What are the challenges of starting your own business?

In My Humble Opinion
1

I have a regular job that I enjoy. I like my boss, it pays well, provides reasonable hours (most of the time), health insurance, etc. However I am also thinking of setting up a sole proprietership to sell some of my photography on the side. I figured that as long as I am saving up and spending hundreds of dollars on lenses and supplies I might as well try to make some of that back. The idea of setting this up, though, is a bit intimidating and I don’t know how hard it is.

I have been looking through sites like SBA.gov for information, but am curious to know what challenges others have faced in a similar position. What issues surprised you? Would you do it again? Was it profitable?

I understand that nobody here is my accountant, lawyer, rabbi, etc. and that nobody is giving “official” advice. :smiley:

2

I’m not anywhere near your location, but in Spain Chambers of Commerce offer a service I took advantage of, where they help you decide which kind of legal setup is best for your needs and then to set it up.

I’ve also found the tax folks to be a very good source for tax advice. After all, as my brother the financial manager says “well, at one point I realized that when our tax lawyers weren’t sure of something, they’d ask Taxation, so now I just ask Taxation when I’m not sure, it’s cheaper :p”

(Yes, I’m in Glasgow. I also happen to be self-employed in Spain, but my current project is in Glasgow for a Spanish company)

3

There are whole books devoted to this topic. There are even books devoted to setting up and running a photography business. I’d strongly recommend you buy and read one before going any further.

4

I run my own business. When it was just a side thing like you’re considering, it was actually fairly easy. Since I rent, I had to get permission from my landlord to run a business out of the house (no problem) and from the planning department at the County. Then it was a DBA to publish my business name and a business license (two, actually.)

I also got certification as a small business in my state while I was part-timing it, but that’s mostly useful for consideration in bidding on government jobs.

I never needed a loan, and if you have all of your equipment and are starting small, it’s entirely likely that you won’t either.

Most of the real challenges came when I moved from part-time to full-time, and lost things like the health insurance I had through my day job. Doesn’t sound like that’ll be an issue for you right now. Keep the job for the benefits and have fun with it.

5

Thanks Sunrazor, I have looked at a few of those books and will be purchasing a couple of them. In this thread, though, I’m really interested in what personal experiences folks have had. A lot of books list the step-by-step for setting up a company, creating a business plan, creating a portfolio, etc. but fewer offer actual accounts of “gotchas” or surprises that real people have run into.

6

Starting a business is incredibly easy. Making it profitable is really the hard part.

I’d make two phone calls: One to an accountant, and the other to an attorney. They can help you determine the easiest & most profitable way to go in less than an hour apiece. The lawyer will help with issues of liability (of which, in your case, I imagine there would be relatively few), and the accountant will tell you the tax implications.

After that, it’s just a matter of filling out paperwork, or hiring someone to correctly fill out the paperwork.

7

You don’t need lawyers or accountants for what you’re talking about.

Set up a sole proprietorship. How you do so varies state to state. And, you don’t need a book or a person who charges fees to help you do it, unless you’re too dumb to even figure out how to register at a message board, which you’re clearly not.

You pay taxes just like it’s income tax. You deduct those things that are justifiable business expenses. Your businesses’ debts and liabilities are your debts and liabilities. You don’t need to do anything if/when your business dissolves.

Every self-employed artist I know (and I know a lot of them, including my wife) who has a small business does sole proprietorship. Once they get big, they might move into the realm of a Limited Liability Corporation.

Anyway – as to the other parts of your question. . .well, what’s your idea, your plan?

I gotta admit, I’m not really getting your passion for either business or the art of photography out of this. . .

Do you want to sell framed prints at art shows?

To get into galleries?

Do you think you’ll just put your photos up on a web page, and people will pay you hundreds of dollars to get your prints after googling “photography”?

Anyway, my wife started her jewelry business about 8 years ago. She probably lost money the first couple years, started breaking even, and has grown at a decent rate ever since. She gets into better shows. She’s been doing online business. But, it’s been slow & steady, and was initially financed by my steady job.

She is very active in the running of her business (shipping, receiving, marketing, pricing, accounting) as well the fabrication & design side. And, you need to do both well to be successful.

It’s a very nice thing to be able to start something like that from scratch and have it truly be your own. But, don’t quit your day job right now.

8

Trunk, thanks for the reply. I am definitely passionate about the photography - you will rarely see me without my camera unless I am at work - but am more concerned about how to actually make more money than I would spend to support a small business. I would mostly be interested in local or regional art shows, galleries, etc. A web site would be a must, of course, but I wouldn’t count on that to make much money.

9

Except you’ll have the 15.3% self employment tax (Soc security and medicare normally paid partially by your employer) so don’t just lop off your tax bracket off the top of any profits, or you may have an unpleasant surprise come tax time. I forgot this one year and had a $4k tax bill I wasn’t expecting, and I had even paid estimated taxes too. Also if you don’t pay estimated taxes quarterly you may have penalties.

I am set up as a sole proprietership, I keep meaning to be an LLC because of liability, but I’m thinking it’s hard for a graphic designer to have too much liability. I suppose if I do a “negligent” design and actually lose a company money somehow?

10

On top of that, an accountant can help you with many other questions, such as what expenses are tax deductible. They’re usually worth the money.

11

The first single thing that stopped me getting a fund is the signing the dotted line. If you are getting funding, read the fine print, read it with a lawyer, and if you have partners, prepare for a time of thrashing things out.

Getting the right revenue model is an important thing as well as doing research on the market. Finding the niche, or to use the term ‘unique selling points’, is the hard part. Who are you targeting and why they should come?

If you are going to get funding, be prepared to be grind on your financial forecast; they will ask you to justify the numbers.

The last thing is that if you are going in with others, agree on the share-holding beforehand and get it in black and white with all the legal stuff done. Friendship is over-rated, good-will only goes this far…once money becomes an issue.

If you are doing this alone, raising the capital is the hard part.

My own story: grind through the entire panel, convince them with a thorough marketing plan, only to find out that another department handles the contract and it is completely different from what I have been told; and there in black and white, the loan is equitable, they could buy the entire business in less than 48 hours and though they say they will never do it, all my partners said ‘pull out’ and I had no choice but to stop for they were coming up with the seed capital.

And if you are doing an e-commerce site, don’t underestimate the difficulty of getting an open-source solution set up. It’s not ‘free’ as in cost-free to set-up, just ‘freedom in usage’. Most e-commerce software or CMS which are open-source, like Joomla!, ZenCart and etc, come with half-baked documentation and are not entirely user-friendly.

12

A few “been there, done that” suggestions:

  1. Even if it’s a sole proprietorship, keep your books as if it was a completely separate business. Get a business credit card to keep business expenses and personal expenses separate. Spend a few bucks and have a tax accountant take a look at what you plan to deduct to make sure it’ll be okay.

  2. If you have anyone investing from the outside, consider creating a corporation. There are quite a few reasons to do it.

  3. Create a detailed inventory of which personal assets are becoming property of the business. This prevents issues later - especially if you get audited.

  4. Register the business name with the state, even if it’s just your name with the word “Photography” after it.

  5. Set up a separate bank account for the business. All money moving between your personal account and the business account should be well documented.

  6. Delineate an area of your home as your office/studio. You can write it off on your taxes.

  7. When a one-man business sets up accounts with suppliers, banks, and so on, you’ll have to sign personal guarantees for things (even if you incorporate). Keep a careful list of these. They can come back to bite you decades later – especially if you end up selling the business.

  8. Check with everyone you regularly buy from to see if you can set up a business account and buy at a discount.

  9. Watch the cash flow!!! Unless you’re remarkably well-capitalized, cash flow is much more important than profitability. You can survive a few months without profit, but you can’t survive without cash.

I’ve started one partnership (merged into a corporation), one corporation with partners (sold off after four years), one corporation that was just me (shut down after a year), one corporation with my wife (sold off after ten years), and several small businesses with my wife that were eventually merged into a single corporation (just the two of us own it).

One lesson I’ve learned through all of that is that income is irregular. Accumulate all money in the business account and pay yourself a salary from it. When you (hopefully) get extra, you can consider paying yourself a dividend. This keeps some money flowing in the lean months.

Good luck!

13

Cowgirl Jules is pretty wise, there. My boyfriend runs two businesses that are his sole source of income. Excuse me, “income”. Know how much money he made last year? 13 grand. Know how much the IRS took back from him? 4 grand. Understand the taxes or they will bury you. If he didn’t have me he’d starve.

Of course, a sideline business is very different. Just run it seriously and don’t get sloppy with the books.

14

I’ve been running an LLC for 8 years now. Even though it’s organized as an LLC the IRS treats me like a sole proprietor; it’s very plain and simple. I only had to register with the Secretary of State here (Miss).

I’ll second the advice of Invisible Wombat to keep the biz accounts separate from personal ones.

I formed the business about a month before quitting my ‘regular’ job; that gave me time to line up a few clients and projects before starting out. I’ve continued to grow (slowly) and I’m still rocking along. My biggest issue has been cash flow - this is my sole income (and for the first few years I was a single mom with this our only income). The first two years were probably the toughest; after that things got smoother.

15

And there’s another challenge. Many want to be self-employed so they will “be their own boss”. That is 100% wrong. Every* customer to be must be treated with much more asskissing than you do your boss now. If you don’t, you wind up getting “fired” and there’s no unemployment for that.

  • Ok, once you are successful you *very rarely *can kiss off a pain in the ass customer, and “fire” them. But not very often, and word gets around. Honestly, you have to kiss so much ass you should start buying Chapstick by the case. :smiley:
16

That has not been my experience, but I’d bet it depends upon what kinds of business you’re operating.

17

I second (third?) keeping your business accounts seperately. When I went on my own and finally got an accountant, she said that doing that (I had) was the difference between an easy transition and a nightmare for her to sort out.

I didn’t use an accountant when I was small and working on the side, but she probably still would have saved me some money there. Enough to justify her fee, I don’t know, but she absolutely is worth it at this level.

And having the freedom to kiss troublesome clients goodbye is one of my favorite perks. I don’t get a lot of them and I have a very good main client, but I can still kick some of the real jerks to the curb.

18

Some of the good and bad of being your own boss:

BAD: Every time an employee calls in sick, guess who gets to cover?

GOOD: When a customer is a complete ass, you can take the action you wish. You may decide you need the customer, you may tell him to pound sand. But either way, it’s your call.

BAD: If you can’t afford to hire someone to clean the toilets, it’s your job!

GOOD: You are free to apply your own ethics and morals to every situation. You don’t have to justify someone else’s decisions.

BAD: When things go wrong, there’s no-one else to blame. It’s all you.

GOOD: You can make purchasing decisions in such a way that they benefit you personally. So the new computer you buy for the office just might be specced perfectly to run your favorite game, for example.

BAD: When the business is low on money, you have to either cover it or fold up. It’s no fun making payroll out of your pocket, but a lot of us have had to do it.