We’ve all heard tales of multimillion-dollar businesses that started at a kitchen table, and we all know someone who has a cousin who cashed in her 401(k) to start a company — and is now rich beyond her wildest dreams. But as great as these stories are, the reality is that most small businesses fail within the first five years. If you’re thinking of starting your own company, be sure to follow these steps.
Make a business plan. One way a business plan is helpful is in forcing you to carefully research your new industry. “Creating a plan is going to move you toward understanding your market and your competition,” says Gwen Martin, interim executive director of the Center for Women’s Business Research. “And it requires you to do your financials. It’s absolutely essential for a first-time business owner.” It doesn’t have to be longer than a page, but you have to do the legwork. Need help? Martin recommends The One Page Business Plan, by Jim Horan and Tamara Monosoff. For online help, try the Small Business Administration’s Small Business Planner at sba.gov. Your plan should include, among other things, a market analysis, a company description, info on organization and management, your marketing plan, and prospective financials.
Save more than you think you need. At the very least, you should have enough in savings to cover you for 12 months without a salary. “One of the things we know about women business owners is that so many of them are terribly undercapitalized,” Martin says. “You hear all the great stories of ‘Oh, I started in my basement with $500,’ but for most people that’s not the case.” If you’re interested in outside financing, Martin recommends checking banks’ websites to see if they have a program just for women business owners. “What that tells you is that they understand the value of women as a market,” she says.
Think about insurance. Quitting your job means more than just waving good-bye to the steady paycheck — you’ll also lose benefits such as health, life, and disability insurance. And you’ll pick up new insurance needs, such as liability coverage, now that you’ll be operating on your own. First, find out from your human resources department if your life insurance policy is portable; some companies do allow departing employees to take their coverage with them. Otherwise, if your spouse has coverage through his employer, prepare to sign on: Leaving your job counts as a life event, so you shouldn’t have to wait for open enrollment to do it. If that’s not an option, try joining the chamber of commerce or a trade association. “One of the perks of joining an association is that they may have access to cheaper insurance,” says Laura Berman Fortgang, author of Now What? 90 Days to a New Life Direction. “When you’re part of a group, that will bring you better pricing.” It’s good advice even if you’re going to hire an employee or two — that’s not enough to qualify you as a group for most health insurance companies. Health care reform will eventually make it possible for small businesses to shop for insurance on state exchanges, but that won’t be an option until 2014. You won’t be required to provide insurance for employees until you employ 50 or more people, but if you do decide to pay for coverage, you might be eligible for tax breaks starting in the 2010 tax year if you meet certain requirements.
Moonlight before you jump in! You love your idea. But will you love doing it full-time? “A lot of times, the fantasy of being in business for yourself is very different from the reality,” Fortgang says. Don’t quit your job immediately. Instead, first volunteer in the field, work part-time on the weekends or observe someone else doing it. All of this will help you understand your market intimately and figure out how viable your idea really is. Martin says she recalls one woman who loved antiques and wanted to open a shop, so she worked weekends at an antique store. In the end, she decided she loved it because it was a hobby, not her profession, and she opted not to start her own business. The amount of time, money, and commitment needed to make a success of a new venture is enough to turn off almost anybody — and it’s better to find out you’re not up for it before you’ve left your job.
Ask for support. Going out on your own is a big deal, and a support system is a necessity. “Starting a business takes a lot of time and energy and brainpower, and you get very lonely,” Martin says. “I don’t know how you could be successful without support.” Let your kids in on your plan so they feel as if they’re a part of it. Ask your partner for his input. Look for a mentor or business coach who can weigh in on practical decisions. Join an online community or your local chapter of the National Association of Women Business Owners (NAWBO). There’s also the Women’s Business Enterprise National Council (WBENC) and the National Association for the Self-Employed (NASE). And don’t forget to network — the more people you know, the more people know about your business.
Go for it. At a certain point, you have to stop revising your business plan. If you’ve done the research, you know your market, you know how you’re pricing your product, and you know whom you’re selling to, it’s time to set things in motion. “Women who are in business and successful are action-oriented,” Martin says. So go ahead—take action!
Photo courtesy of Ivelin Radkov/Shutterstock.com
Related: Are You Ready for Self-Employment?
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