Wednesday, November 18, 2009

Starting Your Own Business

This is the first blog in a series about starting your own business.

Many people dream of being in business for themselves. They think about the financial rewards, the independence of being their own boss, and the freedom you get when you do not have to answer to someone else. It all sounds wonderful. Doesn’t it?

Let me fill you in on an alternate reality.

We all know the urban legend about Bill Gates. He dropped out of Harvard to start Microsoft. He worked hard, made some good decisions, (except Vista of course) and is now the richest man in the universe. Well, that rarely happens. The financial fact of small business is that 80% fail. Most of the remaining 20% struggle to get by and a rare few end up with the big bucks.

It is true that you are your own boss (except maybe for your spouse, clients, and employees). The (big or small) buck stops at your desk. That means that when something goes wrong, you also do not have anyone to pin the blame on. All the decisions rest on your shoulders and you can’t ask for advice from your friend in the next cubicle. It can be very lonely having your own business.

You now have the freedom of working all day and then doing estimates, billing, record keeping in the evening. Oh and don’t forget those phone calls you need to make and the supplies you need to pick up. Oh and paid vacation. Who are you kidding? When you go on vacation, there is no one back at the shop to earn money for you.

We are going to explore the world of options you have for starting your own business. To end this section, I want to share some definitions with you, which will be expounded on in subsequent blogs:

Break Even – This is the point where the revenue from your work equals the expenses to accomplish that work.

Contractor – This is a person who is working for your company and does not have any taxes withheld from their pay.

Corporation – A well-established form of business with shareholders, stock, and well-defined limits of liability and operating characteristics. It is a separate organization and must file its own tax return.

Employee – This is someone who works for you and has taxes withheld from their pay and receives whatever benefits your company offers.

Franchising – A quick way to get into business. You pay to be part of a large company with established policies procedures. Dunkin Donuts and MacDonalds are well known franchises.

Homestead Exemption – A document you can file at the registry of deeds that protects you from being forced to sell your home to satisfy creditors. Consult a lawyer for more specifics.

Limited Liability Company (LLC) – A form of business that provides some protection from liability. An LLC may or may not file its own tax return.

Liability – In this context, liability is defined as having a business problem spill over into your personal life and assets.

Limiting Liability – This means keeping your personal assets safe from business problems. The idea is that if the business gets sued, you get to keep your house and personal checking account.

Multi-Level Marketing – Another quick way to get into business. MLM is almost always selling consumer goods. You are compensated for your own sales and earn a commission on the sales of people you recruit into the business.

Self-Employed Individual – That would be you. This is a person who runs their own business and takes on the risks associated with it. Even if you have only one client you are still self-employed. You must run the business, do the work, pay the bills, collect the money, and pay your own taxes.

My next blog will discuss Franchising and Multi-Level Marketing.


Thom said...

I made a minor change to the blog. The definition of contracctor was clarified. Thanks to a former Mass DOR Commissioner for the suggestion.

camilynn said...

A valuable post on"Starting Your Own Business".And I would like to say that I'm living my dream of owning my own business and working from home earning equally or more than the regular jobs by using

Thom- Own a new business