Small businesses aren’t born; they’re built. It takes a lot to start a small business, so to help you navigate the process, we talked with Melinda Emerson, small-business guru and author of the book “Become Your Own Boss in 12 Months.” We also combed the archives of Emerson’s weekly Twitter talk show, #SmallBizChat, to find advice from small-business experts about how to make the leap to entrepreneurship. Here’s their best advice:
1. Evaluate your life goals.
Before you even decide to start a business, make a “life plan,” Emerson says. Unlike a 9-to-5 day job, entrepreneurship blurs the lines between the personal and professional.
Ask yourself questions such as, “How do I want to live?” “Am I willing to work nights and weekends?” and, “How much money do I need to make me happy?” You may realize that starting a business isn’t the answer for you; some people might be happier just changing jobs, rather than starting their own business, Emerson says.
If owning a business fits your life plan, though, think about the kind of entrepreneur you want to be. Ask yourself, “How big do I want to grow my business?” “Do I want to hire employees?” and, “How will I balance my family and my business?”
Remember while you build your business, you must build your LIFE #smallbizchat
— Lisa Nichols (@2motivate) April 23, 2015
2. Find your niche.
Businesses have to identify exactly who their paying customers will be, Emerson says. Simply being a graphic designer is too broad; try specializing in graphic design for educational groups, for example. “Early on in my first business, I didn’t have a niche focus,” Emerson says. “We chased too many different customers and were spinning our wheels and wasted valuable time.” As you’re honing your business idea, be aware of your strengths and start a business that fits your skillset, Emerson says. She also recommends working for a business similar to the one you want to start to gain experience. Finally, have a plan for how your idea can make money; otherwise, it’s just a an expensive hobby, Emerson writes in her book. “Ideas can come from anywhere,” she says. “I think the world is still waiting on a better mousetrap.”
3. Write a business plan.
Every business needs a written plan that explains the target market, how the business will operate and how it will make money. Instead of starting with a blank sheet of paper, Emerson recommends using a business plan template, such as the ones available on enloop.com or bplans.com. It doesn’t have to be lengthy, but it should be a living document. Refer to it often and update it every two to three months during your first few years in business, Emerson says.
A8b Easy format for powerful business plan: What, why, who, for whom, how, how much & when? #smallbizchat
— Ellen Rohr (@ellenrohr) September 5, 2013
4. Make a financial plan.
Before you launch your business, you should build up a year’s worth of emergency savings, a year’s worth of business operating costs and enough money to support your family for up to two years, Emerson writes in her book. If you don’t have enough money from savings to startup, you’ll need to borrow from friends and family, run a crowdfunding campaign, or take out a small-business loan from a bank or microlender.
Next — although it might sound obvious — figure out how you’re going to make money. Calculate how much it costs to make your product or deliver your service, including labor, materials, shipping and marketing, Emerson writes in her book. Then, determine your price. Make sure you have a profit margin, but do competitive research to figure out what’s reasonable for your industry.
#smallbizchat A1a You need profitable sales that turns into positive cash flow that turns into cash
— RuthKing (@RuthKing) February 19, 2015
5. Be patient.
Your business won’t be built overnight. It takes 12 to 18 months for small businesses to break even and three to four years before founders can typically afford to pay themselves, Emerson says, based on her small-business consulting experience. Given that timeline, Emerson urges entrepreneurs to launch their business while they’re still working a full-time job. Use nights and weekends to work on your business until you’re earning enough to justify quitting your full-time job, she says.
For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.