FAQ
on Starting a Solo Business
While there are hundreds of questions running through
the mind of a solo entrepreneur at any given time, I've
tried to address some of the most common ones here.
Click on the questions below for in-depth answers.
1. How
can I tell if I've got what it takes to be a solo entrepreneur?
2. What are the most important things
to do before a would-be entrepreneur he or she quits
a day job?
3. What are the biggest challenges to
starting a business?
4. How do you determine what kind of
business is best for you?
5. What are the biggest mistakes new
business owners make?
6. How much start-up capital does a
typical small business need?
7. Are there any financial or tax advantages
to starting a small business?
8. What are the best ways for a small
business to obtain start-up capital?
9. What's the best way for someone to
price their product or service?
10. What are the most important things
entrepreneurs need to do to turn their small business
into a success?
1.
How can I tell if I've got what it takes to be a solo
entrepreneur?
There are some common qualities shared by independent
workers, that give them an advantage in working on their
own. Some of these traits are:
* You're a self-starter. No one has to tell you to get
things going.
* You don't get intimidated easily.
* You enjoy competition.
* You're comfortable taking advice from others.
* You're adaptable to changing conditions.
* You have a good understanding of your strengths and
weaknesses.
* You have will-power and self-discipline.
* You're able to assess risk and make business decisions
quickly.
* You don't see mistakes as failure.
Not everyone is cut out to run a solo business. For
a more thorough look, take the Working Solo self-quiz
included in the second edition of Working Solo, to see
how you score. It takes some honest, hard thinking to
determine if solo entrepreneurship is the best match
for you.
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2.
What are the most important things would-be entrepreneurs
need to do before they quit their day jobs?
* Make sure your financial house is in order.
Be certain you have enough money in the bank. A conservative
estimate is 6 months living expenses, and that doesn't
include start-up capital. Also, make sure your personal
credit record is strong. Pay off your debts, or at least
as many as you can.
* Do your homework.
Be sure you've researched your product or service idea,
tested it through an informal focus group, and that
a market for it exists.
* Have a plan.
While enthusiasm will carry you far, don't expect it
to take the place of sound business practices. There
are many self-help business, legal and financial books
on the market that can take you step-by-step through
the process.
* Moonlight first.
Have the best of both worlds by trying your idea in
your spare time while still working at your regular
job. This allows you to test your business idea safely,
while you still have an income.
* Strategize the transition.
Think through all of the personal and professional support
services you depend on. Have back-up plans for health
insurance, day care, etc. lined up.
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3.
What are the biggest challenges to starting a business?
* Having to wear all of the hats yourself
-- from head of sales and marketing to janitor and bookkeeper
-- whether or not they are the areas you're strongest
in.
* Having to learn everything FAST --
another reason why preparation is so important.
* Cash flow. As seasoned entrepreneurs
know, being busy doesn't guarantee that there's money
coming in. And you may have to purchase necessary supplies
and equipment for a project up front, often before clients
have paid you anything at all.
* Time management. With everything
vying for your attention at once, it's hard for solo
entrepreneurs to know what to do first, let alone ever
have the time to get "caught up." Entrepreneurs
become experts at prioritizing and pacing, understanding
that just because something is urgent doesn't mean it's
important. Which leads us into the next item…
* Maintaining balance. With all of
the demands of the business, it's easy for entrepreneurs
to lose sight of what motivated them go into business
in the first place. Protect your personal time like
you protect your business time. Make sure you take adequate
time out for resting and recharging. Remember, you are
your business' most valuable asset. Protect it.
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4.
How do you determine what kind of business is best for
you?
I firmly believe that anyone who wants to succeed by
working solo can do so -- if they discover the business
that matches their unique interests and abilities,and
if they find an appropriate market. How does that happen?
Most simply, by asking yourself some questions -- and
answering them honestly.
Here's a fun exercise that's helped hundreds of people
launch their solo businesses. Find a quiet spot and
jot down the ideas that come in response to these questions:
* What awards or achievements have you received in your
life that gave you special pleasure? Try to remember
what it was that brought you that recognition and how
you felt receiving it.
* What are the things you do that others compliment
you on?
* Think back to some of your most recent pleasurable
experiences. What common key ingredients were in them?
* If money didn't matter, how would you create your
life? Or, as one of my seminar participants asked, "If
every job paid a dollar, what would you do?"
As you do this exercise, take time to fully answer each
question. It's also important to write your answers
down on paper. We all think we remember ideas, but they
escape so easily. When you write something down, it
takes on a different attitude -- it becomes more concrete,
more possible. The process of writing often brings a
clarity to your thoughts, because you need to express
in words what this fuzzy idea is all about.
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5.
What are the biggest mistakes new business owners make?
Not doing market research.
Just because you have a great idea doesn't mean you
have a business. The Hollywood belief that "If
you build it, they will come" does not apply here.
Taking a business idea to an informal focus group of
friends and colleagues is a good start.
Thinking that business plans are only for the
big guys.
It's a sad fact that many new business owners don't
see this obvious relationship between planning and success.
They think they can "wing it" and make their
plans as they go along. Some feel that a business plan
would limit their creativity or spontaneity, or that
their business isn't large enough or complex enough
to warrant a plan. Every business can benefit from a
business plan, no matter what size it is. The process
of making a plan organizes your thinking and helps you
sort out your priorities.
Thinking you can do it all by yourself.
Working solo is not working alone. Success depends on
developing and using a network of colleagues, friends,
mentors and professionals that can provide advice, assistance
and direction in tough times.
Thinking that success will come quickly or easily.
There are a lot of myths bound up with the concept of
starting a business. Success takes long hours, strategic
planning, and a commitment to the work involved. The
rewards are great, but the effort is, too.
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6.
How much start-up capital does a typical small business
need?
The amount of money needed to launch a solo venture
is as varied as the businesses entrepreneurs launch.
First, determine how much you'll need by doing your
business plan and speaking with your financial advisors.
Armed with this information, you can then make an informed
choice to either raise the necessary funds, or scale
back your plans to match your current financial situation.
Surveys show that many self-employed business people
start their business with $5,000 or less -- sometimes
much less. For many small service businesses, this amount
is enough to establish the business, create some marketing
materials, and invest in inventory.
According to financial advisors, if you're launching
a business that will be your only income source, you
should have a financial cushion equal to at least 9
months of income. With this in the bank, you can focus
exclusively on launching your business and building
a new income stream.
For the complete financial do's and don'ts of small
business life, check out the Working Solo book by Terri
Lonier and Lisa M. Aldisert, The Small Business
Money Guide.
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7.
Are there any financial or tax advantages to starting
a small business?
In a word: yes!
While it's true that self-employed workers pay a significant
amount in taxes, they also reap the benefits of that
magic phrase "It's tax-deductible." The government
realizes that it takes an investment to run a solo business
and allows the self-employed to deduct any work-related
expense from gross income. This means anything from
a box of paper clips to an expensive computer system
is tax-deductible, if purchased (and used) for business
purposes.
This notion of business costs being tax-deductible is
why outsiders think that the self-employed never pay
any taxes. But if solo workers don't pay any taxes,
it means one thing: Their expenses outnumbered their
earnings. Which also means they didn't have any net
income -- not a good thing for a budding capitalist!
When you work for someone else, you become accustomed
to basing your income on net figures, knowing that the
boss has already taken out taxes, Social Security payments,
and other deductions. On the basis of current tax structures,
it is not unusual for some solo workers to lose 50%
of each earned dollar to taxes -- because as a solo
worker it is now your responsibility to cover federal,
state and local income taxes, as well as both employee
and employer portions of Social Security contributions.
As you can see, the issue of tax planning is complex.
It's one area where smart solo entrepreneurs know it
always pays to get professional advice.
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8.
What are the best ways for a small business to obtain
start-up capital?
At first review, most would-be business owners think
a bank loan is their only option -- and they're discouraged,
because they've heard horror stories about the frustrating
bureaucracy of banks.
Fortunately, bank loans are not the only option -- or
many small businesses would still be only ideas, instead
of the thriving enterprises they are today. Here are
a few ways to finance your new business:
Moonlighting is a great way to ease
into a solo business. It gives you a chance to "try
on" the business and to discover if the activity
is as fun when it's a "real" business instead
of a secondary activity.
Part-time. If you're confident that
your new business can generate at least half your income,
consider cutting back your full-time job to part-time,
and dedicate the remainder to focusing on your new business.
Piggyback. Some solo businesses are
launched with the support of an employed spouse or partner.
With one full-time salary to cover basic needs, the
would-be entrepreneur can focus on the new business.
The goal is to channel money usually spent on other
living expenses toward the new business.
Money pool. If you know you'll need
a larger amount of start-up money, and you're looking
for outside funding other than a bank, consider creating
a money pool with contributions from family, friends,
or colleagues.
Credit. Gather a group of solo entrepreneurs
together, and the stories will begin about how many
of them have financed their businesses with their credit
cards. Another choice that offers more reasonable rates
is a credit line extension to your bank checking account.
Based on your current financial status, the bank allows
you to "extend" your checking account beyond
the money you have in the account, up to an established
limit.
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9.
What's the best way for someone to price their product
or service?
It may seem like stating the obvious to say that the
profitability of any business hinges on the accurate
pricing of its products or services, but many entrepreneurs
miscalculate this variable, often with disastrous results.
If you price your product or service too high, the result
will be a low level of sales; if you price too low,
though you may reap short-term sales, over-time the
business itself will not be profitable and may fail.
There are two opposing views about how to establish
proper pricing. The first is to calculate what the product
or service cost to produce, mark this up according to
industry guidelines, and establish the price. The second
is to experiment selling the product or service at different
price points and try to determine what the buyers will
pay.
Whichever approach you choose, here are some crucial
pricing do's and don't to keep in mind:
* Analyze all the costs that go into producing your
product or service, before adding the cost of direct
labor, (yours or that of staff), necessary to make the
product
* Don't forget to count yourself as a labor component
when calculating the cost of sales.
* Don't overlook direct overhead, the expenses such
as rent or utilities for the studio, workroom, or office
where you perform your labors.
* Be sure to add a profit margin to the above before
determining your wholesale cost.
* Learn the range of prices charged by your competition
-- this information is invaluable.
* Avoid the temptation to "price down."
* Don't get discouraged if you miscalculate your pricing
at first. As your experience and reputation grow, the
market perception will change over time and you can
adjust your pricing accordingly.
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10.
What are the most important things entrepreneurs need
to do to turn their small business into a success?
Choose your business carefully.
The type of business you choose -- and the quality of
customers it serves -- ultimately determines the level
of your financial success.
Find support.
Develop and nurture a network of colleagues, friends,
and mentors. They can offer their guidance, wisdom and
connections to your growing business. And remember to
pace yourself, keeping some energy and resources in
reserve for the inevitable tough spots in the road.
Attend to financial and legal matters before
start-up.
Don't find yourself scrambling to put important pieces
of the business' structure in place after you've opened
your doors.
Design your office so it works.
Put project files, phone, and keyboard within the immediate
reach for easy access. Position other equipment -- like
the copier or fax machine -- a short walk away, so you're
forced to get up and move around at intervals. Check
out cordless equipment (computer keyboard, mouse, phone,
headset) that enables you to be mobile. Pay particular
attention to the quality and comfort of your chair,
your desk, and your lighting. These can have enormous
impact on your health and productivity over the long
haul.
Listen to what your customers are telling you.
Remember, without them, you don't have a business. And
don't forget to show your appreciation for their business
and their referrals -- it takes a lot more money to
create a new customer than it does to keep a current
one.
Set goals.
Among high achievers, one thing is consistent: They
tend to have goals, and they put them in writing. Goals
are amazingly powerful tools. They capture our thoughts
of "what might be" and turn them into "what
will be." They also clarify our thinking, and clarity
is power. When we know where we want to go, we can plan
how to get there.
Stay flexible and responsive.
While maintaining focus, be open to new business opportunities.
Don't let occasional set-backs demoralize you. As one
solo colleague told me, "It all looks worse from
the inside." Realize that there is no perfection
-- there's only ongoing improvement.
Copyright 1994-2011 by Terri Lonier. All rights reserved.
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