The allure of becoming your own boss, calling the shots and growing your potential earnings as a business owner or consultant is a common dream. Starting and running your own business is a bold step that can equate to greatness in your financial and professional future but it’s not without risks. There is a lot to consider before taking the plunge. While every industry is different, there are several key elements to achieving success as a business owner or consultant.
Know Your Strengths and Weaknesses
Identify areas where you have the most to offer, as well as those with room for personal growth. Next, evaluate if your weaknesses are ones that can be overcome or if they may impede your business and growth potential. If the latter is true, and you can’t hire or outsource to surmount the issues, then you need to contemplate if business ownership is right for you. (For more, see: Starting a Small Business.)
Consider the Many Roles a Business Owner Must Fulfill
One of the greatest challenges you’ll face as an independent consultant or small business owner is the need to wear multiple hats. As well as performing your essential work, you might have to simultaneously act as a marketing consultant, HR officer, IT specialist and more. Ensure you have the ability to focus both on the daily necessities and the bigger picture.
Know How to Sell and Generate Revenue
Without sales, nothing else matters. As a consultant or business owner, your first order of business is to become a salesperson or hire an effective salesforce. It also requires ongoing industry and market research to address pricing, demand, availability, marketing and more.
Calculate Your Compensation Carefully
One of the biggest mistakes that new business owners and consultants make is underestimating the revenue required to replicate or exceed traditional earnings. Being a business owner involves more work, responsibilities and costs. In fact, you might need to earn double your current hourly rate just to break even. Frequently overlooked costs include:
- Time for Business Development and Operations: You’ll need to compensate yourself for running the business, including time for basic business operations, business development and more.
- Self Employment and Employment Taxes: Whether you employ others or are a solo contractor, you’ll be responsible for Social Security and Medicare employer taxes. These equate to an extra 7.65% in federal taxes up to the Social Security wage base ($127,200 for 2017), plus 1.45% on all additional earnings.
- Retirement Plan Contributions: If you’re currently receiving employer retirement plan contributions, these will become your responsibility. Furthermore, you might also incur plan administration costs, depending upon the plan structure you select.
- Health, Life and Disability Insurance: Essential insurance benefits are often borne, or heavily subsidized, by employers. Make sure to price replacement coverage.
- Liability Insurance: Errors and omissions or malpractice insurance could be necessary to protect yourself and your business. Costs can vary dramatically depending upon your profession.
- Vacation and Sick Days: Days off are no longer paid when you own a business, unless you budget for them.
Maintain Ample Financial Reserves
Smart business owners accumulate sufficient financial reserves to sustain through business dry spells, cover unforeseen expenses and front run costs of hiring new employees. (For more, see: Small Business: It's All About Relationships.)
Clearly Define Scope of Work
Once you sign a contract, you’re on the hook. It’s critical to ensure you clearly outline the scope of any engagement. This must include all deliverables as well as what’s excluded and items that’ll incur additional billing. Time frames are also important to define, as are protective clauses. Be sure to consult with an attorney before executing any agreements.
Networking is essential to both sustain and grow your business. Remaining active in your professional and social communities offers the following benefits:
- Developing New Business Opportunities: Networking cultivates new business, putting you in front of people who might need your services or products and develops brand recognition.
- Gaining Professional Resources: Engaging with others expands your contact base beyond new business possibilities. You may meet potential key resources such as new hires, other vendors or even valued consiglieres.
- Being Seen As An Expert: Networking gives you an opportunity to showcase your knowledge, experience and strengths to build a reputation as an expert in your field.
- Getting to Know Your Competitors: A key element of business success is knowing your competition and staying ahead of the game. While some research can be achieved via the internet, you can learn more effectively by keeping an ear to the ground.
- Remaining Current: Today’s fast paced, technologically-advanced environment puts every business at risk of becoming outdated. Staying professionally active helps you keep a pulse on industry changes, so your business remains current and competitive.
Be Ready to Sell
Run your business as if you’re planning to sell it everyday focusing on efficiency, effectiveness, profitability and marketability. This ensures that you’re on your game every day making the best decisions for yourself, your business and employees. (For more, see: 5 Biggest Challenges Facing Your Small Business.)
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