Many individuals dream of owning their own business. However, taking the leap from a traditional nine-to-five job to entrepreneurship or freelance work is just the beginning. The recent trend towards self-employment indicates a shift in the market. The alluring nature of the greener pastures of self-employment is attractive to many individuals. But new business owners often have a deeply ingrained employee mindset. Developing a business owner mindset is a shift in thinking and doing. Here are strategies to help you begin thinking like a business owner rather than an employee.
Business Owner vs Employee
Neither business owner nor employee is better than the other. There are pros and cons to both. However, both paths can provide fulfillment.
When employees leave traditional positions to work for themselves, they often have the wrong mindset. Using an employee mindset to run your business risks failing right from the start.
Determine your Area of Focus
The first thing to be aware of is your area of focus. The areas of focus for each of these parties are vastly different. Employees focus on completing tasks on time to receive compensation. As an employee, you often only focus on your projects and completing them. You have little concern about all the other areas of the business.
Whereas a business owner manages all aspects of the business, from marketing to accounting, and production. A new business owner’s first priority is to secure a steady stream of revenue to keep the company running.
Plan for Overhead Expenses
The next step is planning for overhead expenses. While being self-employed often yields more than a traditional employee, there are also a lot more expenses to think about.
A traditional employee not only receives their wages, but benefits such as paid time off, insurance, 401K, life insurance, etc… It is an attractive package for most people. The company also provides employees with a desk, computers, and other tools necessary to perform their part.
As a business owner, these expenses previously taken care of by your employer are now up to you. Yes, coming right out of your own pocket. You will need to make enough money to account for these costs in addition to your daily living expenses.
Below we discuss a few of the expenses you will need to plan into your budget as a new business owner.
As an employee, your paycheck typically includes a deduction for taxes. The employer pays a part and the employee pays the other part. Once you fill out your w4 form, you don’t have to think about taxes until it is time to file.
On the other hand, a business owner pays both the employer and employee portions of state and federal taxes often on a quarterly basis. Hiring an account to help you with taxes will make contributions and calculations much more accurate. It will also save you a lot of time and headache. It is recommended you save between 20-25% of your pre-tax income to account for the additional tax expense.
Purchasing your own insurance is often very costly. Health, dental, life, and disability insurance can cost you hundreds of dollars each month. Having adequate coverage is important, so do not be skimpy on your coverage. If something were to happen to you during self-employment you will want to make sure those who depend on you will be taken care of.
Once you are self-employed you no longer have access to a 401K or employer contribution. However, that does not mean you shouldn’t be planning for retirement. A few options to consider include a self-employed 401K, Simple IRA or SEP IRA. No matter which option you choose, a portion of your monthly income will be going towards future retirement.
Office Equipment and Supplies
Office equipment and supplies can be a large initial expense for individuals transitioning to self-employment. A nice desk, comfortable chair, a computer, software, etc.… all add up. As an independent business owner these are your responsibility now.
Marketing and Advertising
One of the biggest keys to a successful business is getting your name out there. While spreading it through friends, family, and word of mouth is great, marketing efforts can help skyrocket your business even further. One of the best places to start is by getting reviews on google and setting up your google my business page. From there, you can supplement your efforts with PPC advertising, social media ads, and ad retargeting among others.
Continually updating expenses, accounts receivable, accounts payable, and myriad of other taxes can take valuable time away from a business owner focusing on what they do best. Outsourcing this comes at an expense but is well worth it in the long run.
Have a Long-Term Vision
New business owners start by taking baby steps, one day at a time. They often think only as far as the next project. Short-term vision is one of the most difficult mindsets to overcome. But successful and seasoned business owners understand the importance of thinking long-term.
Constant planning and thinking about the future of your company will help guide you in the direction you wish to go. One of the smartest decisions we made early on was hiring a consultant. This consultant helped us figure out our long-term vision and what we can be doing now to reach it.
Try to commit at least one hour a day to business growth planning. Ideas include researching your industry and competition, brainstorming new products, and testing marketing ideas.
Another large issue we see new business owners falling into is the vicious cycle of taking on lots of low-return projects despite having the skills and experience to charge more. Instead of selectively choosing which projects they want to work on, they focus on churning project after project. Do not discount the value you have to offer. Be selective about what projects you choose to take on.
Learn to Delegate Work
Delegate, delegate, delegate! Recognize the value in outsourcing. New business owners often wear many different hats due to limited funds. But as soon as you have wiggle room in your budget, outsource certain company needs. The first place to start is often with accounting and legal. However, later you will need to determine what other tasks to delegate so you can focus on what is really important.
Learning how to overcome an employee mindset is pivotal to becoming a successful business owner. Whether you are an individual looking to buy a business or start your own, Peak Business Valuation, a business appraiser in Utah, is here to help. We help new business owners get started by understanding the value of their company and areas to maximize growth. We are always happy to answer any questions you have. Please reach out via email or by scheduling your free consultation below.