Last week I wrote about the various business options that a new Entrepreneur should consider when starting a new company. This article brings to you another set of considerations that go beyond the actual legal formation of the company. What to Expect When You Start Your Own Business.
One of the first things that I noticed when I set up my first company back in the mid 1990’s is the lack of information about what to expect or even what to do once you are officially in business. Of course, back then the Internet did not exist and aside from books or gathering friends’ information, I was basically on my own. But even today, with all the multiple online channels at our disposal, it’s somehow challenging to find out what it really takes to run your own business. It’s almost like nobody wants to share this type of information. So here it goes. This is information and opinion strictly about my own experience that I’m sharing with anyone who wants to spend a few minutes reading about it.
If you go on business by yourself, you will find out really fast that you will also need to complete a lot of paperwork to formalize your business structure. Basic tasks that were normally handled for you by your previous employer will now need to be handled by you. You will need to get an EIN (Employer Identification Number) from the IRS. This is basically your business Tax ID. Whether you plan on having employees now, later or never, you will need to get an EIN. The good thing is that you can get it online now and in just a few minutes. You can apply here.
Once you get your EIN and you have a copy of your new company’s organization papers (LLC, S Corp, etc.) you will need to go to the bank and open an account for your business. You will want to have a separation between your personal accounts and your business accounts. Business is business and personal is personal. Do not cross those lines professionally or financially if you want to avoid future trouble.
The moment you set up your company, you should go ahead and register a domain name for your website and set up accounts under your new name with most Social Media outlets. You don’t need to actually start posting right away, but at least, you want to make sure that you get your vanity URL before anyone takes it away from you. I also recommend that you set up your own email account with firstname.lastname@example.org format. Nothing is more unprofessional than starting to sell your new business venture to prospective clients and sending emails from your free Gmail or Yahoo account. Spend a few bucks (and really, it’s just a few bucks) and get your own email account with your company name on it.
Whether you spend time and money creating a logo for your company or business cards is up to you. Some very successful start-ups never created a business card whereas other people think your logo + business cards are a “must” to be able to hand them out in social situations. Whatever works for you is fine, but remember, just because your business card says “President and CEO” it means really nothing unless you and your business are taken seriously by others.
I really hope that you’re good at numbers because you’re going to need to do a lot of numbers crunching during your entrepreneurial life! Whether it is preparing budgets, profit & loss statements, calculating tax payments, or generating balance sheets, you will need to learn and understand the vary basics of business financials. I recommend that you purchase accounting software such as QuickBooks (no affiliation) to handle your company’s finances. Whichever software you choose, it will make your life much easier. From generating professional invoices, to keeping track of your Accounts Payables, Accounts Receivables, Revenue Reports, etc. Short of hiring a bookkeeping person, accounting software is the best investment you can make.
This is one of the most surprising topics for new entrepreneurs. They start a business, after a few months they find themselves making decent profits but they forget to pay taxes, or simply, they just didn’t know they were supposed to submit estimated quarterly tax payments to the IRS and the state based on their business profits. Then, come tax time, the IRS will slap them not just with a fine but also with penalties and possibly interest on the past due amounts. Not to mention the fact that half the money that you thought you made, will now need to be paid to the IRS –if you haven’t spent it yet. DON’T DO THAT! You are in business by yourself now. Taxes that were deducted from your paycheck and paid on your behalf by your previous employer, will now need to be paid by you. As a rule of thumb, I would set aside no less than 40% of your profits for tax purposes. This is when having a good accounting system and being good with numbers will come handy. Notice that I said “40% of profits” and not 40% of revenues, meaning you pay taxes on the adjusted income after deducting your business expenses. Of course, your individual situation will dictate the actual amount but let’s just say that you need to plan on making quarterly tax payments to the IRS and to your local state agency to avoid unwanted consequences.
Health and business insurance. This is another topic that is frequently overlooked by a lot of new business owners. Especially, if you’ve just decided to quit your comfortable full-time corporate job to start your new gig, you will soon find yourself without health insurance and needing to get some type of business insurance for your new business. It is even more critical if your spouse or dependents were also part of your insurance plan with your previous employer. I have a friend who did just that. He quit his corporate job to start his new business. He did quite well and a few months later, his wife was pregnant with their first child. All of a sudden they realized that neither him or his wife (previously part of his insurance plan) had insurance coverage now because they never bothered to get insurance after he quit his job. I won’t get into particular details but needless to say that their first child was not cheap! Plan ahead so that you’re always covered.
Freedom is a beautiful thing! Especially, when you don’t have a boss telling you what to do or when to do it. You can now plan your own days, adjust your schedule as needed and do what you want… to a degree. I will tell you that if you go in business for yourself to “work less” you’re in for a big surprise. If the above items have not given you a hint yet, I will recommend that every morning, when you wake up, you take a few “discipline pills” to start your day on the right track. Yes, you can still plan your own schedule, be your own boss, and enjoy all other advantages of your new entrepreneurial life, but you MUST get things done. Hitting the “snooze button” several times in the morning just because “you can” is not going to work out for you in the long run. In fact, if you’re not eager to get out of bed every morning after spending half of your night awake and excited about implementing all the new ideas that you just came up with, I will tell you that you may not have what it takes to run your own business. Remember, it’s not about working less. It’s about having more fun doing what you like, so that work and play become ONE.
Working from Home:
Being able to work from home to me, is one of the most valuable advantages that any employee can appreciate. Few companies embrace the “telecommuting” experience and rather, want all of their employees to be at their offices day in and day out. Even Yahoo! CEO, Marissa Mayer decided to end the “Work from Home” policy earlier this year. I understand there are valid arguments pro and against each option but for the purpose of this article, let’s just assume that at the beginning of your new venture, you’re very likely going to work from home. If that’s the case, in addition to being disciplined as I mentioned above, it is important that you set up a dedicated work space in your house for your business. By dedicated I mean an area where you can have your own desk, computer, Internet access, phone line, work space, filing cabinets, and especially, some privacy without noise or other interruptions that are likely to happen when you work from home. Your spouse and children (or roommates, etc.) need to understand that when you’re working, you’re also off limits. By the same token, once you “leave” your office at the end of your day, it is important that you stay away from it until the following day.
I don’t think I’ve ever traveled on vacation or otherwise without bringing my trusty laptop with me. For one, after the second or third day, I would be bored if I don’t do some work. But remember, in your new life, work is fun! So it really makes sense that you want to have some fun when you travel too even if you’re on vacation. But the truth is that business doesn’t stop just because you decide to take a few days off. The reality is that you will find yourself having a lot of working vacations. I’ve always said that if I can close a sale while overlooking the ocean sipping my favorite umbrella drink, I’m all for it! If you’re the type of guy who really likes to “disconnect” or go “off the grid” for a few weeks at a time, you’d better set up a business that allows you to do that without affecting your bottom line. But for the most part, you can expect to trade a working vacation two weeks of the year in exchange for having a lot of freedom to plan your days as you wish the other 50 weeks. That type of trade works just fine for me.
So here you go! This is a good start. There are many other aspects that come to play when you become an entrepreneur but the above are the most common ones and the ones that I get asked most about by friends that are intrigued about the idea of starting their own company. All I can tell you, as I’ve said many times before, is don’t be afraid. And especially, don’t be a victim of the “Crab in the Bucket” syndrome and let other people drag you down. I grew up in Valencia, Spain and spent a lot of time fishing with my father. I noticed that when fishermen caught crabs, they used to just dump them in a bucket and they didn’t even bother to put a lid on the bucket. Why? Because they know that the moment one of the crabs tries to climb out of the bucket to escape, the other crabs will use their pinchers to drag him down again. That’s the “Crab in the Bucket” mentality similar to “if I can’t have it, I don’t want you to have it either” that you may experience frequently these days.
Follow your dreams, turn them into your passion, and help others do the same.
Until next time, this is Manuel Gil del Real (MGR)