Deciding to go out on your own and start a business is both an exciting and scary time. Going independent is a big shift from a career, financial, and mental perspective. As your own boss, you get to decide when, where, and how you work. You have the chance to build a career out of something you love doing, develop your own personal brand, and have the flexibility to balance what means the most to you in life.
At the same time, you will quickly find yourself faced with many new responsibilities. Lots of these tasks won’t even center around the work you deliver to clients—you’ll need to manage the business side of things as well. That means properly paying taxes and filing expenses, preparing client contracts, and remaining compliant with federal laws. But with forethought and preparation, making the move to self-employment can be a worthwhile change for many. Here are five steps to keep in mind when starting your small business.
1. Have the Right Mindset
A successful start to a small business starts with the right mindset. First, find your confidence. A big part of your job will involve selling your skills and services. Be confident in what you have to offer, be able to talk about why you are good and what you do, and think about how you can market those skills.
Next, get ready to network. Networking will be a big part of how you initially find work. Build your base of contacts by connecting with past colleagues, reaching out to potential clients online, and attending events to meet people in your industry.
You will also need to be tenacious and resilient. As you start out, and even as you grow your business, there will be highs and lows. With the right attitude, you can learn from your mistakes rather than letting them drag you down. It may take months before you see results of hard work, you may end up working with a really difficult client, or you might experience scope creep on a project. The ability to tough out these hard times with a good attitude will help you move on stronger, with new knowledge in hand.
2. Prepare Financially
When you transition from a full-time job to starting your own business, it is important to be financially ready. As an independent, you determine your bill rate, pay your own taxes, and provide any benefits you require. A good rule of thumb to go by is to have enough start-up capital to keep your business running for at least six months without income. Be sure to factor in other initial operating costs such as utility charges, project supplies, furniture, and office technology like a computer and printer.
Make sure you understand basic financial terms of running a business as well. If you’re unsure how to manage the financial side of your business, it’s always a good idea to consult a financial expert or reach out to someone familiar with building independent businesses.
3. Choose a Business Structure
One important decision you’ll want to make before starting out is what business structure is right for you. Different business structures have different tax and compliance implications. Your choice will depend on a variety of factors including how you plan to take and maximize deductions, what type of clients you work with, and how you plan on growing your business in the future.
Some of the most common choices for independent professionals include Sole Proprietor, LLC, S Corp, and C Corp. When deciding on a business structure, you should always seek individual accounting and legal professional advice for legal and tax decisions.
4. Learn about Legal Requirements
While writing a business plan, deciding how to market your services, and building a professional brand are all important aspects to starting a small business, the legal side of things is equally important. There are many key steps to take to ensure your business operates with all of the required licenses and permits.
Federal and state licensing will depend on the industry you work in and where your business is located. You’ll want to register the name of your business, get an Employer Identification Number (EIN) from the IRS, determine your business structure, prepare to pay state and local taxes, and create a compliance plan. The Small Business Administration (SBA) is a great resource for legal requirements, and you can always reach out to MBO with any questions you have as well.
5. Set up Insurance and Benefits
As a small business owner, you are responsible for providing all insurance and benefits needs—from liability insurance to health care.
If any legal or financial problems arise, they will affect you directly. Protecting your business with general liability insurance helps keep your business safe, and is probably something most clients you work with will require. You may also want to look into errors and omissions insurance, ad home-based business insurance if you work out of a home office.
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.