I have been thinking about starting one lately, and I’ve come to realize that there’s so much that I don’t know that I don’t even really have a clue as to how much I don’t know.
However, I thought it might be useful to collect some tidbits of knowledge to help people decide whether to start a business, or how to get one going easier or cheaper.
For instance I worked with a vendor and a computer programmer on my day job to set up an on-line credit card sales system. The vendor is Authorize.net, and I don’t want to endorse their specific services as I’m sure there are other similar ones.
With this vendor service you can process credit card transactions for a monthly fee of under $25 and a per transactions fee of 10 cents a pop, You can cut that transaction fee just about in half, if you validate your data to a greater level against their database. For instance, if you enter the customer address into their system and validate that address against the credit card billing address, they’ll knock about 3 cents off each transaction. But you’ll also get more declined cards because of simple typos.
You can go to the vendor’s website with a login ID and password, and process a credit card directly through a provided data entry form, and the money will be deposited into the bank account you specified when establishing your account.
Or, as my emplyer did, you can hire a computer programmer to build your own data entry form. The vendor publishes their data transfer requirements, and the programmer organizes the data output in a way that the vendor gets all the necessary transaction data, and either sends back an “Accept” or “Decline” message.
I can’t give much advice, since I’ve never started up a small business. My best friend, however, works for the local small business development center.
Having owned any number of samll businesses over the years, the best piece of advice I could give would be: figure out what it costs for you to live for a year with no income. Have twice that in the bank before you open a small business.
Corallary: Calculate your initial capitalization. Triple it.
silenus is right. I’m in my second startup now, and we’re most of the way through our second $1M. Breakeven is (finally!!) just around the corner (barring disaster).
Succeeding at starting a business is VASTLY harder than folks assume. If you don’t know what you want, if you’ve just got a vague “itch” to start something, you’ve got about 2% of the motivation you’ll need to see you through, even if you have the money needed. If you have neither the money nor the motivation, well…
Folks who like the skill they have but want to employ it for themselves, not somebody else, are often would-be business-starters. The construction worker who wants to be a contractor, the baker who wants to open a bakery, etc. Those are often the least well-equipped people for the tasks ahead.
If that describes you, I recommend a book: *The E-myth – : why most businesses don’t work and what to do about it * by Michael E. Gerber. Your library ought to have a copy. He’s written a couple of sequel books to cash in on his ideas; they aren’t as solid as the first one.
My experience with small business ownership made me appreciate the joys of working for someone else. My partners and I found it relatively easy to provide low paying jobs for ourselves and about 40 part time employees. But after a couple of years working at far below our market value, we realized we weren’t gaining any ground. We weren’t making enough profit to expand, or to raise our salaries. We fouind that the alleged tax and other benefits of small business ownership were vastly exaggerated.
And we found out that the first thing you should discuss when you form a partnership is how things will work when one or more of you wants out. In our case, it ended badly, and I haven’t spoken with either of my former business partners in five years.
Have a good accountant and a good lawyer. You don’t need the headaches, pass them on to a professional.
Incorporate. Protect your home and personal assets from law suits. Corporations can write-off many expenses that individual can’t, so associate as many expenses with your company as you can.
Don’t expect your income statement to show a profit for the first few years. When you do show a profit, consult your accountant and lawyer about the best way to shield it from the IRS.
Constantly be on the lookout for better insurance, office space, suppliers, etc… Don’t be complacent about your fixed and variable costs.
