Are you looking to go into business for yourself or are you looking to start a new business? If so, you might be an aspiring entrepreneur. An entrepreneur is someone who organizes, manages, and assumes the risks of a business.

Whether you work as a freelancer or contractor or have a great idea for a new business, there’s a lot to consider when trying to accomplish your entrepreneurial goals. We will explore what you can do to achieve financial wellbeing while starting a new business or going into business for yourself.

Building a customer base

Here are some things to consider when building a customer base:

  • Identify market need: You probably have identified a business idea, but does your idea solve a problem? Conduct market research to identify how your business will solve a customer need.
  • Use a marketing strategy: You can have the best business idea in the world, but it won’t matter if you don’t have any clients. Create a marketing strategy to reach your customers. Some marketing strategies include direct mail marketing, word of mouth, social media marketing, or business-to-business sales. Using a variety of marketing strategies can maximize your customer reach.
  • Understand the competition: Knowing who your competitors are can help you to make your business stand out in a crowded marketplace. What are your competitors selling their product or services for? What makes your product or services better than theirs? How are they marketing themselves? Get to know your competitors’ strengths and weaknesses by researching each competitor in the market and analyze your findings.
  • Sell yourself: A lot of going into business for yourself is selling you. When speaking to potential new clients, make sure to show your expertise, tell them a compelling story, and present the best, most professional version of yourself.

How do I evaluate my expenses?

Estimating expenses is an important step in determining how much money you need to start and keep your business running without encountering cash flow problems. Here are some steps to note when evaluating expenses:

  • Determine revenue: To determine if your business is profiting or losing money, figure out your business income. Business income is the amount of gain earned from a sale of a service or product after deducting expenses. To compute business income, identify all the products/services and total the amount. Then, identify the costs of all the expenses you pay and subtract from the total. This is a simple step that can reveal a lot about your business and spending habits. If your result is negative, your expenses are greater than your income and you will need to cut back on your expenses to become profitable.
  • Create a budget and track it: Tracking your expenses will give you a clear picture about where your money is going in your business. Check all your account statements and categorize and group your expenses together. Use an expense tracker or spreadsheet or consider investing in budget and expense tracking software to keep expenses in check.
  • Consider the effects of retirement planning and emergency savings on your earnings: Don’t forget to include additional expenses such as retirement, health insurance, and emergency savings plans when making your budget. For example, experts recommend that you have at least three months of income saved for any emergency at any given time. When thinking about retirement, while you may not be eligible for an employer sponsored 401(k) plan, you can consider an individual retirement account (IRA), a simplified employee pension IRA, or a solo 401(k) plan.
  • Free up cash flow: The tighter your cash flow, the more carefully you will need to stick to your budget. This may be challenging at times. If your budget continues to come up tighter than you expected, you may consider getting an additional job, or looking for outside financing, such as small business loans or private investors, to support your business.
  • Consider both fixed and variable expenses: In your business, fixed costs are the same regardless of how much you produce of something, where variable costs vary based on the amount of what you produce. Fixed costs may include lease and rental payments, insurance, and interest payments, while variable costs include labor and the cost of materials. Because variable costs can fluctuate, it can be tricky to pinpoint exactly what you’re spending. Tally your variable expenses and separate them from your fixed ones to estimate how much you are spending over time.

Tax considerations

When you are self-employed, there are specific tax considerations that you may not be aware of when going into business for yourself.

  • Timing: Self-employed individuals generally must pay self-employment tax as well as income tax. As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.
  • Withholdings: If you have previously worked as an employee, you may be used to your employer withholding the employee portion of your Federal income taxes, specifically the Medicare and Social Security taxes from your pay, but when you’re self-employed, it’s your responsibility to pay these taxes instead. These equal the total of both the employer and employee portions of the Federal Insurance Contributions Act (FICA) taxes. However, if your self-employment income is less than $400 for the year net, you may not need to pay self-employment taxes. But be sure to check the IRS Form 1040 and 1040-SR instructions in case you meet any other filing requirements.
  • Deductions: When figuring how much of your income is withheld with the self-employment tax, the IRS allows you to first deduct all your related business expenses. These can include advertising costs, certain vehicle expenses, business insurance, interest on business loans, attorney fees, office rent, supplies, wages for any employees and the cost of goods you sell.

If you are a gig worker, the IRS requires that you report income from the gigs you perform on a tax return, even if the income is part time, temporary, or side work. Always consult a licensed CPA or tax accountant if you have questions about your taxes.

Legal considerations

When starting your own business, make sure you set yourself up for success by obtaining necessary contracts and business licenses.

  • Contracts: It’s important to get a contract for any kind of work you do. The contract protects all parties involved, but especially you. Make sure you set clear deadlines, payment schedules, and deliverables before you start work on your new project. It may also benefit you to have the contract reviewed by an attorney familiar with contract law before you sign onto the project.
  • Business license: Depending on your trade, it may also be beneficial to get a professional or vocational license. A license also may be a requirement, depending on your trade, to be a business in your state. Ask your trade association or go to your state government’s website to see if you need a particular license to start your own business.
  • Business structure: When you start a business, you may have to decide what form of business entity to establish. Whatever you choose can determine the type of income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation.
  • Insurance: Insurance is often required by law before opening a new business. Research and obtain the required insurances necessary for you to conduct business in your chosen field. Many occupations require practitioners to hold liability insurance or be bonded to protect themselves and their customers in the event of mishaps or negligence.

Next steps

  1. Look at local resources. Explore resources to help you navigate running your own business. Some national resources that can help include the Small Business Administration (SBA) and its partner, SCORE, a nonprofit business mentor association.
  2. Make a business plan. A business plan is a living, written document that outlines the financial, operational, and marketing goals for your company for at least the next three years. Once you develop your business plan, refer to it frequently to ensure you are on the right path for your business.
  3. Research your tax situation. Since taxes are based on individual circumstances, it’s important to take the time to research exactly what you will need to file your taxes correctly. Consider visiting the IRS website or engaging the services of a CPA or another tax professional.

The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.

Article written by EVERFI