Small Business Owner Tips
Have you ever fantasized about being your own boss? Making your own hours? Earning the amount of money you deserve?
If so, then starting a small business might be for you. Whether you’re thinking of starting a small business, already started a small business, or you’re a veteran business owner, here are some tips anyone can use to succeed at running a small business:
Start with a Strong Legal Foundation
Legally speaking, there are a few different ways to setup a small business in the United States. The four most popular models are: corporation, LLC, sole proprietorship, and partnership.
There are many advantages of starting a limited liability corporation, or LLC. First, business owners are not personally responsible for any company debts. That means your company can go bankrupt or get sued for millions of dollars and you can just shut it down – you don’t have to ruin your personal credit score by declaring bankruptcy (there are some exceptions to this rule of course).
The main disadvantage of LLCs is that they require more paperwork and legal fees. Expect to pay $700 to $2,000 per year for an average LLC’s legal fees. There are also more startup costs like initial formation fees and filing fees.
In some cases, businesses may find that the costs of an LLC are offset by the cheaper insurance prices.
One of the key points to remember about an LLC is that all personal and business dealings must be kept entirely separate. Personal money should never be intermingled with business money. This maintains the liability protection of all LLC members.
LLC taxes can be complicated. LLCs, unlike other corporations, have total flexibility over how they are taxed. LLCs can be taxed as an S-corp or a C-corp.
One of the reasons to start an LLC instead of a corporation is the double tax implications. Corporations are double taxed: all corporate profits are taxed once, and then all dividends received by shareholders are taxed again. LLCs can choose how they are taxed, which can save more money.
Sole proprietorships are the cheapest small businesses to start. They’re the most popular type of business entity. They’re less complex, easier to form, and require minimal amounts of paperwork.
In a sole proprietorship, your income tax is calculated on your individual tax return. The main difference between a sole proprietorship and an LLC is that you and your business are viewed as one and the same in legal terms. This means that if someone sues your business or your business can’t pay its debts, then you will be personally liable for all costs. That means your personal assets could be seized to cover business debts.
There are two types of small business partnerships: general partnerships and limited partnerships. Typically, a general partnership involves two or more parties who agree to run a for-profit business in which they equally share management duties, profits, and losses.
In a limited partnership, one partner will manage and finance the business while the other partners only provide capital.
Partnerships share many of the same traits as sole proprietorships in that members are personally liable for the debts of the company.
Know What You Do and Do What You Know
Now that you know how to setup the legal foundation for your business, it’s time to think about what your business will actually do.
One standard tip found in many business textbooks is this: “Know what you do and do what you know.” Don’t launch a financial services business if you don’t know anything about financial services, for example.
An offshoot of this idea is doing something you love. Some people love making money, in which case the most profitable business will also be the most enjoyable. Others will find it easier to run a business when they genuinely love what they’re doing.
Learn How to Pitch Your Business in 30 Seconds
The “Elevator Speech” is another important component of many business textbooks. This elevator speech should be able to coherently describe your business and its goals in 30 seconds or less. It’s a pitch you can use with potential investors in an actual elevator, or it’s a concise way to explain your business to curious customers.
Some will even take the Elevator Speech a step further and say that if you can’t explain your business in 30 seconds or less, then you should find a new business idea.
Act like a Lean Startup All the Time
The startup days of a business are always the leanest days. Even the smallest cost savings can mean a lot. The “lean startup” phase isn’t just for startups, however: it’s a great way to run a business even when you’re older, larger, and more experienced.
Acting like a startup means being frugal with everything you do. Maybe your company doesn’t need a fancy downtown office. Maybe you don’t need expensive car leases for all the executives. Small businesses that watch every dollar they spend tend to be more successful than spend-happy companies.
Believe that No One Will Give You Money
Sure, startup businesses receive new investments every day. But some business experts recommend starting your business as if you don’t expect any additional investment.
Limit your business plan and scale it down to be as cost-effective as possible. Make it scalable. If you can prove your business plan works at a smaller level, then investors will come naturally. If you can’t make it work at the smallest level and expect an angel investor to come in and save the day, then you might be waiting a while.
On the other hand, if an investor sees your scalable business model, they might recognize that injecting some capital could quickly grow your business. Those are the types of businesses smart investors look for.
Avoid the Temptation to Get a Patent
Patents are a controversial part of product-focused startups. It seems logical that you would want to protect your product from the very first day and register a patent as soon as the final prototype is complete.
But in reality, filing a patent only really gives money to your patent lawyer. A patent is only useful if you have the money to defend it. Most new startups don’t.
Try to push your product to the market as fast as possible. Once your business has the resources, a patent can be extremely valuable. But in the early days, it’s one of those things you think you need – but actually don’t.
Don’t Rush to Try New Things – Focus On What You’re Good At, Then Do More Of It
Many small businesses are constantly looking for ways to expand. They might dip their fingers into all sorts of different new areas – only to find that none of these areas are very productive uses of time or money for the business.
There’s nothing wrong with looking for expansion opportunities. But in many cases, the best expansion opportunities come from within your company. Think of what your small business is good at, then do more of it.
Once you’ve grown your business using this method, you can start to pick other areas in which your business can dominate.
Take Care of Yourself
Running a business can be exhausting. You might find yourself spending over 80 hours per week growing your business. During these hectic early days, it’s easy to let your health slip. You could start smoking a pack of cigarettes every day, getting fast food for every meal, and getting half the sleep you need every night.
Don’t do this. Instead, take good care of yourself. Treat your body carefully. Giving 150% every day can be good in short bursts. But if you’re doing it constantly, you’re just going to burn out and feel less productive. Exercise and find time for yourself away from your business.
Know When to Give Up
“Never give up” is one of those oft-repeated clichés in sports and business. In reality, “never giving up” is a bad idea in business. Too many business owners refuse to see the signs. They go down with the ship, only to realize they’ve lost valuable time and money they could have used to build another business venture.
Instead of putting all your resources into a failing venture, you should know when to call it quits. Understand when to quit on your business and, more importantly, learn from your mistakes.
We’ve all heard of those entrepreneurs who started 5 or 6 failed businesses before they eventually founded something great. It’s because they learned from their mistakes and knew how to recognize when a business was going down.
Understand the Biggest Advantage of Small Businesses
Small businesses might be going up against large businesses with more money, resources, and market cap. But small businesses have one big advantage over the competition: they move more quickly.
Small businesses can be more creative. They can pivot more easily. They can quickly change their brand image and their goals to capitalize on the latest trends. Small businesses can look at their biggest rival and then create a plan that’s smarter and more creative.