1. Starting A Small Business: Introduction
  2. Starting A Small Business: Choosing Your Business
  3. Starting A Small Business: Financing Your Business
  4. Starting A Small Business: Business Structures
  5. Starting A Small Business: Making The Leap
  6. Starting A Small Business: Location And Licenses
  7. Starting A Small Business: Hiring Employees
  8. Starting A Small Business: Taxes
  9. Starting A Small Business: Record Keeping
  10. Starting A Small Business: Conclusion

One of the most difficult decisions in starting a small business can be what line of work to pursue. You might not be sure what talents you have that will allow you to succeed without an established company’s name behind you. Or you might excel in so many areas that you’re not sure which one or two to hone in on. Whatever your situation, you should consider the following factors before you settle on a business concept. (If you do want an established name behind you, see What’s the Best Franchise Investment?)

Play to Your Strengths and Interests

If you thrive on interaction with others, working alone from your desk as a manuscript editor will make you restless. If you’d rather have the flu than pick up the phone and call a stranger, don’t start selling insurance. You’re going to be spending a lot of time on your business — probably more than the hours you’re giving to your current employer. Ideally, you should wake up every morning feeling energetic and passionate about the work that lies ahead of you. At the very least, your small business idea should be something that you’re interested in and that plays to your strengths.

The process of figuring out what line of business to go into is not that different from figuring out what you want when you’re looking for any other new job. It seems daunting because the possibilities are wide open, but that’s also a big attraction of working for yourself. You don’t have to limit yourself to what your resume says you’re good at. What gets you excited? Don’t be afraid to consider every possibility. Even the ones that don’t initially seem to have any money-making potential — like dining in restaurants, vacationing in Jamaica or playing with dogs — can work if you’re motivated enough. There are, after all, plenty of successful food critics, travel writers and pet sitters. (To learn more, see In Small Business, Success Is Spelled With 5 “C”s.)

Potential Demand

Is there demand for the product or service you want to offer? Before you quit your day job, you need to do some research to see if your idea has the potential to succeed. If you want to work independently as a financial planner, see if you can attract clients based on your existing credentials and experience. If you want to produce a better laptop bag, then you’ll want to start doing market research and product testing. You could also start by looking at areas of existing demand and thinking about what type of business you could start that would fall into one of those industries. The graphic below shows the fastest-growing U.S. industries in 2016.

 

Data source: SageWorks.

It can be hard to find the time to pursue your own business while you’re still working for someone else, but it’s the most secure way to test your idea without taking a big financial risk. And if you’re not motivated enough to find the time for it, maybe you’re not really that interested in becoming a small business owner and applying for a different job would make more sense.

Potential Earnings

How much do you need to earn? We’ll talk more about developing a business budget in a later section, but for now it’s enough to say that you need to weigh the earning potential of any business you want to start against your monthly expenses. How much will it cost to operate the business, and how hard will it be to generate a profit with those kind of costs?

What about personal expenses? If you have to make a $2,500 mortgage payment every month, sign private school tuition checks and pay off your Lexus, it might be a bad idea to open a brick-and-mortar bookstore unless someone else in your household can comfortably cover all of your personal expenses and everyone else’s with their paycheck.

How much do you want to earn? Some of us want to be rich and are willing to take big risks on new ideas in pursuit of that goal. Most people just hope to live comfortably with a good work-life balance and can’t afford big risks. When choosing your line of business, consider what kind of earning potential it offers not just in the first couple of years, but down the road.

Does your idea offer possibilities for expansion, growth and career advancement? Do you know what those possibilities are and how you can exploit them? Would you rather build a business you can sell, manage others and have them generate income for you, or keep your business small and simple and do everything yourself, even if it means you’ll never have passive income? (Learn more in 10 Breakout Ideas For Small Businesses.)

Customer Interaction

Do you like to interact with others? Some small business occupations lend themselves to solitude, like accounting or writing, while others require you to be out in the world, constantly schmoozing and selling yourself to people, like any startup that requires you to raise money from investors. If you just want to be left alone, don’t open up shop as a publicist. If you feel compelled to call your mom for a chat anytime you’re alone for more than 15 minutes, don’t start a web design business.

Lifestyle

What hours and days do you want to work? If you don’t like working from nine to five, you don’t have to when you’re self-employed. You can choose a line of work that suits whatever hours you prefer. That said, many businesses require that you work according to your clients’ schedules. This means arranging your life to fit your customers’ needs. If your customers are on the opposite coast or in a different country, that can mean a serious shift in hours the cuts into time with family and friends who work typical hours.

How many hours a week do you want to work? Some small businesses lend themselves to longer hours than others. If you decide to open a restaurant, you might as well make space for a cot in your office. A sales-based business that involves large commissions, on the other hand, could leave you with more free time if you’re skilled enough.

How much time are you willing to spend away from home? For some people, the ability to stay home all day is a major draw of becoming a small business owner, but not all small businesses are home businesses. Becoming a consultant might require you to attend lots of meetings and travel frequently. Open a boutique and you’ll spend most of your waking hours at your store, at least initially.

Once you figure out want you want to do for a business, it’s time to figure out how you will afford it.


Starting A Small Business: Financing Your Business
Related Articles
  1. Small Business

    How to Start a Business While working a Full-time Job

    Do you have an idea for a business, but are struggling to find the time to launch it? Here's how you can start a business when working a full-time job.
  2. Small Business

    How To Make $1 Million In Your Small Business

    Make your dream a reality. Find out what you can do to reach this financial goal.
  3. Small Business

    Starting A Business? Consider This First

    Going into business for yourself can be a fantastic, liberating experience. But beware of the hidden pitfalls.
  4. Personal Finance

    3 Key Steps To Take Before You Quit Your Job

    Leaving a job on the best basis means thinking through everything from professional etiquette to what's financially adequate.
  5. Small Business

    How to Start a Seasonal Business

    Starting a seasonal small business isn't as hard as you think. With the right planning, you can have a successful business that operates seasonally.
  6. Small Business

    5 Reasons Why You Don't Want To Grow Your Small Business

    Growth can mean delegating work, taking on more stress and more risk.
  7. Small Business

    8 Steps To Becoming Your Own Boss

    Your step-by-step guide to leaving the nine-to-five world and striking out on your own ... successfully.
  8. Personal Finance

    Lost Your Job? 6 Things to Do Immediately

    If you’ve lost your job, shoring up your finances as best you can will make it easier to get back on your feet again when that next position rolls around.
Frequently Asked Questions
  1. Short Selling, or Selling Something You Don't Own

    Money can be made without actually owning any shares, but short selling isn't for new investors.
  2. Determining a Firm's Percentage of Credit Sales

    Find out where to look for information about determining a company's percentage of credit sales.
  3. How Did Kidder Peabody's Joseph Jett Lose $350M?

    The 1980s were a rough decade for Kidder, Peabody & Co. thanks to bond trader Joseph Jett.
  4. What Is a Blank-Check Company?

    A blank-check company has a business plan based on a merger or acquisition with another company.
Trading Center