The first of a two-part series on how to start a business (or maybe not?)
Many people are excited by the idea of owning their own business and come to the Maine SBDC wanting to dive right in. We typically hear questions like, “how do I register my business, get the needed licenses, set up an LLC, find insurance, or pay taxes?”
While these are important questions, they should come after some thoughtful analysis.
According to the US Dept. of Labor statistics, 20% of small businesses fail in their first year and 50% fail within 5 years. Much of this heartache can be avoided by honestly assessing if business ownership is right for you. It also means taking time to do the research, planning, and financial analysis needed to determine if your business idea is viable.
In this two-part series, Maine SBDC Business Advisor Christina Oddleifson examines these questions, starting with whether or not you’re ready to be a business owner.
While nobody really knows if owning their own business will be a good fit until they try, there are certain experiences that many small business owners share. These questions come from those who have been down the road before you.
Why do you want to own your own business?
Take time to assess why you think business ownership is a good fit for you. Are you excited about an opportunity you see in the marketplace? Do you have a passion or a mission to solve a problem or serve others? Or are you just bored, burnt out, or underappreciated at work? There will be times when business ownership can be tough and you’ll need to draw on your “why” to keep you motivated.
Are you willing to work more hours?
The reality of business ownership is that you will work many more hours and have less time for personal activities than you are used to. Besides working “in” your business, you also need time to work “on” your business. It may take years before you’ve built a team that can run it for you.
How do you feel about risk and uncertainty?
Some people are able to tolerate stress or adapt to change more easily than others. Forces beyond your control — like a global pandemic, inflation, or an insufficient labor pool, will buffet your business. While sudden change is hard for everyone, having a flexible and growth-oriented mindset will make change easier to navigate. Be sure to assess where you are on the risk scale. It’s ok if you’re not a big risk taker, but find people to help you in this area, or choose an industry with less risk.
Do you have a support system?
Having support from a team of people will make business ownership easier. Be sure you know where you will go for emotional, financial, peer, and professional support. Take time to care for yourself, or both you and your business will suffer.
Do you have the skills and experience?
Sometimes people want to purchase or start a business in a field where they have no practical experience. This has been especially true of hospitality businesses. While you may have some related skills, having little or no direct experience will be problematic. It may also mean you’re romanticizing the idea of buying an inn or starting a bakery for example, but find out too late that the lifestyle is not for you. If this sounds like you, then start out by finding a part-time job working in the industry.
Do you understand your financial needs and obligations?
Before making a change in your life, be sure you have done a thorough analysis of your personal financial needs. If you’re starting a business, it can be a while before you even make a profit. Do you have the funding to cover your living expenses, including the cost of healthcare? Would it be better to keep a part-time job as you grow your business as a “side gig” first?
Will you need outside funding?
If you need a loan to start your business, be aware that funding for startups is hard to come by. Lenders and investors need to know that you have a viable business before giving you money.
Commercial lenders will require a traditional business plan with financial projections. Before investing your time, be sure you know your credit score. Your credit score must typically be in the high 600’s and you must also have your own money to invest in the project.
Do you still want to be a business owner?
After thinking through these questions, if you think that business ownership makes sense for you, keep an eye out for Part 2 of this Are You Ready For Business Ownership series where we dive into how to research and plan your business!
A Maine SBDC Business Advisor is a great nonpartisan sounding board if you’re asking these questions! Request an advising session to set up a time to discuss any concerns you may have!