Chapter 18
Going Out on Your Own

In This Chapter
  • Considering the possibilities of starting your own business
  • Minimizing risk through planning and preparation
  • Dreaming of the rewards of being an entrepreneur
  • Remembering to keep retirement in mind when going on your own
  • Comparing the benefits of working at home to renting or buying an office

Most people, at one point or another, consider what it would be like to have their own business. Think about it. If you had your own business, you’d have no boss. You could work whatever hours you wanted. You’d make lots and lots of money because you’re smart, hard working, and dedicated. Once you got the place running smoothly, you could take the winters off, pack up your golf clubs, and head for someplace warm. Sounds great, doesn’t it? Well, starting and running your own business can be great, but it’s not for everyone—for sure.

Entrepreneurs, those hardy souls that embrace the work, risks, and possible rewards of starting and running their own businesses, are a special breed. According to the dictionary, an entrepreneur is a person who organizes and directs a business undertaking, assuming the risk for the sake of profit. Entrepreneurs, however, will tell you that it’s a person who believes in himself or herself enough to follow through on a dream and make it profitable.


[image] Money Morsel
If you’re thinking of starting your own business, your first stop should be the Small Business Administration’s Web site at www.sba.gov. It contains a wealth of resources and information about nearly every aspect of starting and running a business.


They tend to thrive on solving problems and putting out fires. They need to be able to think on their feet, make quick decisions, and accept that risk is a fact of life. They’re willing to work long hours and miss family events. They’re generally innovative, flexible, and able to overcome obstacles. They have energy levels that make other people look like they’re moving in slow motion. They’re responsible, determined, confident, and persistent. They don’t give up, even when things look bleak and they haven’t seen a paycheck in three weeks.

If you’ve been thinking about starting up your own business, you’ll need to ask yourself how much risk you’re willing to assume, and how hard you’re willing to work. And you’ll need to know that starting your own business impacts many more people than you. Your family will be greatly affected, especially if you have children still living at home. Your social life probably will suffer for a while, and you’ll find little time for leisure.

If, after careful consideration, you think that starting your own business will be your most rewarding undertaking ever, you can start to consider what kind of business might make sense for you.

Entrepreneurial Opportunities

There are thousands of business ventures out there. So how do you identify one that’s right for you? The first step is to take a good hard look at your personal situation. What are your financial needs? Your personal likes and dislikes? What type of business would best accommodate your family’s needs?

Once you’ve identified those sorts of factors, you can start looking at businesses that would best fit into whatever your situation happens to be.

Considering Your Personal Criteria

Having an idea of the type of business to which you’re best suited will help you to narrow your search. Some factors to consider are listed as follows:

  • Financial needs. If you’re the sole, or primary breadwinner for your family, you probably want to start a business with a lot of potential for earning. If your spouse is already pulling in a great salary, or you’re pretty well financially established, you may have a little more latitude about what type of business to start. If you’re going to need to pay for college for three kids and stash a lot more money away for your retirement, you’d better be darned sure to choose a business with great moneymaking potential.
  • Your personality. What’s your personality type? Are you a high-powered ambitious sort who should be looking for a business with great growth potential? Or is your personality more laid back and better suited to a slower-paced enterprise? If you can’t stand kids, you sure as heck shouldn’t think about opening up a day-care center or toddler gym. If you never wear anything but jeans and sweat shirts, a trendy boutique probably doesn’t make sense for you. You get the idea, right?
  • Family concerns. If you’re a woman with three young children and a strong commitment to the PTA, you probably want a business that allows you to have some flexibility. If you’re single with few personal responsibilities, a business that requires you to work for three days without stopping might work out just fine. Also consider where you may have to live to make your business work. If you’ve always dreamed of owning a bait and tackle shop that specializes in fancy, deep-sea fishing equipment, for instance, it will make a lot more sense for you to start the business in Florida than in Kansas.
  • Your health. Many people in their 40s and 50s find that they don’t have as high of an energy level as they did in their 20s and 30s. Consider whether you’ll be able to handle the physical demands of starting your own business. Also, consider any physical limitations that might affect what type of business you should consider. Health considerations often can be accommodated, but some businesses might be better suited to you than others.
  • Your personal likes and dislikes. If you love to get up early, enjoy being around people, and love the smell of coffee, a Starbucks franchise might be just the ticket for you. If it’s impossible for you to crawl out of bed before 10 A.M., however, a bagel shop that opens at 6 A.M. is a really bad idea. If you retreat to indoors the second the temperature dips below 45 degrees, you sure don’t want to think about opening a ski resort in Colorado. If you break out in a rash every time you get close to an animal, you shouldn’t consider starting a pet grooming business.

Giving some thoughts to these types of issues will help you to choose a venture that matches your interests and works for your personal situation. Once you’ve got an idea of what you want, you can see what’s available.

What’s Hot and What’s Not

Once you’ve figured out what type of business makes sense for your personality and circumstances, you’ll need to see what makes sense from a business perspective. It makes no sense to sink your resources, both financial and otherwise, into a venture that has little chance of succeeding.

With the digital camera market growing by leaps and bounds, for instance, it’s not a good time to open a traditional photo developing facility. You should gear your search toward growth industries—those that are expected to expand significantly in the coming years.


[image] Money Morsel
Don’t rule out the possibility of a franchise as your business venture. A franchise agreement means that you get to sell a trademarked product or service, such as Pizza Hut pizza or CleanNet USA maintenance services. In exchange, you give the franchiser a percentage of every sale.


There are several ways to identify growth areas. One is to simply take a look around and see what’s been popping up. If three new coffee shops have opened in your town during the past year, and every one has a line of people out the door every morning, you may assume, correctly, that coffee is a growth area.

But don’t take our word for it. Walk into your local department store and check out the housewares department. We’ve come a long way since our Mr. Coffee machines of the 1980s. You’ll see cappuccino makers, espresso machines, seven kinds of fancy European coffeemakers, bean-grinding machines, and on and on.

A stop in the gourmet food section will reveal all sorts of coffees and coffee-related items, such as chocolate-coated stirring sticks, flavored syrups, and biscuits specially designed for dipping.

If you leave the department store and look around your community, you’ll notice the fancy coffee vending areas in convenience stores, and the expanded coffee menus in restaurants and sandwich shops. It should be pretty clear that coffee is a growth industry.

If you’re not comfortable with identifying growth industries on your own, you can get an idea of what’s out there from government statistics. The Bureau of Labor Statistics has identified the following jobs as the 10 fastest growing occupations during the period between 1998 and 2008:

  • Computer engineers
  • Computer support specialists
  • Systems analysts
  • Database administrators
  • Desktop publishing specialists
  • Paralegals and legal assistants
  • Personal care and home health aides
  • Medical assistants
  • Social and human service assistants
  • Physician assistants

There you have it. Computers, law, and health care are the professions of the future. If you’re thinking of starting your own business, and you happen to be a computer whiz, you shouldn’t have much trouble deciding a job area in which you have a good chance of being successful.

What happens, though, if you don’t have the slightest interest in computers, you don’t want anything to do with lawyers, and you can’t stand the thought of being around someone who’s sick?

You simply don’t gear your business toward any of those fields, that’s all. Just because a job or industry has been targeted for growth doesn’t mean you have to—or even should—jump on the bandwagon.

It’s far more important to find an industry in which you’re interested and comfortable, than to try to mold your entrepreneurial efforts toward an area targeted for growth. Consider your interests, your family and personal situation, and what your instincts tell you about the sort of business you should start.


[image] Money Morsel
Remember that service jobs, such as housecleaning, catering, and dog grooming, are on the increase, and are expected to be even more in demand in the future. We’re a busy bunch of folks in America, looking for people to do the chores we don’t find the time for.


Then be prepared to trust in yourself and make your dream come true.

Risks of Starting Your Own Business

More than half of all entrepreneurial ventures fail. Having gotten that fact out in the open, we’re now telling you to ignore it if you’re considering starting your own business.

There are reasons that business ventures fail, and, when you know what they are, you can avoid them. Sure, there are risks involved with starting your own business. You could lose a lot of money. You could become estranged from your family if you put all your time and energy into work. You could lose your business to fire, an earthquake, or flood.

But there are risks involved with working for somebody else, too. You might lose your job. You might hate the job and be miserable every day of your life. You might have to take a salary cut, or become estranged from your family because you’re traveling for weeks at a time.

All of life involves risk. If you go into a business, or a marriage, or anything else thinking that you’ll fail, then chances are that you will fail.


[image] Don’t Go There
Many entrepreneurs try to start a business without a business plan because they’re intimidated by the idea of writing one, and they end up failing because they don’t have a guide. If you don’t know how to write a business plan, consult the Small Business Administration’s Web site at www.sba.gov. There’s a model plan there that you can adapt as your own.


Most businesses fail because the person who started them didn’t set goals, or failed to thoroughly think through what he would do, and how he would do it. Some entrepreneurs try to start a business without ever writing a business plan, which is a huge mistake.

A business plan is the entrepreneur’s bible, and an absolute necessity. It not only serves as a road map for where your business will go and how you’ll get it there, it will be an important sales document when you’re trying to attract funding for your business.

If you do your homework, and adequately prepare before starting a business, chances are good that you can make it work. And remember that not attempting something you really want because you’re afraid of the risk involved might be the biggest failure of all.

Rewards of Going It Alone

Why then, if the hours are long, the pay unpredictable at first, and the future uncertain, do so many people succumb to the urge to start their own businesses?

They do it because they believe the potential rewards far outweigh the risks involved, and they have enough confidence in themselves to believe they’ll be successful.

Let’s cut to the chase. Most people start their own businesses because they hope to make money—lots of money. And, they’re drawn to the prospect of being their own boss. Other factors count, such as the opportunity to meet other people in business, or to be recognized within the business community. Basically, however, it boils down to money and freedom.

Making a lot of money is good because it gives you great freedom. Think about how nice it would be to not have to worry about how you’d pay for the kids’ college educations or fund your own retirement? Think about being able to pack up on the spur of the moment and head out for an island getaway. Or taking the whole family on a ski trip to Aspen over Christmas.

Money is definitely an incentive, and one of the greatest rewards of being an entrepreneur. The freedom of being your own boss is another reward of owning and running your own business. It’s nice to be able to take off for a couple of hours to watch your daughter’s soccer game or to take your elderly parent to his doctor’s appointment.

Of course, being your own boss also entails a lot of responsibility, but it provides a very attractive sense of freedom. One additional reward—and it’s a big one—of starting your own business, is the great feeling of accomplishment that comes with having built an enterprise from your hopes and dreams.


[image] Money Morsel
Having money is nice, but remember that it doesn’t solve all your problems. Someone once said something like, “When you have money, people think you have no problems. All money means is that you don’t have money problems. You still have all the others.”


Thinking Toward Retirement

If you’re in your 40s or 50s and thinking about starting your own business, don’t be intimidated about doing so at your age. There’s a lot to be said for maturity, life experience, and business perspective that only comes from spending time in the work force.

Starting your own business now may well allow you to ease out of work gradually as you get older, without having to fully retire. Many people find working part-time, with a flexible schedule, an attractive option to full retirement.

If you are considering starting your own business, however, it’s extremely important to consider your financial situation as it pertains to your retirement. There’s a lot of information in Chapter 21, “Investing Outside of Work,” about various types of IRAs and other retirement plans, so be sure to read it carefully to help you plan for what you need.

Briefly, small business owners have several retirement options that are unique to them. One of those is a SEP-IRA, which is short for Simplified Employee Pension-Individual Retirement Account. A self-employed person can contribute a percentage of his or her income into a SEP-IRA—even if the percentage is greater than the permitted $2,000 contribution to a regular IRA.

Self-employed persons can contribute 13.0435 percent of their earnings to a SEP-IRA. That means that the more you earn, the more you can contribute. You can, in fact, contribute 13.0435 percent of income up to $200,000.

If you’re self-employed and have employees, you may want to consider setting up a SIMPLE retirement plan. You’ll read more about this in Chapter 21. SIMPLE plans allow employers to contribute up to 3 percent of each employee’s salary into the plan. The employees can contribute matching funds into the plan.

Working at Home vs. Renting an Office

Some businesses can be run very nicely out of your home, while others work better in an out-of-home setting. A small public relations firm, for instance, could work well in a home setting, provided the work area is private and quiet enough so as to be conducive to business. A construction firm, however, which requires space to store equipment and vehicles, probably would not work well at home.


[image] Money Morsel
If you decide to work from home, and many people do so very successfully, make sure that family members and everyone else understands that you’re working, and that they respect your time and space.


There are advantages and disadvantages (trust us on this one) to working at home. Sure, it’s great to be around when your kids come home from school. It’s nice to wander out to the kitchen for a cup of coffee, and to work in shorts and a T-shirt. Working at home, however, also entails a fair share of distractions. The dog needs to go outside. A neighbor, who has only a vague idea of what you do at home all day, asks you to take her to the doctor. The guy from the gas company bangs on the garage door because he needs to read the meter. You get the picture.

If you’re thinking of working from home, or wondering if you should rent an office, consider the financial implications listed as follows:

  • When you rent office space, the cost is completely deductible as an expense. If you pay your landlord $400 a month, the $4,800 you’ll shell out in a year is considered a real and actual expense on Schedule C of your income tax return. You also can deduct costs associated with renting, such as utilities and phone. Refer to the IRS Web site at www.irs.gov/forms_pubs/forms.html to select and print a copy of Schedule C.
  • To be considered a home office for which you can get a tax deduction, your workspace must be exclusively and regularly used for business. You can’t put a desk and computer in the corner of your kitchen, for instance, and declare it a home office because it’s from there that you do desktop publishing.
  • If 10 percent of the total space of your home is used exclusively for business purposes, you can deduct 10 percent of the costs of maintaining your home on your federal income tax. You would deduct 10 percent of the cost of your electricity, heat, property taxes, mortgage interest, water, and trash and sewage.
  • If you have a separate phone line in your home for work, you can deduct only your business phone costs, not your personal phone. If you have only one phone line, you can deduct the percentage of time that’s it’s used for business purposes.
  • If you own your home, you normally deduct the cost of your mortgage interest and real estate taxes on Schedule A. If your office is 10 percent of the total home space, however, you can deduct 10 percent of your mortgage interest and real estate taxes are deductible on Schedule C, and the remaining cost on Schedule A. It seems like it wouldn’t matter where you take the deduction, but there are some advantages in taking the Schedule C deduction, so be sure to mention it to your accountant.
  • If your office is in your home, you also could deduct 10 percent of the value of your property (excluding the value of land) as depreciation. Property can be depreciated over a period of years, with the depreciation considered an office expense. So if your home is valued at $275,000, and you use 10 percent as office space, the annual depreciable portion of your home is $27,500. If your property is depreciated over 27.5 years (the IRS tells your accountant how long you must take to depreciate the property), you have a $1,000 per year deduction for the office space.
  • You can deduct the cost of office expenses, such as paper, printer cartridges, and so forth, regardless of whether you work at home or in an office. You also can depreciate the cost of more expensive items such as furniture, computers, and printers.

[image] Money Morsel
The Internal Revenue Service has a worksheet to help you determine your home office deductions. You can find in on the IRS Web site at www.irs.gov/prod/forms_pubs/graphics/15154t02.gif.


After considering the financial aspects of working at home vs. renting an office, you’ll need to look at the practical ones, as well. Will it be too stressful for you or members of your family to have you work at home? Would you have the privacy you need? After looking at all the angles, you can decide which alternative would better fill your needs.


Go Figure
If you declare 10 percent of your home as office space, 10 percent of the gain you realize when you sell the home may be taxable. This liability may be eliminated by discontinuing your home office for a few years before you sell your home.


The Least You Need to Know
  • To determine what kind of business you should start, you need to consider your personality and personal circumstances, as well as the business and financial implications of various job areas.
  • Risks involved with starting your own business can be greatly minimized through careful planning and preparation.
  • Making money, having the freedom of being your own boss, and the satisfaction of growing a business from nothing are the greatest rewards of being an entrepreneur.
  • It’s important to gear your business around your financial needs, especially as those needs pertain to retirement.
  • When deciding whether to run your business from home or from an office, you need to consider factors such as tax advantages, practicality, and the strain it may cause for other family members.
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