So you’re thinking about starting your own business? Many new entrepreneurs focus solely on their business idea during the startup process—and rightfully so. But what about those less exciting yet important business decisions that can dramatically impact your performance or your bottom line?
Here are six questions you should ask — and answer — before earning your first dollar:
- Do I really need an office? The answer depends on the nature of your business. You’ll need space if you require a storefront or on-site personnel, but if you’re like the majority of virtual businesses today, consider setting up a home office or renting shared office space instead. Starting up can be extremely expensive, so reducing costs is the best option to improve your bottom line when revenue is small. Look into shared office services like Loose Cubes, and check out online collaboration tools like Dropbox or Addie to share files and ideas with colleagues and clients.
- Can I afford personal health care? Expensive health care is probably the top reason that many aspiring entrepreneurs refuse to break away from the comfort of their current corporate benefits. However, services like eHealth help you research plans and options that fit your personal needs and budget. Don’t let personal health care costs prevent you from starting your own business, and don’t take unnecessary risks by going without coverage.
- What is considered a business expense? One major benefit of owning your own business is the ability to write off certain expenses on your taxes. Always seek the advice of a licensed tax professional if you have questions while preparing your tax return, but a few commonly forgotten business expense deductions include mileage, rent/mortgage and utilities related to your home office, telecommunications, business meeting meals and tax preparation fees.
- How can I save for retirement? Small business owners can contribute to an individual 401(k). Essentially, you use your small business to “match” your personal contributions—a great way to use both company money and earned salary to fund your retirement. There is a maximum total contribution of $50,000 for 2012, which should be plenty for most small business owners. You can learn more about individual 401(k) plans on investment websites like Vanguard.
- How should I structure my company? There are several different business structures available, each with their own legal and financial implications, so do your homework to choose the right structure for your startup. Limited liability companies (LLCs) are becoming increasingly popular for small businesses due to low filing fees, ease of incorporation, relaxed tax implications and liability protection for owners. If you need to incorporate to share ownership or shares but want to report profit and loss on your personal tax return, then an S corporation may be right for your business. Keep in mind that you will need to elect a board, sign a shareholder agreement and facilitate annual meetings to comply with government regulations if you choose to incorporate versus setting up a sole proprietorship or LLC.
- Is there an industry association for my business? Very few companies create an entire industry on their own, which means there should be an industry or trade association available to you right now. Join one to connect with peers, ask questions, share best practices and stay informed on news and events that may impact your business. Many companies within the same industry join a group together for great mutual benefits, such as cutting shared costs with suppliers, vendors and service providers, and pooling resources to attract larger partners, investors, or advertisers.
Taking an idea and turning it into a successful business can be the most rewarding life event for any entrepreneur. But in order to increase your chances of success, you may want to answer these crucial questions first!