Almost everyone has dreamed of giving up his or her 9 to 5 job at one point or another and becoming an entrepreneur. The idea of being your own boss, making your own rules, and not having to rely on someone else to earn a living is a compelling one to many people.
However, statistically speaking, most new businesses are doomed to failure. According to Bloomberg, as many as 80 percent of businesses crash and burn before they reach their first anniversary. In almost every case, the failure is due to poor planning. The truth is, owning a business isn’t all four-hour martini lunches and long weekends. The profits don’t just start flowing in because you aren’t working for someone else. Owning a business, and keeping it running successfully, requires commitment, planning, and more than a little sacrifice. If you’re willing and able to do what it takes, though, it is possible to build a thriving empire.
But before you hand in your two weeks’ notice and order your business cards, take a moment to consider some of the truths about working for yourself. While they shouldn’t deter you from pursuing your dreams, they should serve as a reminder of what you need to do before you start your own business.
Value Your Time
One of the most common misconceptions about working for yourself is that you will have unlimited time to pursue your professional and personal pursuits, and that you will be able to work less than you do in your current position. The fact is, because you are running the show, and have a responsibility to make sure that everything is how it should be, you will probably have less “free” time than you did before. You will have more flexibility — after all, there’s no boss requiring you to stay until 6 p.m. on Friday night — but you will probably need, and want, to work more hours than you did before.
Consider Money Issues
You’ve heard the saying “Do what you love, and the money will follow.” That’s mostly true, but you can’t pay your electric bill with passion and IOU’s. You need to have a plan for cash flow while you get your company up and running. That could mean developing your business on a part-time basis while you continue to work your day job. This is actually quite common; for example Sara Blakely, the founder of the popular hosiery brand Spanx, sold office equipment while she developed her own products. It wasn’t until the product was widely available and endorsed by Oprah Winfrey that she finally quit her sales job. You might not need to wait until you’ve broken the million-dollar mark to quit your job, but you do need to have some income and a plan for staying afloat.
Do Not Overlook Legal Issues
Failing to set up your new company properly in the legal sense can lead to major headaches down the road. Not only do you need to consider the structure of the company for tax purposes, but you may also need to consider business licenses and registrations, patents, trademarks, and other potentially thorny issues. If you are entering into a partnership of any sort, you must legally outline the terms of the agreement, including how the business will be dissolved or divided. While you may be able to manage some of the legal aspects of your business on your own using do-it-yourself kits or online sources, it’s always a good idea to have a qualified attorney review your business plan and documents to identify any potential pitfalls or gaps.
Have a Backup Plan
No one wants to think about failure but given the number of businesses that don’t make it past the first year, it is vital that you have some sort of backup plan. That doesn’t mean you should give up at the first sign of trouble, but if you know that you have a Plan B to launch in the event things don’t work out, you can feel more comfortable taking some risks. After all, without risk, there is no reward, but you want to make sure you have a safety net in the event that a risk doesn’t pay off.
Owning your own business can be one of the most rewarding things you ever do, both financially and personally. If you think you want to make the leap into entrepreneurship, be cautious, and get your ducks in a row before you do so — and you’ll be more likely to be among the 20 percent of entrepreneurs who do succeed.