Introduction: Start Your Own Business
I am Levi McGlone. I am currently 18 years old, but I started my own business when I was 17, because I could not find a job in the current economy. Fortunately, most business practices are common sense, but there are some business principles that are not so intuitive. I have been running my own business since February of 2013, and it is currently July of 2013. Even though my business has only been running for 5 months, I have learned some great ideas and concepts of business that I would like to share with you. I make websites for real estate agents, but I am gearing this for anyone of any age to be able to start their own business.
My goals in this instructable are the following:
1. Inspire you to start your own business.
2. Remove the fear of the unknowns of starting your own business.
3. Educate you about the mistakes I made, so that you see your business succeed in less time.
Let's get started!
Step 1: Why Start Your Own Business?
Many people think that starting a business can be scary, and, in reality, it is. There are many unknowns. Will my business succeed? Do I even have the skills to required to run my own business? What about the legal issues surrounding my own business? I will be addressing each of these points throughout various points in the instructable, but here are a few things that I have observed as the pro's and con's of running my own business:
- You can make more money in less time than in a traditional job in the same field.
- You can work in an environment where you are comfortable.
- You are your own boss. You set your own pay and hours of working.
- You are solely responsible for my business's success, unless you work with a partner.
- Taxes and legal issues can seem daunting.
- It takes time to build a business. Don't expect to make $100,000/year starting out.
- You will fail in some area at some point. Its to be expected, but you can learn from your mistakes.
I love being self-employed, and you will too. Its great. Currently, I am making $20/hr by making websites for real estate agents, but I will be raising my rates shortly, because I have found that my work is worth more (I will get to that later.). To put this in perspective, I work 10 hours in one week. I have friends that work minimum wage jobs for $7.80/hr for 25 hours a week. I work less than half the time, but I make the same amount of money as they do. This gives me time to have a social life outside of work and do the things that I like to do. I just got back from a trip to Canada, and the money that I am earning is going to pay for college and any other expenses I may incur.
Outside of the time and financial benefits, I get the benefit of being my own boss, setting my own hours, and not having the stress of having a supervisor breathing down my neck. I love working, and I have little to no stress about my job. While I could expand my business at a faster rate with more advertising to make more money, I like the rate of work that I have now. Some businesses should stay part-time until you have the resources and energy to put into it to make it grow. For me, I have college starting in August. I am working on scholarships and preparing for college. I don't have as much time as I would like to put into the business. As I mentioned earlier, when you start your own business, YOU are responsible for its success, not anyone else.
That said, anyone with a basic understanding of math can run their own business. With the assistance of a calculator and a spreadsheet, I track my profits and expenses, as well as the amount of time I spend with each client. The financial aspects of business are not hard. I recommend that you take out 30% of your net gain for taxes. Other than that, the rest of the money can be reinvested into the business or spent for personal use. Running your own business is very profitable, and is something that I highly recommend.
Step 2: Basic Tools of Business
If and when you start your own business, there are certain tools that you will need to be successful in what you do. There are the items you will need that are related to your trade, such as wrenches or cans of paint, but you will also need a means of financial tracking and record keeping. These are the tools of business.
Before starting your own business, I recommend that you have the following:
2. Spreadsheet software (Microsoft Office, LibreOffice, or OpenOffice are what I recommend)
3. Bank Account with a checking account and debit card
4. Social media accounts
5. Cell phone
Fifty years ago, business was run on paper records, filing cabinets, and pen and paper. Today, the world has modernized to electronic records, electronic banking, and social media. A computer is vital to starting your business in the modern world, closely followed by a cell phone.
Business records are vital, and they should be tracked closely. A computer simplifies the process through word processors and spreadsheets. I have a spreadsheet for each client that I have, as well as a spreadsheet for tracking my total income and expenses. Spreadsheets are a great way to track time spent with a client or goods delivered to a client. Word processors are great for saving notes from client meetings as well as organizing client information. Keep accurate records. Do not be lazy in record keeping, because that is bad business practice.
Advertising is everything in starting your own business. Social media is a great, inexpensive way to spread the word about your business. Walmart has a Facebook page for a reason, and Facebook is not disappearing any time soon. Facebook business pages are free, and they are worth the time and energy required to maintain them. With Wordpress-based websites, anyone can create a website to advertise their business for less than $100 per year, and Wordpress already has built-in functionality to work with Facebook, Twitter, Pinterest, or any other social media accounts you may have.
A cell phone is another requirement for starting a business. Aside from calling clients, smart phones can be used in place of a computer to take notes on clients or keep information for later use. Cell phones are used in every area of society, and they are definitely worth the investment.
A bank account is also necessary unless you plan on getting paid in cash. Get a bank account set up if you haven't already. You will need one. In the U.S., a Social Security number is required for this. If you register your company with a business account, you may need to get a registration number from the government to use in place of a social security number. I don't recommend a business account until you are making more than $1,000 dollars per month or more than $10,000 per year. Business accounts usually cost money, so I recommend you build your business first. By the time you are making more than $10,000 per year, you should probably have already talked to your banker about business banking so you know the do's and don'ts.
Step 3: Know Your Limits and Weaknesses
Unless you have a partner, your business is dependent solely on you, and I cannot think of a single person who mastered everything in their field of work. It is simply impossible. You, as a person, have restraints on your time, money, and energy. You may have to walk away from a well-paying job or client, because you cannot complete the job for one reason or another.
Another weakness that a lot of web developers face is that we are coders, not graphic design artists. When I have a project that requires a new logo, I will either contract that bit of the project out, or ask the client if they know anyone personally that they would like to make the logo. Even though you run your own business, don't be afraid to contract work out if you know you aren't able to do it.
You should also be aware of restraints on your time and energy. Right now, I have between 3 and 6 clients. If I spend 10 hours per week for each client, that is 60 hours per week, and I know that is too much for me. Instead, I focus on getting jobs lined up for 2-3 weeks out and focus on one or two clients at a time. Energy is another area that I have to be careful about. In any programming job, staring at a computer screen for several hours at a time can grow to be boring and frustrating very quickly. To stop this, I work in 2-hour increments. If I work 3 hours in a day, I break the work down into smaller stretches of time, because when I become frustrated or bored with the work, the quality is not as high. Be aware of the restraints of time and energy, because an overloaded business is a sinking ship, and you are its captain.
Step 4: Research Your Business: Finances and Hourly Wages
At this point in your business, you have researched the skills of your field, and you want to start getting clients. You know the tools you will need. This includes rakes and lawn mowers but also a computer and spreadsheet. This is where the rubber meets the road, and you have some big decisions to make. I am going to tackle the question that stumps everyone: How much do I charge for my product or service?
The question of how much you charge a client comes down to the following formula:
Expenses + Time * hourly rate = Cost of Good or service.
The pricing of your goods or services should look like this. When I calculate how much to charge a real estate agent for a website, I have to take a few things into consideration. First, I calculate the amount of time that I spent working on their website. If I spend 10 hours at $20/hr, that equals $200. If I had any expenses in working with them, such as gas, internet usage, cell phone usage, web hosting fees, etc. I add those expenses to the final amount. So if I worked 10 hours and $20/hr and had $50 in extra expenses, I would charge the client $250.
There is another element to consider in pricing your goods and services, and this is "How much is my time worth?". What I mean by this is how much do you plan to make per hour. A minimum-wage worker's time is not as valuable as a lawyer's time. Here is what I recommend: research the average salary in your field. When I did this, I found that the average salary of a web developer was $80,000. This is roughly equivalent to $40 per hour. I priced myself at $20 per hour, because I was not experienced at the time. Now that I am more experienced, I will be raising my rates to account for my increased skills and abilities.
Here are a few formulas to help you get started:
Time * Hourly Rate + Expenses = Cost of Goods or Services (This formula should be used for services)
(Time * Hourly Rate + Expenses) / Number of Goods Produced = Cost of Goods or Services (This formula should be used anytime you are selling a quantity of something, like cookies, hot dogs, or lemonade.)
Proper use of these formulas should result in a business that is profitable with goods and services that are reasonably priced. There are a few other equations that are used in business, but these are the basic ones that I have used throughout my career and a self-employed web developer.
Step 5: Tax Time!
Here is something everyone hates - taxes. Taxes are a big part of running your own business, and you need to educate yourself on the taxes of small businesses in your local area. I have not registered my business; therefore, I file personal income tax. The U.S. has taxes on the self-employed that are not accounted for in regular income taxes. If you make any more than $1,000 per year on your business, the government would like you to file, but they won't sue you for tax evasion unless you make over $10,000 per year.
I recommend that 30% of your profits be put in an account for tax time. Throughout your business, you should also be tracking business expenses, any mileage put on a vehicle for business purposes, and any donations. These are tax deductible, and who likes giving money to the government that is rightfully yours to keep?
Each state has differing laws when it comes to taxes. Check with your local court house for any local or state regulations. If you have any questions, it may be best to meet with a lawyer to determine what the tax laws are for your area. Run your business legally. Don't take anything I have said here as fact. Your business will look different from mine, and your tax codes will be different than mine. Research taxes for yourself to be 100% sure of what you're doing.
Step 6: Being the Boss and Working With Clients
If you want to be your own boss, you have to dress like a boss. When I meet with a client to discuss business, I dress at least one step above them. This usually means a sports jacket, collared shirt, and khaki pants. Here is how I would define the different levels of dress:
1. Suit and Tie
2. Sports Jacket and Khakis
3. Collared shirt and Khakis
4. Jeans and a Nice Shirt
5. Work Out Clothing
6. Pajamas :)
Most of my clients dress between tiers 2 and 4. I don't own a suit, but I know that if I wear a sports jacket and khaki pants that I am dressed on par with them, if not one step above. There is a certain "intimidation factor" that comes with dressing above your client. You look professional, and you dress to impress. When I first started the business, my first clients were impressed that I was only 17. I dressed nicely and conducted myself in a professional manner, and I received a lot of respect because of it. If I didn't dress as nicely, I may not have gotten those jobs early on.
If you happen to show up at a job under dressed, you have a few options. First, if you have a collared, button-up shirt and a tie, you can wear the tie to dress yourself up a little. Jackets, shoes, and other accessories can be added or changed to "dress up" your appearance. When working with clients, try to research what the work environment is like and dress accordingly. If you are over-dressed, which may happen on occasion, ditch the sports jacket and tie, roll your sleeves up a little, then go to meet with your client.
Step 7: Competition and Marketing
Competition and marketing are two key areas you will need to master to build your business, and they go hand in hand. I touched a little on marketing earlier, but I would like to go more in detail on this subject.
In competing with other businesses, the key is to advertise better than they do. If they are number 5 in an online search engine, you want to be number 1. Your advertisements should be easily seen, easily readable, and they should target your clients. For example, if I was a musician looking to play gigs at coffee shops and weddings, I would try to put advertisements in or near coffee shops and bridal stores. I might also advertise in a bridal magazine or local newspaper. Once your business build, word of mouth will help spread the word, and if you do your job well, you might have a repeat-customer. Building relationships with customers is a great way to compete with other companies and businesses, because you will have references and an income source that will keep paying.
Ouside of phone books, magazines, and local advertisements, there are several ways you can market your business. Firstly, there are social media sites like Facebook and Twitter. I highly recommend setting up a Facebook business page and a Linked-in account. After this, other social media accounts like Google+ or Twitter may be a good idea. When your business begins to take off, consider starting a website. Wordpress is a great, cheap option. Wordpress in itself is free, and web hosting can be purchased for anywhere between $35 and $100 per year. Most web hosts will also provide you with an email server so you can have an email like "email@example.com". It looks more professional than using a Gmail or a Yahoo, and it is very easy to set up.
In your advertisements and conversations with potential customers, tell them why they should pick your business instead of the other one down the road. In my business, I explain to clients that a traditional website usually costs upwards of $1,000 or more. I explain that I work by the hour, because everyone's needs are different. I have had some clients pay me as little as $250 for a website and others as much as $1500. If they would have gone with another business, they probably would have paid a lot more.
Another way to advertise is to use word of mouth. When I go to a real estate office to meet with an agent, I usually leave a few business cards behind with the agent so that they can pass them around the office to anyone else they know that needs work done on their website. Business cards are cheap (500 for $20.00 or less) but effective. I have gotten a few clients from business cards, and they are well worth the investment. In one hour of work, I have paid for the business cards, and they have already repaid themselves 10 times over.
For a budget of $200 or less, your business can have a website for a year, 500 business cards, and ads printed for posting around town. If you spend $200 on advertising and you make $1000 in profit, it has paid for itself 5 times over. Advertising does cost money, but it will return larger profits and enable you to advertise even more. Testimonials from current and past clients are also a great way to gain the trust and business of new customers. Someone who has been in business for 2 years with great testimonials and reviews is more likely to gain new business than someone who has been in business for 10 years with bad reviews on their work or products. Competition and marketing go hand in hand, and you must master them both for your business to be successful.
Step 8: Start Your Business!
In this Instructable, I have addressed the basics of running your own business: Financial Management, Marketing and Competition, and Working with Clients. If you are serious about starting a business, set yourself up for success by gathering the proper tools and setting up a business model that will be profitable. Some of the biggest companies in the U.S. today were started in the worst economic periods of American history. IBM, Microsoft, and Apple are just a few examples of a bad economy growing successful businesses.
With a combination of smart business principles, skill, and use of a few basic tools, you can start your own business to provide for yourself and your family. The economic depression has forced a lot of people out of work, but it is a great time to start your own business because a downed economy gives small businesses a chance to form and grow.
If you have any questions about running a business or being self-employed, feel free to ask for an opinion in the comments below. There are several books on the topic of running a business like "40 Days to the Work You Love" and "No More Mondays". I highly recommend that you consult lawyers and bankers before making any business decisions to ensure that you understand the tax codes and business laws in your area. Thanks for reading my instructable.