The American Dream

Have you ever dreamed of owning your very own business? Many Americans dream of being self employed, and they do so for many different reasons. Some simply wish to be their own boss, while others want the freedom and flexibility that self-employment may provide, and still others simply want to do what they love. In fact, according to a recent Money Magazine article, almost two-thirds of Americans dream of starting their own business. So would you be surprised to learn less than 2% ever take the plunge and actually do it?

There are some sobering facts – according to the Small Business Administration, around 33% of businesses will not make it past a year and only 44% make it past the fourth year. In addition, most new businesses will not earn profits until at least the third year.

But here’s the potential reward – according to the Federal Reserve’s most recent Survey of Consumer Finances, the average income of a self employed individual was twice as high as the average wage earner, and the average net worth of self employed individuals was over five times greater than the average wage earner.

If you are in the majority of Americans who would like this dream of self-employment to become a reality – let’s take a closer look at some smart steps towards making this dream come true.

Important Considerations. Starting your own business is an exciting and sometimes stressful proposition. There are a few important strategies and assessments that should be considered as you determine if you should start your new venture.

Write a Business Plan. While it may not be easy or fun to do, writing a business plan should be one of the first items to be completed as you move towards opening your new business. By writing a thorough and comprehensive business plan, you are not only forcing yourself to think through and analyze the wide array of potential costs and challenges, but you are also preparing yourself to seek outside investors or bank financing, which will require a well written business plan before they consider financing in your new venture. The Small Business Administration has a wonderful site, full of information on business plan writing, including many sample plans covering a wide range of business types.

Think About Insurance. A very important item to take into account before starting your own business is medical insurance. If possible, switch your insurance coverage to your spouse or significant other. Another short-term solution would be to consider taking advantage of COBRA Insurance. COBRA generally allows you to keep your current coverage for 18+ months after your termination date. After COBRA expires, you would then need to seek out your own medical insurance, which can be very costly for self-employed persons. One helpful idea is to look to join a group of other self-employed persons in order to obtain a better, group coverage. One organization that is working to fill this need is the National Association for the Self Employed, or NASE.

Do Careful Financial Planning. Any new business will require a potentially substantial amount of money for startup costs. Additionally, unless you can start your new business while maintaining your current job, you will need to have sufficient reserves to support yourself/family during the early startup months/years when cash will be extremely tight.

Be careful in particular if you are heavily financing your new business with credit cards. While it is an easy source of capital, it can immediately put you in a tough cash flow position, and more importantly it can hurt your credit or otherwise make it harder to access new credit.

Many businesses fail due to a lack of cash flow. Remember, that a great concept and potential business cannot overcome a lack of funding. You may want to check with your mortgage professional to discuss potential strategies to use your home’s equity to help fund your new business or potentially improve your cash flow.

Consider Physical Health and Mental Support. It may not seem like a terribly important item to think about when starting a new business, but your health and ability to work long hours is an important consideration, as most startups require many long hours to get off the ground. Additionally, having the emotional support of your family and friends is critical in order to stay motivated and positive. Finally, your ability to deal with stress will be an important factor in the success of your business.

If you’ve always dreamed of owning your own business, hopefully these tips and ideas whet your appetite for taking the plunge, working for yourself, and living the American Dream.