Regardless of their profession, most corporate professionals have dreamed of leaving their 9-to-5 job and start their own business. The idea of working for yourself is incredibly tempting. But do you have what it takes to run a successful business?
Like any other critical decision in your life, you need to carefully evaluate all the pros and cons before leaving the safety of a steady income for the unpredictability of business life.
If you’re thinking about leaving your job and become a startup business owner, here are the the tips you should know.
1. Do Thorough Research
Some start up business owners take the daredevil approach of quitting their corporate job even before their startup has taken off. Doing this, they think, will allow them to focus all their energies on the new venture, increasing its chances to succeed. Unfortunately, that thinking is a pipedream.
If you want to make your transition from an employee to an entrepreneur as smooth as possible, the best way is to make your business profitable before you leave your job while saving as much of your income as possible. This will give you a safety net to lean on in case things don’t go as planned.
However, if your situation is such that you have no choice but to make the switch immediately, you should do some research before leaving your job. The research should make it crystal clear if your product or service will sell. Make sure your idea is unique and that there is a market for your goods.
Your background research should include:
- Learning the ins and outs of your product or service
- Having a detailed image of the potential audience
- A clear picture of your competitors
- Having a right team in place before you open offices — or plans for how you’ll work on your own
- Clear and concise sales and marketing strategies
2. Have a business plan in place
Once you’ve done your research, it’s time you move forward and create your business plan. You need to do it before you go ahead with your startup because it will provide your startup with some much-needed direction.
Also, if you are looking to attract investors or other funding options, having a business plan will allow you to come across as a pragmatic startup business owner who has carefully addressed all the questions relating to their business.
Here’s what your business plan might include:
- Executive Summary: Also known as your business’s snapshot, an executive summary is a highlight of all the important sections of a business plan.
- Company Description: It describes what your company does — or intends to do
- Market Analysis: Research on the size of the market, state of your potential rivals and your industry
- Management and Organization: Include information on how you’ll structure your organization and employees
- Product or Service: The service or products that your business is offering
- Sales & Marketing: What is the sales strategy of your business and how do you intend to market it
- Funding Request and Financial Projections: While the former will tell how much money you’ll need over the next few years, the latter tells how much money you’re projected to make
- Appendix: An optional section which you can skip at first, it includes permits and resumes.
3. Create your business’s structure
Arguably, of all the decisions that you’ll make before starting your business, deciding on its legal structure will probably be the most important.
Apart from determining how much amount you’d have to pay in taxes, a business structure affects the volume of paperwork your business will have to do, its capability to raise money and the personal liability its owners will face. Following are the most common forms of business structures in the United States:
Sole Proprietorship
One of the simplest business structures, the sole proprietorship makes the business your personal property, thereby making you responsible to pay all obligations related to it. To create it, all you need to do is to register your name and secure all the local licenses your business might need.
| Pros Nominal costEasy to set up Simple structure | Cons Makes owner liable to everything related to the business |
Partnership
As suggested by its name, a partnership comes into being when two or more persons join their forces for a business enterprise. While they can also be formed via oral agreements — which require nothing more than a handshake — you can also have your arrangement officially documented in the form of the partnership agreement, which will require you to pay somewhere between $500 and $2000 to the attorney.
| Pros Easy and inexpensive to startFavorable taxation modelRequires few formalities | Cons Subjects owners to unlimited personal liabilityMakes them liable for actions of partner(s) |
Limited Liability Company
Newest form of business structure, the limited liability company (LLC), provides you the best of both the above mentioned structures. While it offers a corporation’s liability protection on one end, you also get the tax relief enjoyed by partnerships. Owners also get the extra liability protection from company liabilities and debts.
| Pros Shields owners from personal liabilityGets pass-through taxationRequires few formalities | Cons Won’t let the usage of capital markets to raise money |
The Corporation
The corporation is a legal body which can bring claims under law, purchase and sell property, be taxed and sign contracts on its own. The most notable feature of a corporation — one which makes it alluring to business owners – is its ability to protect them from corporate obligations and debts.
| Pros Ideal for raising investment capitalHas an unlimited lifeCan provide tax benefits under certain conditions | Cons Expensive to set upRequires payment of annual fees |