According to a study conducted by CareerBuilder earlier this year, only 6.6 percent of Americans are self-employed. Why, when it is so commonly the case that people don’t like their current jobs?
Gallup’s 2013 State of the American Workplace Report, which polled more than 150,000 employees, found that “70 [percent] of American workers are ‘not engaged’ or ‘actively disengaged’ and are emotionally disconnected from their workplace…they are more likely to steal from their companies, negatively influence their coworkers, miss workdays, and drive customers away.”
Most people have accepted and even pursued jobs that they knew they wouldn’t enjoy, simply for the peace of mind and security that come with being part of an “Inc.” Given the option (and there is always the option), it seems that a lot of people would choose self-employment. So why is it so rare?
Simply put, it’s much easier said than done.
Getting the Ball Rolling
Where do you begin? How do you know whether your idea is novel (or even necessary in the first place)? How do you determine whether the thing that you do, the thing that you love, is marketable enough to make it?
“I don’t like my job, and ah…I don’t think I’m gonna go anymore.” – Peter Gibbons
An important first question to ask is, “How good am I at this?” In other words, you need to assess your level of expertise.
Let’s say you want to join the glamorous world of cupcake boutiquery. You own a kitchen scale and know how to spell ganache. Your friends just love your little sweet treats and are always urging you to sell them for real. With friends like those, who needs financial advisors? Are your cupcakes good because cupcakes are good, or are your cupcakes actually good?
The fact is, most ventures are launched only after thorough appraisals of a particular marketplace, and even then they often take months or even years to hit their stride. But we’re not necessarily talking about big business here. Being your own boss should be different than being the boss. Start yourself a great big company, and it’ll suddenly be you trying to wrangle the “actively disengaged.”
Whatever your idea, the simplest analytic you can apply is demand. Is there a clear demand for your service, and can you deliver it?
Columbus native Michael Hlavsa owns #1 Plumbing Repair, LLC, a company he started as a side project toward the end of a 10-year stint as an inspector for the Columbus Division of Water.
“Every house I went to, somebody needed something fixed,” he said. “A lot of people asked if I did [plumbing repair] on the side. I had three, maybe four jobs a week, part-time for about two years. It gave me a nice trial run.”
“Honestly, I hate to say it, but starting a business is not that hard. What you need are opportunities to vent ideas and concepts.” – Troy Allen, owner of 16 Bit Bar+Arcade, on Startup Weekend
Not long after Hlavsa quit his job and turned his “on-the-side” into an “all-the-time,” he found a qualified friend to help with major underground utility work and soon went from pulling hairballs out of sinks to plumbing sewers with a couple hundred-thousand dollars worth of equipment.
“The goal was to get there in three or four years; we got there in a few months,” recalled Hlavsa.
Obvious demand. More than this new business owner anticipated, but it started with clearly identifiable clientele.
Once you’ve determined demand, you have to determine expense. How much does it cost to make those cupcakes? Can you sell them all before they go stale? Where will you even sell them from? Do you need a commercial-quality production kitchen? Stand mixers are expensive. Putting pen to paper and writing out a list of essential expenses is always a good start.
The margins vary as wildly as the jobs themselves. A tutor can buy his student a book and put gas in his car and not commit another dime. A photographer can dump a few thousand dollars on a quality piece of hardware one time and turn out product for years with the same equipment. The cupcake lady will be hitting Restaurant Depot practically every day.
However the numbers shake out, the idea is just the beginning. You need real data. Real opinions. You need people with experience to look at your idea and give you feedback.
I went to Troy Allen, the founder of the brand design firm ELEVATE Thinking and owner of 16-Bit Bar+Arcade.
“Honestly, I hate to say it, but starting a business is not that hard. What you need are opportunities to vent ideas and concepts, whether it be a new business, new tech tools – like Startup Weekend,” he said. Startup Weekend is a popup seminar designed to create and launch new startups in 54 hours. “To be able to pitch an idea, have others help and get it started up in a weekend, it’s amazing,” he continued. “You never know where someone else can help or add value.
“And there are others. I don’t think a lot of people in town know about [the Ohio TechAngels Funds]. It’s a group of guys that meet once a month and hear pitches. If they like it and believe in it, they’ll invest money in it. Or they might tell you your idea is stupid, and maybe that motivates you to improve it. Either way, you need that perspective.”
“Who put this thing together? Me. That’s who.” – Tony Montana
They say nothing is certain but death and taxes. Well, medical technology is advancing at a pretty incredible rate. Looks like taxes might be all that’s certain before too long, so if you’re going to get into business for yourself, you’d better do it right.
Fortunately, there are plenty of resources at the individual’s disposal. It is the computer age, after all. Many of the technical aspects of the process can (and should) be researched on the internet or executed with the help of online entities.
From obtaining a federal tax ID to setting up an LLC, Hlavsa was able to do most of the bare necessities over the internet. Combine a Wi-Fi connection with the right amount of vigilance and determination, and there isn’t much you can’t accomplish.
For those seeking a bit more guidance, the State of Ohio has something called the 1st Stop Business Connection. On their website (www.business.ohio.gov/business), you can get step-by-step instructions on taking the initial strides toward legitimizing your project – they even have industry-specific checklists for everything from apiaries to nail salons to help ensure you’re dotting all of your lower-case js.
Just one example: massage parlors. The idea on its own just sings, doesn’t it? The 1st Stop Business Connection reminds you that, while non-medical massage (strictly for relaxation purposes) doesn’t require state licensing, it is often regulated locally, and you need to contact the Ohio Environmental Protection Agency for information about the proper disposal of hazardous waste before you start rubbing people. Really makes you think.
And what of professional consultation? If you’re going to go big, you can’t rough-sketch it. You need a blueprint. Risk assessment. Capital acquisition. For most financing, you will need a business plan and a loan proposal, both lengthy documents stating your serious intent and dedication to starting a business.
Frightened yet? Don’t be. If you’ve got an idea that you think really has legs, there are plenty of government organizations and non-profits to help squire you along. But according to Allen, it’s best to go straight to the best sources available – other entrepreneurs.
“I truthfully think you’ve got to talk to actual business owners. Growing up, I was lucky to have lots of good opportunities to talk with and work under people, to ask all the questions I had. The thing is, though, people who are fortunate enough to have had that around them, as they grow, they like to do the same thing. CEOs of $300 million companies still want to help out smaller entrepreneurs.”
Finding the right resources, knowing the right people, can make all the difference. Simple truths are often the best: you’ve got to get out there and look. •
You’ve got your idea, you’ve assessed demand, and now it’s time to turn on the lights – but first, it’s important to decide on a structure, and whether you’re mom and pop, or the Mamas and the Papas, all going into business together. Here is a quick breakdown of the pros and cons of business structure options:
Single owner and controller
No partnership agreement
Personal assets more open to attack in a legal case, challenging to raise capital
Owned and controlled
by two or more
Taxed only once
Personal assets more open to attack in legal case
Owned and controlled by at least one general partner and at least one limited partner
Limited partners’ assets are less open to attack in legal case
General partners’ personal assets are more open to attack in a legal case. Approval needed from partners before management duties are transferred.
LIMITED LIABILITY COMPANY (LLC)
Owners of an LLC are called members and may include individuals, corporations, other LLCs and foreign entities
Personal assets are generally less open to attack in a legal case
Disadvantage: Must have approval of all members before management duties are transferred.
LIMITED LIABILITY PARTNERSHIP (LLP)
Owned and controlled by an association of two or more persons to carry on as co-owners of a business for-profit
Individual liabilities for partnership debts are capped at the amount of their investment
Each partner has equal managerial control
It’s not all about the money, but…it mostly is. Your idea doesn’t have to make you rich, but follow these simples rules from Eric Bisignano, CPA, and it won’t leave you with nothing, either:
Separate the money
If you do nothing else, get a separate checking account for your business. Please. And ensure all income goes into that account and all expenses come from that account, period – with little to no exceptions. This will save you hours at tax time and make your CPA not hate you.
Track your mileage
Even as an accountant, I’m guilty of missing out on this one. Whether you are you heading to Staples for office supplies, going to Mission Coffee for a meeting, or driving to the bank – track it. I see so many people that miss out on major deductions because they just don’t establish a system of tracking their mileage. Those little trips can add up to hundreds or thousands of dollars in business deductions. The IRS says it needs to be “written documentation” – they don’t give much guidance above and beyond that. So download a free mileage tracking app, keep a moleskin in your car, use the notes section of your iPhone… whatever. Just write. It. Down.
Realize you have a business
I see people accidentally start businesses all the time. They take a hobby and start to monetize it but they don’t realize they have a business. And when you don’t realize you have a business, you probably aren’t tracking everything you’re supposed to. Generally speaking, when you start making money with the intent of making money, you have a business, whether you realize it or not. A business doesn’t only start when you file an LLC, create a partnership agreement, have a storefront, or have employees. Making some side money? You might have a business! And if two people are doing that, you just started a partnership.
Pay quarterly taxes
I have plenty of seasoned entrepreneurs as clients who still refuse to pay quarterly estimated tax payments. And they always hate their lives on April 15th because I repeatedly give them a big tax bill! When you are an employee of someone else, you have the advantage of having taxes withheld every single paycheck. When you’re self-employed, the IRS requires you to do that yourself – and on a quarterly basis. Set aside a portion of every dollar you make and earmark it for taxes. And don’t forget that the IRS is not the only organization that wants your money. The state of Ohio and your local municipality want their fair share
Keep it simple
Similar to number three, you don’t need much start a business. I started mine on an IKEA dining room table with no investment at all. I didn’t even file for an LLC until about a year into my business. You need to track your income and expenses so you’re ready for tax season, but most don’t need anything else. You likely don’t need to formally start a corporation, hire employees, get a business loan, or anything else that will complicate your tax situation and the administration of your business. Find your passion and just start hustling! Let it grow first and then add the complicated layers.
There are plenty of OTHER resources for Ohio’s budding entrepreneur community, including the Ohio Small Business Development Center (www.sbdccolumbus.com), Columbus SCORE (www.columbusoh.score.org) and TECH Columbus (www.techcolumbus.org/startups).