Owning your own business has many benefits, and clearly, American workers are eager to reap them. The percentage of job hunters who opted to start a business during this year's first quarter was the highest since late 2013, with nearly 8% of searchers starting ventures of their own. Helping matters is the fact that entrepreneurs have more access to funding than in years past. More than $8 billion in small-business loans has been divvied up so far in 2018.
If you're looking to get in on this trend by starting a business of your own, here are things you'll need to do first.
1. Create a solid business plan
One of the biggest mistakes you can make as a business owner is going in blind. Before you start a business, map out a plan for what that venture will entail. What product or service line will you offer, and what will make it unique? Where will you operate? Will you manage the business solo, or will you need help? What will your initial budget be, and where will that money come from? These are all questions you need to address to run a business successfully, so take the time to answer them before diving in.
2. Have strong emergency savings
Most of us need a good three to six months' worth of living expenses in the bank to cover unplanned bills or periods of lesser income. But if you're starting a business, you may want to aim even higher with your emergency fund. That's because it can take months, if not years, for your venture to become profitable, and you need a means of supporting yourself during that time. Your emergency savings should be kept in a personal account, separate from your business account. Furthermore, your emergency cash shouldn't be used to fund your business; rather, that money should be there for you.
3. Determine the right setup
Starting a business also requires you to land on the ideal structure for your venture. There are several options to choose from. You can opt for a sole proprietorship, where you alone are responsible for your business's profits and debts. You can also go with a limited liability company, which allows owners, partners, or shareholders of a company to limit their personal liabilities with regard to the business. Or, you might decide that from a financial perspective, an S-corp or C-corp makes sense. Unless you're well versed in the nuances of these structures, your best bet is to ask a legal or tax professional for some guidance before making your decision.
4. Have an exit strategy
It's an unfortunate statistic that 20% of new businesses fail within their first year. While it pays to go in with a positive attitude, you have to allow for the fact that your venture may not end up being as profitable as expected. It pays to develop an exit strategy ahead of time so that you're better positioned to make smart decisions down the line.
Think about how long you can afford to go without an income, or operate in the red, and set some markers ahead of time for when enough will ultimately have to be enough. You don't want to start thinking through those decisions 12 months in, when you're more likely to be emotionally invested in your business. Furthermore, think about what you'll do if your venture folds. Will you return to your former career? Start a new company? While you shouldn't go in expecting to be unsuccessful, it never hurts to prepare for those worst-case scenarios.
Starting a business is a dream that a growing number of Americans are getting to realize. Go in prepared, and with any luck, you'll become a success story yourself one day.