Owning a business is not for everyone, but for those brave enough it can provide fulfillment and freedom of purpose.
This chapter will focus on the idea, challenges, and benefits of starting your own firm. It will provide you with a basic understanding of how to go about it. The best way that I can teach you what it takes and why to do it, including the expected challenges and benefits, is by providing you with my own personal example, which I have included at the end of the chapter.
I have written this chapter to give you a general understanding of what it takes to start a business. For a complete understanding of exactly how to start a business, I highly recommend reading my book: Engineer to Entrepreneur: Success Strategies to Manage Your Career and Start Your Own Firm (e2E), chapters 6 through 8, where I detail everything you need to know about starting a business from: funding your start-up company (Chapter 6), company start-up logistics (Chapter 7), and office start-up logistics (Chapter 8). In this chapter, wherever I feel that you can derive much benefit by referencing e2E, in that topic, I will include the note: “See e2E chapter x, page y”. “Excerpts from Engineer to Entrepreneur © 2016 American Society of Civil Engineers used with permission of the publisher. All rights reserved.”
Before you start a business, you need to know if you are ready. You cannot jump into entrepreneurship unprepared.
The five questions any aspiring entrepreneur should ask themselves before starting a business:
1. Do I have a specialty or niche that involves a specific idea, product, or service?
2. Is there a need and demand for the idea, product, or service I have chosen?
3. Do I have the necessary knowledge to become an expert and entrepreneur in my chosen field?
4. Can I create an efficiently trained team and staff to follow and adhere to the quality and standards that I have learned?
5. Have I established good relationships with the people I have worked with, and will they trust me with their business?
The preceding questions were posed in my first book (e2E) and were explained in much detail. I also provided examples of the answers to each based on my own experience. See e2E, Chapter 5, page 55.
Why should you start a business? You start a business to affect change and make a difference in society. To put your ideas to practical use. To attain financial independence. To take control of your future. To put yourself in a position to give back. To establish a legacy. To provide yourself a purposeful vehicle in which to channel your energy and passion.
What are the expected challenges you may face in starting a business? The expected challenges include fear of risk, fear of failure, financial strain, extreme time commitments, cash flow issues, pressure of responsibility, and inherent sacrifices.
What are the expected benefits you may derive in starting a business? The benefits that await you include financial flexibility and independence, control over your future, the use of a tax shelter, investment potential, and name recognition.
Once you have determined that you have the necessary preparation to start a business and the motivation, the next step is to start your business. Starting a business entails seven key steps:
The seven key steps to starting a business |
|
1 |
Come up with a good name |
2 |
Decide on a legal business structure |
3 |
Incorporate your business |
4 |
Set up company policies |
5 |
Apply for board or state certification and licenses |
6 |
Apply for business tax receipt |
7 |
Implement legal, taxation, and insurance requirements |
1. Come up with a good name: Your name choice should reflect your business interest. You need to do your research and make sure you do not choose a name that infringes on another person’s registered name. See e2E, Chapter 7, page 87.
2. Decide on a legal business structure: There are several business structures to choose from, all with distinct advantages, mainly: C corporation, S corporation, limited liability company, partnership, and sole proprietorship. I recommend choosing an S corporation. It provides the most protection, the same as a C corporation, but you are taxed at your personal rate, called passed through taxation, instead of the corporate rate, which can be much higher. You can declare your company losses and gains on your personal tax return using it as a potential tax shelter. See e2E, Chapter 7, page 89.
3. Incorporate your business: Incorporating your business requires you to file incorporation papers with your state; the person who files the papers is known as the incorporator. Requirements to incorporate includes the following information (requirements may vary from state to state): see e2E, Chapter 7, page 91.
(a) Legal business name: Pick a unique name that does not infringe on any other business’s brand or name selection. The name of your business will be affected by the legal structure you use, as it must be followed by the appropriate designation (“, Inc.,” “, Corp.,” “, LLC,” and so on).
(b) Business address: The location where the business will be conducted.
(c) Purpose of business: Most states allow you to put “For any legal purpose” as to not limit your options.
(d) Number of shares: The initial number of shares is entirely up to you. It can be 100 or 1,000,000. The value of the company will be divided by the number of shares issued. The shareholders are the legal owners of the company, and their percentage of shares equals their percentage of ownership. For sole shareholders, I recommend selecting 100 shares and assigning all 100 to yourself. You can always increase or decrease the number of shares, which would then reallocate ownership percentages according to who control the shares depending on the value of your company.
(e) Board of directors and initial officers: The board of directors, headed by the chairman of the board, are the people assigned by the shareholders to oversee the company and elect the officers. The officers of the company are elected by the board of directors to run the company headed by the president. For the purposes of incorporation, only president, treasurer and secretary are required.
(f) Registered agent: This is the individual assign to be the official point of contact between the Internal Revenue Service (IRS) and the company with respect to notifications.
(g) Incorporator: This is the individual who files and submits the incorporation papers.
You should also purchase and complete your company by-laws, issue stocks, and open a bank account. Company by-laws are the rules by which the company is run and organized. It spells out the roles of officers, records the shares of stock, and contains sample company meeting minutes, resolutions, and includes the corporate seal.
4. Set up company policies: Company policies are the rules by which the office is run and is important to have to eliminate confusion and avoid potential liability. See e2E, Chapter 7, page 94.
5. Apply for board or state certification and licenses: For professional corporations, it may be necessary to apply for board certification from your state. See e2E, Chapter 7, page 95.
6. Apply for business tax receipt: In addition to state certification, you most likely, depending on your state, will need to apply to do business in the city and county in which your business is located. See e2E, Chapter 7, page 96.
7. Implement legal, taxation, and insurance requirements: When starting a business, you must become aware of the many legal, tax, and insurance requirements such as: See e2E, Chapter 7, page 96.
(a) New hire reporting: Each new employee hire must be reported to the government: https://acf.hhs.gov/css/employers/employer-responsibilities/new-hire-reporting
(b) Employment eligibility verification (I-9): This form is required to be provided to the government, for each new employee, to confirm employment eligibility: https://uscis.gov/i-9
(c) How to conduct proper interviews: Not all questions are appropriate or legal to ask of your potential employees during interview: Https://Eeoc.Gov/Overview
(d) Noncompete, confidentiality, and nondisclosure agreements: If you have employees who you train in an area of specialty, these documents help protect you from them using that knowledge to compete against you or to share proprietary information with others.
(e) Patents, trademarks, and copyrights: These documents protect you from people trying to profit from your ideas.
(f) Apply for your company’s employer identification number (EIN): Most companies are required to have a unique identification number, similar to your social security number: https://ein.e-tax-filings.com/business-select-b/
(g) Apply for small business status: This status applies to corporations that want to take advantage of pass-through taxation and be recognized by the IRS as a small business corporation, S corporation: https://irs.gov/forms-instructions
(h) Understand federal, state, county, and city taxes.
(i) Understand your state corporation fees.
(j) Understand your insurance requirements: Workers compensation, general and professional liability.
Why did I decide to start a business? I did not consider becoming an entrepreneur until late in my career. This was partly because of a set of fears and partly because I was comfortable and content with where I was. I was not being paid well, but I was given lots of responsibility, and I was constantly learning. I guess it just never occurred to me. I was afraid of the unknown. I was not sure if I could run a company and take on the responsibility of being an employer. It was not until I hit a rough patch in my life, coupled with hitting a ceiling at work, after many years, that I started to seriously consider it. I had just gotten divorced, and my job was no longer fulfilling to me. I was stuck doing very tedious work that I did not find challenging. I was not learning anymore. I had become stagnant. I found myself looking at my watch every day hoping that it was time to go home. Finally, I got the courage to make a dramatic change in my life. I decided, after 13 years, to leave the only place I had ever known as a professional. It almost felt like if I was leaving home again. It was a terrifying decision. I could no longer hide from my fears, so I decided to confront them head on. Instead of taking comfort by going to work for another company that did something similar, a job that would allow for a smooth transition, I decided to take a totally different path. I decided to do something that I was ill-prepared to do. I decided to go work for a firm that did only general structural engineering. I left my comfort zone. I decided to leave the field of engineering in which I had practiced for so many years. A specialty that was the only thing I knew how to do. I was embarking on something totally foreign to me. I thought to myself, how will I ever get hired to do general structural engineering when I had never practiced it, and I was in my 40s? I figured I would learn something new, but how would I sell myself? So, I decided to make a bold decision. I asked to be paid entry level. It would mean a drastic pay cut. However, there would be a catch. The agreement was that I was to be paid entry level for the first year, with the understanding that my compensation would be adjusted at the end of the year if I was able to originate enough work in my field. The deal was that if I did bring in the work, I would be brought on par with what I had made the year before at my previous company. We had a deal. I was the first one to work the next day. I had a renewed sense of excitement mixed in with some trepidation. Could I learn to do the general structural work? Would I be able to bring in work in my field? I had asked for a little time to get the staff trained and ready in case I could bring in the work. In the meantime, I would do whatever they asked me to do until I was ready. As it turns out, I did not get a chance to do too much general structural work because I had severely underestimated myself. I got to work on some foundations and some structural repair inspections for a few months until word got out that I had left my job and had gone to work for another firm. Some of the people I had done work for had found out where I had gone and tracked me down. They asked if I was willing to do some work for them. I was not ready, but I could not say no. After all, this was my field of specialty, and I knew the work backward and forward. I would do all the work myself and train the staff on the fly. Soon, more and more work in my specialty started pouring in without a single phone call or marketing on my part. You see, as it turns out, it appears that I did good work, and the clients took notice, and some followed. I worked at the new firm for three years. Most of the time was spent overloaded with work and asking for more help so I could go out and bring in more. The economy was experiencing a bad downturn, and my requests for assistance went unheeded. Nonetheless, after my first year, I had generated considerable work for the firm and was compensated as agreed. My next review did not go so well even though I continued to generate a lot of work for the company. But, I decided to stick it out a little longer. I had managed to take a new discipline into a company that had no experience in that field, train the staff to work in that field, and bring in work, but the economy was in a tailspin. It became apparent that I had quickly hit another ceiling at my new job. I became disillusioned. It was time to make another move. I kept expressing my disappointment with my current situation to my wife (I had since remarried) who by now had grown tired of hearing me complain. One night, I must have been complaining a little too much and she finally said…just shut up and do it. I do not recall if she said it quite that way, but it sure felt like it because it certainly made an impression on me. So, I decided to quit my job and go into business for myself. I was told by my current employer that it was a bad time to quit my job due to the economic downturn. I was advised to take some time and think about my decision, but my mind was made up, and I gave immediate notice of my intent to resign. I was going to enter the entrepreneurial field in engineering during a time when existing firms were laying people off and downsizing due to the poor economy. But, I had a plan. I would offer equal or better quality of service at a reduced rate. It made sense, as, at my current job, I had built up a following of old contacts and generated new business based on my knowledge and experience. The people I had worked with in the past followed me to my new place of employment; why would they not follow me yet again? I would assure them that on my own, I would be in a position to offer them better rates, more flexibility in terms, and better service, as I would be the one making all the decisions, not having to rely on someone else to set the terms and fees. I had quit my job, used my life’s savings, along with financial support from my wife, to set up my company out of our home. DLG Engineering was born.
What are the challenges that I faced in starting my own firm? The biggest challenge I faced was overcoming the fear of failure. Could I train a staff to uphold my standards of quality, and would clients trust me with their work? This fear caused me to prepare and plan. In my case, the fear was assuaged a bit when I left my first job of 13 plus years to a new firm that practiced a totally different discipline. It was like starting my own firm, but without the financial responsibly. No one in the firm knew the specialty of which I was bringing in, so I had to train the staff to perform the tasks and supervise them to make sure the quality of work was up to par. Sure enough, my preparation paid off, and I was able to train a staff, and the clients followed. There was still a lot at risk such as my reputation and my salary because I made an arrangement where I took a huge pay cut when I was first hired, with the understanding that if I could originate work for the company based on my area of specialty, that I would then be compensated accordingly. Once I decided to leave that company and start my own firm, the fear returned. This time it was a fear of being financially responsible for not only myself, but for my employees. There was also the fear of: would the clients follow me if I set up a new company with no history of success? Once again, I prepared and had a plan. I would offer equal or better service for a lesser fee. It worked. Once you open your own company, the challenges turn to other areas. Highest among them is cash flow management and meeting your financial liabilities. Choosing the right staff. The financial hurdle for me of finding start-up funding was not that big of a concern because I had implemented the strategy and use of my 401K and equity in my homes as start-up funding and had managed to reduce my liabilities and expenses in preparation.
What are the benefits that I have derived from starting my own company? The benefits I have derived from starting and owning my own company and being an entrepreneur are almost too many to list. It has been entirely worth all the sacrifices that I have made. Having done it with a management style that requires less day-to-day management than most business owners, it has allowed me to pursue other endeavors and interests. Endeavors such as being an expert witness, peer reviewer, and investing in real estate. Interests such as freedom to travel, to write a book, or two, the ability to pursue my passion in photography, and an opportunity to be actively involved in the community. None of these would have been possible, or at the very least it would have been much more difficult, if I had a 9 to 5 job. Other benefits that I have derived include the freedom to choose the projects I work on and the number of interesting people I have met. It has provided me a seat at the table, with much larger and universally recognized firms because of my unique area of specialty. It has provided me the opportunity to demonstrate my expertise though all sorts of media and give back to the community. It has given me financial flexibility and freedom. It has given me a sense of purpose and an identity. Without a doubt, opening my own company and, more specifically, becoming an entrepreneur has been the best business decision of my life.
Recommended Activities
1. Read chapters 6 through 8 of Engineer to Entrepreneur: Success Strategies to Manage Your Career and Start your Own Firm.
2. Come up with a good name.
3. Decide on a legal business structure.
4. Incorporate your business.
5. Set up company policies.
6. Apply for board or state certification and licenses.
7. Apply for business tax receipt.
8. Implement legal, taxation, and insurance requirements.