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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.


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.


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.


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.


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.


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.


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.


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.


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.


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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