Are You Ready to Start Your Own Business? 5 Things to Consider
Whether you have the spark of an idea or have already been working on your side hustle for some time, you may wonder if and when to start your own business. Should you form an LLC? Open that QuickBooks account?
While the thought of entrepreneurship and working solely for yourself is exciting, there are many factors to consider and areas to research as you take this big step. Not to mention, the thought of launching a company can be overwhelming—where do you begin?!
Here are five questions to contemplate from a business finance perspective as you reflect on your next career move and passion.
1. Is there a promising market opportunity?
Passion is essential to building a successful new business, but you’ll need much more to become profitable. First, you need to gain a deep understanding of your target audience. Does a need exist? And do people have the budget for it?
Do your research through third-party research firms to assess if there is a genuine opportunity for growth.
You’ll also need to do competitor research to ensure the market is not oversaturated by looking at who else is solving the same problem or fulfilling the same desire. How will you set your business apart if there is a lot of competition? What can you do differently or better? What gap can you fill?
2. Do you have a hobby that’s grown into much more?
Do you have a side hustle with no sign of slowing down? If so, now is the time to determine if you’re ready to transition into a full-time venture! But before you officially start your own business, be sure to:
Assess the current income generated by your side business. Is it consistent and sufficient enough to cover personal expenses while contributing to savings and business growth?
Compare the income from your business to your current full-time job salary. Consider costs like self-employment taxes and health insurance, which you’ll have to cover alone.
Evaluate your side business’s growth. Have sales been increasing? Are you seeing higher demand for your products or services?
Consider the time commitment. Is your venture consuming significant time, making it hard to balance with your full-time job? Will investing more time and effort help scale the business?
Set up an emergency fund. Leaving a W-2 job and starting your own business could mean unpredictable income—plan for personal expenses, insurance, and retirement savings.
Weigh all of the above while imagining what life will look like if you pursue your business full-time. You might also create a transition plan, gradually reducing hours at your current job while growing your business until it can fully support you. This helps mitigate financial uncertainties and risks.
3. Have you considered the costs of starting your own business?
What are ALL of the costs of starting and operating your business? Before launching, you should create financial projections and set up a proper accounting system, including income statements, cash flow forecasts, and balance sheets.
You’ll also need a realistic budget, including startup costs, ongoing expenses, and contingencies, such as:
Forming your business entity (i.e., LLC, S-corp, C-corp, or partnership)
Office space or facility
Business insurance
Taxes (e.g., self-employment, payroll, and sales taxes)
Utilities and business applications (e.g., phone, internet, and email)
Service providers and vendors such as an accountant, tax professional, lawyer, HR consultant, or IT provider
Certifications and licenses for your field
Avoid overestimating your revenue and underestimating your expenses! Many startup business owners do this early on without a thorough business plan and specific financial goals.
4. Will your business need funding—and if so, how will you get it?
Speaking of expenses, funding is another crucial aspect of starting your own business. Develop a clear plan to ensure you have the finances necessary to get your venture off the ground. You may obtain capital from one or a combination of the following:
Personal Savings: This could come from personal savings, investments, or retirement accounts. Always determine how much you’re willing to allocate to your business and consider the potential risks.
Family and Friends: Some entrepreneurs turn to relatives or close friends for financial support. Create clear agreements with repayment terms and expectations to avoid potential conflicts.
Small Business Loans: Research loans designed specifically for small businesses, such as Small Business Administration (SBA) loans, traditional bank loans, or online lenders.
Investors and Venture Capital: Businesses with significant growth potential may seek funding from angel investors or venture capitalists, often for an equity stake in the company.
Crowdfunding: You could use a crowdfunding platform like Kickstarter to raise funds from people who believe in your venture. These require compelling pitches and rewards for backers.
Grants: Government and industry-specific grants are often available but require a competitive application process and adherence to specific guidelines.
Business Incubators and Accelerators: These programs provide funding, mentorship, networking opportunities, and resources to help your business grow. They often require a percentage of equity in exchange for their support.
Every business has different needs and requires various levels of capital, so tailor your funding strategy to your specific business model and goals.
5. Who will you need on your team?
Whether you hire outside professionals or W-2 employees, people are another significant expense—in the form of money, time, and energy—to consider as you start your own business. Plus, building a team is a true test of your leadership and interpersonal skills!
You may be able to run your new venture solo for a while…but what about your bigger vision?
What roles will you need to take your company to the next level?
Will you hire contractors or full-time employees?
What makes the most sense for your budget and business needs?
What kind of qualifications and characteristics will be the best fit?
Of course, hiring employees also entails:
Increased costs (e.g., payroll, benefits, worker’s compensation insurance)
More complex accounting (see above!)
Hiring and onboarding processes
Human resources to ensure compliance and a positive work culture
Personnel documentation and recordkeeping
Finally, hiring people, particularly employees, means you share responsibility for their livelihoods and career growth. You need to ensure you can cover their compensation and benefits as well as provide them with job satisfaction and development opportunities.
Should You Start Your Own Business?
So, do you think you’re ready to launch your endeavor? Or do you have a lot more research, work, and reflection to do?
Before you start your own business, you’ll need to ensure your financial readiness, market research, and personal preparedness. And to top it all off, you need passion and a differentiator!
If you’re still weighing the pros and cons, discuss the concept with your support network, from family to friends to your business coach or mentor. When you’re ready to take a realistic look at the finances required, book an intro call with JLS Accounting today! We’re not only experienced accountants; we understand the drive and hard work involved in entrepreneurship and would be happy to help you build a financially sound business from the beginning.