Don't fear debt

How to succeed in business

Thinking about flying the corporate coop and starting your own business?

Here's what it takes if you want--or need--to be your own boss. Sooner or later, just about every--one who works for someone else is tempted to dump the corporate rat-race and make a go of it alone. Why not? As a nation raised on the notion of pulling ourselves up by our own bootstraps, we worship the idea of the self-made man or woman. Start-up stars like Microsoft's Bill Gates, The Body Shop's Anita Roddick, or Southwest Airlines' Herb Kellaher are more than just role models--they're late-twentieth-century heroes.

Even if we're not inclined toward hero worship, many of us are being forced to consider self-employment. That's because the days of secure, lifelong jobs are going the way of the pterodactyl. In an effort to "downsize" and "restructure," companies are replacing full-timers with self-employed consultants who don't demand expensive health coverage or retirement benefits.

Whether a career change is willed from within or accepted from without, anyone hoping to stay gainfully employed through the nineties and beyond should be thinking about polishing those entrepreneurial skills. "Achieving the mind-set of an independent contractor while you're working as someone's employee is a win-win proposition," says business guru Tom Peters, author of In Search of Excellence. "If you're on a payroll, such a mind-set increases the chances of staying on it. If you leave your job, it increases the odds of landing on your feet."

Ingredients for Success

Unfortunately, not everyone is cut out for solo flight. Although the number of small businesses is growing more than 50 percent annually, nearly 80 percent of new businesses fail, according to the Small Business Administration (SBA). Business analysts generally cite inadequate financing, poor management practices, and ineffective marketing techniques as the culprits. Organizational psychologists, however, believe that the real problems lie elsewhere. Examine any small-business failure, they claim, and you'll find that the entrepreneur lacked at least one of the following four critical ingredients: A business focus consistent with personal strengths, self-discipline, a passion for the job, and an overriding commitment to satisfying customer needs.

Among these, knowing what you do well is ingredient number one. "Instead of considering what they are really good at, most people look at the lists that tell them where the 'hot' jobs are," Peters groans. "This is the opposite of the appropriate approach."

Self-discipline is fundamental, too: "There are times when you don't feel like calling on a customer, confronting rejection, or even getting up in the morning," says Marsha Sinetar, author of Do What You Love, The Money Will Follow: Discovering Your Right Livelihood (Dell Books, New York, 1989). "But successful entrepreneurs are like good athletes: They have what it takes to see the task through when the chips are down."

And part of what drives them is a love of what they do. Passionate businesspeople are natural marketers; their enthusiasm is infectious. "You cannot succeed in business over the long haul if you are a negative thinker," says Sinetar. To get customers and give them confidence in your abilities, it helps to exude excitement-- even joy--in your work.

The final ingredients for entrepreneurial success: a lightning-fast response to clients' needs and an ability to deliver an excellent product or service. Betsy Collard, director of programs at the Career Action Center, a career management organization in Palo Alto, California, cites "the ability to turn on a dime, to make things happen and deliver quality."

On Your Mark, Get Set...

If you're already blessed with these qualities, have a great idea, and know it's high time you climbed out from under the 9-to-5 yoke, the next step is to plan your escape. During the year prior to handing in your resignation, put your entrepreneurial house in order by doing the following:

Shift Consciousness. Start changing the way you approach work, experts advise. "Begin volunteering to do tasks where you need to garner experience, and offer to take on bigger projects." suggests Peters. Your current employer will begin to see you as a more valuable player, which will increase the odds that the company will seek your services once you go solo.

Study Up. While you are planning your departure, ferret out information that you will have a harder time finding once you're out on your own. "Watch vendors who are calling on your company offering their services, and look at proposals that come in," recommends Collard. "Observe who gets hired, and why." Also, take advantage of your current corporate tenure to read as many books as you can about starting your business: Visit your local business library, Chamber of Commerce, Small Business Development Center, and U.S. Small Business Administration office, or call the SBA at 800/827-5722 for information.

Develop a Business Plan. Whether your expenses will comprise as little as a telephone line and a set of pencils or as much as a rented office suite with a cork ceiling and a bank of PCs, a business plan is your primary requirement. A business plan puts into concrete terms the vision you've been carrying around in your head. The plan should include an analysis of the kind of business you'll be operating, a description of the market and the competition, the resources you'll need, and the direction and proposed speed of your company's growth. In addition to forcing you to think realistically about your enterprise, a business plan helps you secure financing and credit, and attract partners.

Several software products can help the would-be entrepreneur create and develop a business plan. Packages ranging from First Step Business Plan (a $5 package from the National Business Association, 800/456-0440) to Plan Write ($130 from Business Resource Software, 800/423-1228) can help you answer the hard questions and organize your ideas.

Rub Elbows. Even if you are keeping your move secret from everyone, including your cat, remember that each person you meet is a potential client or source of business. To that end, join professional organizations and attend meetings. Also, find other independent contractors who can serve as a support group once you're out on your own.

Manage Your Money. As Salli Rasberry, author of Running a One-Person Business (Ten Speed Press, Berkeley, 1994), points out, "You can't give your best energy to your business if you're worried about feeding your family." So trim your debt and stow away six months' pay--or as much as possible--before leaving the corporate nest. If yours is an invoice-based business, protect yourself against any cash flow logjams by establishing a business credit line. To protect personal assets, you can incorporate, setting up your business as a separate entity. While you'll have to hire a lawyer and fork over around $1000 for the paperwork, your assets can't be touched if the business fails.

At the same time, meet with an accountant to get a foothold on the financial side of the business. Once on your own, you'll have to file taxes quarterly, so good advice is critical. The best way to find a good accountant is to ask acquaintances with small businesses to recommend one; short of that, check the phone book for accountants who service small businesses. To hold up your end of the accounting line, buy a good accounting package, such as Intuit's QuickBooks or PeachTree's Accounting for Windows.

Don't Overspend. The most common mistake start-up business owners make is to go crazy buying fancy office equipment and furniture. "We all think a business means a high-rise, glass-walled office with leather chairs and original art," says Rasberry. "But if you've spent $10,000 to open a shop and the phone doesn't ring, you're in trouble."

Instead of adding costs, think about cutting them: Don't rent an outside office or buy anything that isn't absolutely necessary. And don't even think about hiring anyone until you have more work than you can handle. At the same time, do spend money on the equipment your customers will expect you to have: If you're opening a hair salon, one hair dryer and a sink won't cut it.

Details, Details. If possible, set up your office and order business cards, checks, stationery, an answering service, hardware, and other tools of your trade during the month prior to your departure. Also, visit your county government office to apply for a business license. Finally, prepare a letter to be sent to everyone in your Rolodex, complete with a description of your services and a business card, and post it the day after you bid farewell to your employer.

Don't Burn Bridges. You may want to keep your company as a future customer, so do things legally. If you make copies of samples or other items to take with you, make sure the material is not proprietary, and make the copies after hours and on your own dime. Last but not least, give sufficient notice for your employer to replace you conveniently.

Death and Taxes

Ta-da. You're open for business, and the phones are ringing. After a few months, you begin to see those checks roll in, often in nice round figures. Time to go on a spending spree at Nordstrom? Definitely not.

Sadly, the new, powerful feeling a check brings is as fleeting as an April 15th breeze. All the things you took for granted in corporate life are gone. No more health or life insurance. No more profit-sharing plan. No more automatic tax withholding. In their place: A stack of invoices, hungry for your fat check. Welcome to the wonderful world of self-employment. Here are tips for dealing with the discomfort of startup distress:

Think Thin. Taxes are among the most depressing certainties of the entrepreneurial life. And as if income taxes weren't dreary enough, self-employed people are broadsided by an additional, whopping 15.2 percent self-employment tax, plus local taxes, licensing fees, and sales taxes. Throw in the costs of running computers or fax machines, making long-distance phone calls, and purchasing supplies and professional subscriptions, and you're lucky to have beans to eat.

So it's best to start liking beans right off the bat. In fact, plan on keeping only half of that check. Be prepared to part with the rest--yep, that's 50 cents on the dollar--putting it in an escrow account to cover taxes, insurance, and other costs. And as long as you're putting money aside, here's a good bit of news: You can establish a Keogh account to shelter up to 15 percent of your income; you don't pay taxes on it until you retire (and have presumably relocated to a lower tax bracket). Most important, try to build these costs into your fees without driving yourself out of the market.

Manage your Debt. In this day and age you don't have any excuse to not be dealing with your debts effectively. You can contact firms like the Wallet Doctor for comprehensive debt management.

Get Insured. Maybe someday universal health coverage will be a reality. Meanwhile, if you're married and your spouse works for a company that offers health insurance, you'll generally get the best deal there. Otherwise, find a good insurance plan before you leave. (Many states require employers to offer workers the option of retaining their group plan coverage for a specified period of time after leaving the company. But beware. These plans are often pricier than insurance you can locate on your own.) Medical insurance can cost $40 and up per month, depending on age and sex. If you include doctor visits, plan on spending $120 to $250 a month. Less expensive group plans are often available through alumni associations and other professional organizations.

And don't rule out other types of coverage. For example, if you're concerned for your family's well-being, go in for life insurance. It will run from $10 to $600 per month (depending on whether it's an investment) but will keep the wolf from your family's door should the worst happen to you.

Also, consider an umbrella insurance policy for your business to bail you out in the case of unforeseen circumstances--for example, to help cover legal fees in case you're hit with a lawsuit. And what happens if your back goes out, you fall off a roof, or some other mishap conspires to keep you out of work? For around $200 per year, you can purchase State Disability Insurance through your local employment development office (insurance providers will sell you additional disability insurance for a monthly fee of around $20 and up, depending on your age).

Keep the Cash Flowing. While having $15,000 in outstanding billings sounds good, it just ain't the same as cash in the bank. For that reason, structure your fee schedule so clients pay a little at a time instead of all at once. For example, if a client owes $5000, ask to be paid $1000 per month over a five-month period. If you have money coming in all the time, you'll enjoy a steadier cash flow. Finally, keep track of the work you do. Invoice for any services immediately upon completion, keep copies of all invoices, and keep your accounting records up to date. (If you're allergic to accounting and easily lose track of what people owe you, you're probably not suited to entrepreneurship.)

Find Support. Be prepared for tough times, especially when the cash flow slows to a trickle. "Find other self-employed people with whom you can have lunch once a week," says Rasberry. "Ask your entrepreneurial colleagues to help you take one step at a time; talk about the two things you got done last week and the two things you'll accomplish next week." Sooner or later, the mountains will begin to look like molehills.

On Your Own

While the demands of a start-up business are great, those who have made a go of it insist the rewards are worth it. And you don't have to be on the cover of Fortune to be recognized as a success. "Our culture loves the instant big win and the smashing success, but that's not what really makes a small business thrive," says Sinetar. "To flourish, a small-business owner needs an ability to take care of the details, to stick to the task until it's done, and to listen to customers. Once you're disciplined enough in the basics and have the intuitive grace to move beyond these," she notes, "you can find your own upper echelon of success."

Bronwyn Fryer is a contributing editor for PC World. Leslie Crawford is a San Francisco-based writer.