If you’re curious about starting your own business, there’s a lot to consider. When first starting out, it is important to take time and fully think through what running your own company actually entails. Testing out your idea while keeping your existing job is an ideal trial run because it will give you time to bring in some revenue and make sure there is market demand for what you are offering. It also gives you time to network. Getting to know people in your prospective industry is valuable because you can get a good idea of what competition is like and make connections with potential future clients.
Once you’ve taken these steps and feel confident in your business idea, work through the following checklist to fully prepare to take the leap to self-employment.
Writing a business plan is an important first step when starting your own business. It may seem intimidating to do so at first, but just work on one section at a time—it will be incredibly useful down the road. A business plan will help you nail down your services and explain why there is a need for what you are offering. It’s also a good opportunity to research your target audience so you know who to network with and the best way to sell your services to that group. It’s also a good idea to set goals for yourself in your business plan. Then, review and update those targets as you grow your company.
A marketing plan can fall under your business plan, but you’ll likely need to dive deeper to successfully sell your services. When considering how to market your business, decide how you want your personal brand to come across. How do you want to be recognized? What will you be known for?
Two key parts of marketing will be building your online presence and creating a professional website. Every well-established business—no matter how small—should have an online presence in todays’ world. Like it or not, social media is a great way to reach people and showcase your brand both visually and through content messaging. A professional website shows you’re serious about your business. It can help differentiate you from competitors and let potential clients know what you’re all about.
The last thing you want to happen when you start your company is to run out of money before you hit your stride. Even if it means waiting longer than you want to launch, it is better to make sure you have enough start-up capital to keep going for at least six months without income. Initial expenses and start-up costs will vary depending on your industry but will likely include utility and Internet charges, project supplies, subscription-based fees (software, a website, apps, etc.), technology (laptop, business phone, etc.), office space or furniture, and a starting marketing budget.
With your business plan, marketing strategy, and finances in order, think about what your desired income is. Knowing your bill rate will help you figure out other important decisions such as large businesses purchases and the type of clients you will target. There are a few different ways to calculate this number, and, keep in mind, that you can always adjust it as your business grows.
If you haven’t freelanced or worked as an independent contractor before, you’ll quickly discover that paying your taxes is very different than what you’ve experienced as a W-2 employee. Plan to pay at least 30-35% of your gross income in taxes. This includes: income tax (per your tax bracket) as well as both halves of Social Security and Medicare (FICA). This is also known as the self-employment (SE) tax.
You will also be paying estimated tax payments quarterly. Because taxes are not taken out of the payment you receive from a client, paying taxes quarterly helps to eliminate paying a huge tax at the end of the year. To file your taxes, you’ll generally use Form 1040-ES, Estimated Tax for Individuals to calculate and pay these taxes. This form contains blank vouchers you can use to mail in payments, or you can make payments online using the Electronic Federal Tax Payment System (EFTPS). If you are not familiar with paying taxes as an independent contractor, it is always helpful to consult a tax expert to get your questions answered—especially the first time around.
6. Choose a Business Structure
Deciding how to structure your business is a big decision that will impact tax payments and compliance adherence. Some options to consider include:
We’ve covered a few important legal requirements, but there are many others that you’ll want to be familiar with. In addition to deciding on a business structure, you’ll want to choose and register your business name, get an Employer Identification Number (EIN) from the IRS, obtain required business permits and licenses, investigate paying state and local taxes, and create a compliance plan.
When you are your own boss, that means you’re also responsible for providing your own insurance and benefits. Not only do you need to protect your business, but you also need to keep yourself healthy and happy.
Commonly, independent business owners carry general liability insurance and errors and omissions insurance—at a minimum. Depending on what client you are working with, they may require additional insurance as well. When it comes to health insurance, there are many different options for independents. Getting added to your partner’s plan might be easiest for some, or you can look into COBRA as a temporary option, or an individual, small business, or group plan for the long term. You’ll also want to consider retirement options as you plan for the future, or parental leave if you’re planning on having children.
Deciding where to work can be one of the more fun parts of starting your business. If you have space for a home office, that’s a great low-cost option initially. But, there are other options as well such as joining a coworking space, renting an office, hot desking, working from an hourly space, or getting creative and working from public spaces.
As you dig into this checklist, you’ll find that there are many other steps to take before you can start your business. It’s a lot to take on, but well worth the benefits in the end.