With almost 29 million small businesses in America today, according to the Small Business Administration, being your own boss may seem more tangible than ever before. But it can be difficult to choose between starting a small business and a traditional 9–5 job, as there are many factors to consider.
Being an entrepreneur gives many people a sense of freedom — and the ability to take chances and make choices without having to report to anyone. While that freedom comes with many challenges, some key considerations could help you decide if starting your own business is right for you.
Taking Risks: Are You Ready?
Some people just feel more comfortable with a regular paycheck. For them, knowing how much money will come in every month to cover expenses gives them peace of mind. When evaluating your personal risk tolerance, remember there's no right or wrong answer.
Does the idea of working for yourself, and not having an employer-based safety net, give you a bad feeling? This feeling doesn't have to stop you from starting a small business. However, it could help you understand that you seek a more stable foundation.
If you're unsure of your personal risk tolerance, one option is to take baby steps toward starting a business. Consider working on it during non-business hours, such as nights and weekends. This strategy could help you determine if the business is financially viable and whether there's a market for it.
Quitting your job to run the business full-time could be less risky if you already have some income from it or are seeing a lot of customer interest.
Consider Your Financial Foundation
Is cash outlay, which is the money a company uses for operating expenses, required for your dream business? Different types of businesses require different amounts of cash to get started. If you're opening a store, restaurant or franchise, for example, you may need money for rent, building out the retail space and paying the investment and equipment fees. Even if your potential business doesn't require cash to start, you may still need to cover living expenses for yourself. You might also need money for marketing, insurance, technology and business services, such as legal fees.
How will you finance these expenses? A small-business loan is one option. For that, you will need to show the lender a developed business plan. Some people rely on credit cards to pay for business expenses, but that gets expensive — especially with high interest rates.
Even borrowing money from friends or family members has its challenges. If you have difficulty repaying the loan as promised, you could damage your relationship with your loved one. Before borrowing money from any source, it's important to understand how much money you need, as well as how you'll pay it back and over what period.
Growth Potential: Open for Business
It's almost impossible to know just how successful a business will be, but it's still important to consider its growth potential. The following questions could help you reflect on your chances for success:
- Is it a service business (i.e., the more employees you hire, the more work you can get done)?
- Is the market saturated with what you want to offer?
- Will you need to seek out new clients for one-off sales regularly — or will clients continue to use your business cyclically?
- Can you replicate your business in another region or state?
- If you get increased demand for your products or services, how easily can you meet that demand without losing money?
That's the (Entrepreneurial) Spirit
Owning your own business requires a different mindset than working for someone else. You're the decision-maker, even if you hire experts to weigh in on important issues. When you want to take a vacation, you need to make sure everything is covered. When the company is not bringing in enough business or cash, you're the one who'll have to meet payroll and make sure the expenses are paid — even if you need to forgo a paycheck or dig into your savings.
As an entrepreneur, you oversee every company role, directly or indirectly. Marketing, equipment purchases, technology, hiring, sales, customer service, accounting and legal matters are all ultimately your responsibility. If you're the type of person who just wants to do your specific job, you may need to think twice about starting your own company.
Benefits & Being Your Own Boss
When you start your own company, benefits like health insurance, life insurance and disability income insurance are not automatically provided. Some people underestimate these costs, especially when their employers pick up a big chunk of those payments and they don't see it on their pay stubs.
According to the Bureau of Labor Statistics, employee benefits increase compensation by 31 percent. For many, it's risky to go without things like health insurance, life insurance and other common employee benefits. And when you don't have an employer to give you paid time off, you may have to pay someone else to cover for you when you need time away. Also, you will need to consider providing benefits if you're hiring employees.
Starting a business is a dream of many, but there are many things to consider before getting started. With careful planning, self-reflection and the support of loved ones and seasoned professionals, you could move one step closer to making your dreams a reality.
Small Business Solutions