Many Americans dream of starting their own business — 66 percent, according to one survey. If you’re reading this article, you probably already have a business idea. But how do you know you have what it takes to become a successful business owner? What should you look for? What do you need to know? Here are 19 signs you’re ready to open your own business.
- You’re in a good place financially, with plenty of cash to purchase or start a business. In the beginning, everything from your office computers to your business cards to your marketing budget comes out of cash on hand. Plenty of it is needed in a robust business, and you have it.
- If you don’t have a lot of cash on hand, now is the time to explore financing options like 401(k) business financing or SBA loans. If that’s not an option for you, consider downsizing or changing your business idea. Some business models — particularly online business ideas — are cheaper to fund than others.
- You’ve paid down any significant debts. This is important. If you take out a loan to get cash on hand, that cash flow could be diverted into debt service. Better to be safe rather than sorry by getting the debt out of the way first.
- You’ve developed a budget for the business. As a result, you have reasonable projections for sales, revenue, business expenses, cash flow, profits, and the actual income you’ll be taking home. These projections should extend for at least three years out.
- You could obtain financing if required. Most banks evaluate small business loan applicants with eligibility standards often called the “five C’s.” They are capital, credit history and score, capacity, character (business experience and standing in the community), and collateral (such as a home or other assets). Lenders will look at your capacity to repay a loan as part of the requirements for obtaining one.
- Your cash or available assets include potential down payments. Purchasing an existing business or franchise usually requires a 20 percent to 30 percent down payment. If you don’t have that available, it’s time to explore other financing options.
- You have a knowledge of business financing, including Small Business Administration (SBA) loans and lender requirements. You’re aware of financing methods that allow you to access money in 401(k)s and other retirement accounts, including Rollovers for Business Start-ups (ROBS), and that allows you to tap other assets, such as equity in your home. Lack of knowledge about financing methods is the second most common reason aspiring business owners don’t move forward (after lack of cash).
- You’re willing to learn what it takes to run a business. You’re ready to write a business plan, for instance, which requires a description of your business, an analysis of your competitors, an overview of your market and potential customers, a breakdown of product pricing, and so forth.
- The research and legwork required to write a business plan are genuinely exciting.You view it as a challenge that deepens your understanding of and commitment to the business. You’re ready to interrogate your business model and make it as strong as it possibly can be.
- You see the business value gained from writing your business plan. Your business plan is going to give you insight into every area of your business, such as the future cost of goods sold (COGS), market differentiation, potential niches in your sector, and so on.
- You’re aware of how the overall economy affects business owners. Falling interest rates, for instance, make money cheaper to borrow, while climbing interest rates makes it more expensive. High employment figures can make finding good employees challenging because there is strong competition.
- You’re aware of the different corporate structures, and know which one is best for you. There is more than one type of business entity, such as a sole proprietorship, partnership, S Corporation, and C Corporation. Each type has different advantages and limitations.
- You’re aware of areas that can be outsourced, such as tax advice and preparation, and employee benefits consulting.
- You’re willing to seek and accept advice from experts and mentors when you need it. What more needs to be said? Remember, data from the U.S. Bureau of Labor Statistics says that 20% of all business owners fail within the first two years. Walk into your small business journey with humility and willingness to learn, and you’ll be more likely to survive.
- You’d be happier running a business than staying in your current role. In 2021 Small Business Trends, forty-three percent of business owners rated their level of happiness “very happy.” Only seventeen percent described themselves as something other than “very happy” or “somewhat happy”, showing a majority as happy in their role as small business owners.
- You are ready to start a business for positive reasons. In 2019 Small Business Trends, 26 percent of owners started a business because they were ready to be their own boss and 23 percent wanted to follow a passion. Self-directed reasons, in other words, were responsible for nearly half of new businesses.
- If your reasons are not self-directed, your desire to run a business is not solely reactive. If you’re just looking for another source of income, that’s alright — so long as you’re acting, and not reacting. Of survey respondents to 2019 Small Business Trends, 6 percent had undergone a layoff or outsourcing in their previous position and 12 percent were dissatisfied with corporate America. While these can be entry points to a vibrant business, business owners need to have a mindset that entrepreneurship is a new opportunity, not solely a fallback position. Running a business can be challenging, and if your reasons are only reactive, you may very easily become discouraged.
- You’re ready to assume the leadership of a business. You’ve worked in roles with significant organizational responsibility and might even have had side gigs as an early prototype of the business. Remember, successful people know how to be decisive, persuade, explain the ways in which their business makes a difference.
- You know how to build a team. Working with your first employees, your suppliers, any stakeholders, and customers — you know what it takes to encourage mutually beneficial relationships, and you can get it done. You know how to balance the joys of entrepreneurship with the joys of leading and working with a team.
- You’re a clear and persuasive communicator. You can succinctly explain why customers should buy your products. You can tell suppliers how they benefit from working with you. You can let employees know the advantages of your job and company over other opportunities this job helps them. You can develop a marketing plan to power your business if you need to.
- You’re a dynamic problem solver. You’re the type of person who’s solved problems in a business context before, and you can again. You see problems as challenges to be overcome rather than obstacles. You’re committed enough to the business that it’s a pleasure brainstorming potential turnarounds to challenges.
Still not sure? Take our quiz to see if you’re ready to be a small business owner:
How did you do? If you received an 80% or higher, we believe you’re on the right track. Just be sure to brush up on the areas around your missed questions!