjoy the day-to-day work, but despise the rest of the work that running a business entails, such as accounting, doing taxes, advertising, and managing staff. You don’t have to enjoy filing quarterly taxes, but you do have to accept that doing the unglamorous and boring tasks is what makes running the business possible.
An idea doesn’t need to be unique to be profitable – as long as there’s sufficient demand for your product. In fact, a unique idea won’t necessarily translate into big sales. There’s often a reason nobody sells a product like yours, and that reason may be that nobody wants one.
However, researching and developing your business idea is only the first step – you need to do additional research to find out how to make your idea a reality.
- Do You Need Retail Space? Can you sell your product or service online, or do you need a physical retail location? If so, you may want to rent booth space at farmers’ markets, craft fairs, antique stores, or festivals. This is a low-cost and low-risk approach, as well as a great way to get feedback from real people regarding your product and what you could change or add to make it more appealing.
- Do You Need a Website? Almost every business needs a website (as well as a social media presence), but if you want to name your business something for which a good domain name is not available, you might want to rethink how unique the name should be. If the website is integral to your business, you need to budget a significant amount of money to create something that is attractive and fully functional.
- Do You Need Licenses, Insurance, or Permits? At the very least, you probably need a business license to operate – and if you have a physical location and inventory, you also need insurance. You may need additional types of insurance to protect yourself against liability from your customers, and whether you need professional licensing or other permits depends on the nature of your operation and the laws in your state.
- How Will You Obtain and Store Your Product? Whether you plan to purchase items wholesale to sell, or create products yourself, you need to budget for needed materials and designate sufficient space to store necessary inventory and raw materials.
- How Will Customers Discover Your Product? Advertising is absolutely crucial for a new business, especially if you don’t have a retail location. Create an advertising plan and get quotes for the costs of various advertising venues. Don’t assume people will flock to your business just because you offer a great product – but don’t count on tons of sales due to an advertising campaign either. Response rates on many forms of advertising are 2% or below, so be patient while building brand recognition.
- How Will Customers Buy and Receive Your Product? If you have a website, you need to apply for a merchant account with a company such as Authorize.net in order to accept credit cards. You should also have a business credit card and a bank account for your business to keep funds and expenses separate from your personal money. Determine how you plan to ship merchandise, as well as the most cost-effective method. You should also consider the cost of insurance, the cost packaging materials, and the time-frame your customers expect to receive the items.
- How Will You Initially Fund Business Expenses? If you start a business with only enough startup funds to run it for a month or two, you are practically guaranteeing that it will fail. There are some businesses you can start on a shoestring budget, but most require venture capital, angel investors, or money procured via a service like Kickstarter. Most investors want to see that you have money on the line as well – this ensures that you will be especially motivated to run the business well so you won’t lose the funds you’ve invested. Many people charge business expenses to a credit card, but if you must use a credit card, it’s best to open an account specifically for your business.
- How Much Will It All Cost? It’s very important not only to find out what you need, but to find out how much it costs in total. Money is the lifeblood of every business, and knowing how much various tasks or options cost can help you determine what is doable and what is not.
5. Business Plan
Creating a basic business plan can be tedious, but it is very important, especially if you seek financial backing from investors or a bank. It’s also a great litmus test of sorts to see if you’re really interested in running a business – if you can’t take the time to write a basic business plan, even if it’s just a single page, you probably are not prepared to undertake the running of a real business.
Starting and running a businesses can provide a lot of satisfaction, but it’s not for everyone. It can be expensive and time-consuming, and many people don’t understand the vast amount of effort that it takes to create and maintain a successful enterprise. Furthermore, enthusiasm for your product and a willingness to sell can’t be bought or learned. However, if you’re up to the task, you may find years of joy and monetary gains by launching your own small business.
Have you ever thought about opening your own business? What other tips do you have for new startups?
(photo credit: Bigstock)