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Issue № 161

Starting a Business: Advice from the Trenches

by Published in Business40 Comments

If you’re like thousands of other designers, programmers and other creative professionals out there, at one point in time you’ve considered starting your own business.  Unlike most, you’ve gone against common sense and decided to open shop for yourself.  And not just freelance full-time, mind you, but file for the company name, get some stationery, and wade through the legal mumbo-jumbo.  Maybe even get a real office with a water cooler.

This article offers real-world advice from the trenches of a small start-up, and is applicable to designers, web developers, copywriters, usability experts and all manner of service providers.  Freelancers take heed: there are several items that are just as pertinent to your profession.

Write a Business Plan

The most important thing you can do to prepare for starting and operating your own business.  Developing a business plan requires a lot of time and energy, but it’s invaluable for one primary reason — it forces you to come to terms with your business idea. You must decide how you will generate income, what your expenses will be, who your competitors are, and most important, WHAT YOUR BUSINESS DOES. This may seem obvious to you now, but write it down.  Think about it.  What sets your business apart?  What service do you offer that is superior or unique?  What’s going to put you ahead of the competition?

Beyond the mental exercises, a good business plan will give you a much better chance of getting a small business loan from a bank than walking in and saying, “I like Photoshop and maybe a can do some websites or something.  Gimme money.”

A few years ago, new age business rhetoric said forget the business plan and just run with it. Obviously, that didn’t work out so well, so if you go that route, God bless you.  The business plan exists for a reason.  There are libraries of books written on them and huge websites devoted to developing good ones.  Some resources:

Take a few weeks and develop a strong and thought-out plan.  Give it to friends, co-workers, even family to read.  Your business will be immeasurably stronger because you took the time for this step.

File for a Fictitious Name

A fictitious name (called a doing-business-as or DBA in some states) is the government’s term for your company name.  If you choose HyperGlobalMegaSoft as the start-up’s name, it has to be registered with the state to ensure no one else is using it. This will cost about $100, but prevents you from accidentally using someone else’s registered name, or from someone else using YOUR name.  Also note that two companies can usually register the same name for different industries.  For instance, Luigi’s (design studio) and Luigi’s (pizza joint).

Note the fictitious name is not the same thing as a registered trademark.  A trademark involves a whole separate process, more paperwork and additional fees.  Unlike a fictitious name, however, a trademark is not required.

Funding

This is a pretty involved topic, and enough books and articles have been written about it to make for years of boring bathroom reading.  Advice in a nutshell: start the business with your own savings or borrow from a bank.  I highly recommend the former or a combination that includes it, since it makes you pinch your pennies a little more.  If you go the bank route, make sure the business plan is polished to a high shine.  This may be a good time to hire a professional business plan writer/editor.

There is one Golden Rule: Don’t borrow money from family or friends. 99% of the time, you won’t be able to pay them back, and on the off-chance you are, it won’t be for months or years.  The amount is irrelevant; $1,000 or $100,000 can quickly create bad blood.

Get an Accountant

In starting your business and maintaining its future financial health, there is no greater ally than an accountant.  He or she (or they if you go with a firm) will be able to give advice on innumerable aspects of your new venture.  They can advise on what type of business entity to start with, setting up bank accounts, a means of invoicing and collecting, and more.  Most importantly, they also guide you on paying taxes properly and punctually.

Brief advice on accountants:

  • Go with an accountant or a firm in your state.  Each state has different laws.
  • Make sure the accountant knows business taxes.  Do not hire a family-oriented accountant.
  • Unless, you are really, really strapped for cash, hire an accountant who is not a family member.  While it may be tempting to get a family discount, it is better to have an unbiased viewpoint about your finances, and also better to keep your family’s nose out of your funds in general.
  • Try to trade services!  Maybe your accountant wants a new logo, website, or brochure.

Start with a Partner

If you can, start the business with a partner.  This person should be another designer or programmer with a level of experience equal to or greater than your own, but with a different skill set.  If you’re the God of Annual Reports, your partner can be the Overlord of Identity Design.  Having two Annual Report Gods will make for some lacking identity work when the client requests it.  And for the record, once again, it will be better if this person isn’t family.

“But why a partner?” you ask.  “I’m a darn good designer, and I’m really really gonna do this right.”

A partner will keep you on your toes.  When you want to buy that $2,000 scanner, he or she should question why.  If you want to design a promotional piece, it should be a group effort to get the best results.  If you start to slack off, he or she will be there to remind you of business priorities.  No one can do everything, and two complementary skill sets create an asset that cannot be reproduced when flying solo.

About Your New Office

When you start a business, the option of setting up an office outside your home has dramatic pros and cons that must be weighed carefully.

Good:

  • You have a place for clients to visit if they are local.
  • Reinforces good image (see below).  Proper presentation goes a long way, and making your office appear as if you’ve been in business for years (you didn’t tell them you were a start-up, did you?) helps build client trust.
  • You can write off all office expenses (rent, repairs, phone, etc).  This will affect your bottom line drastically.
  • Gets you out of the house.  Having a real place to go to work makes the business more real, and forces you to take it that more seriously.

Not-So-Good:

  • Money out the window.  Renting an office costs $250-$10,000 a month, not including the initial deposit.  This is a lot of money if you have a thin or inconsistent client base.
  • Requires additional expense.  You will need to get a fire inspection and a certificate of occupancy, not to mention additional phone lines, Internet connection, furniture, etc.

Setting up an outside office for a new business is a case-by-case situation, and depends almost entirely on start-up money and cash flow.  Some businesses truly require a place to host clients (ad agencies),and for others it’s not as important (web development).  Weigh the advantages carefully against capital, because being locked into a lease without a means to pay is no fun.

Retain a Good Paper Trail

Make sure to keep a solid paper trail with clients, and that means a real, physical file with hardcopies of proposals, contracts, invoices, time sheets and anything else you can think of that relates to the project.  This also includes all financial records, bank statements, receipts, deposit slips, etc.

Before beginning your business, establish several important things.  First, design a consistent and scalable filing system for all the forms.  Whether you organize by client or project is irrelevant, but make sure you can find the information when you need it.  Second, make sure to have airtight contracts.  I advise against writing them yourself.  There are many places on the net where you can get generic forms, such as www.creativepro.com. You will also need to look for NDAs (non-disclosure agreements, for contracting work out to other freelancers), RFP (request for proposal) templates for clients to fill out, expense reports, invoices, and time sheets.  Every project is different, so be prepared to make changes on these forms.

And please, when you sign a contract with a client, make sure you have a copy with BOTH signatures.  Seems like an obvious thing, but you’d be surprised.  Don’t do any work without one, because legally, you will have a very hard time forcing a delinquent client to pay without one.

Part of maintaining a solid paper trail is having a good invoice system ready to launch at a moment’s notice.  Make sure your invoices arrive in the client’s mailbox while the project is still fresh.  Every invoice should clearly mark the amount to be paid and terms of payment (30 days, etc.), and clearly indicate any additional fees resulting from delinquent recompense.

If payment is late, don’t be afraid to call the client.  Sometimes they just misplaced the invoice.  Other times they don’t have the money and are trying to slink away.  Sometimes, “the check is in the mail.”  Regardless, the business that does not call to get paid won’t get paid!

Start Small, Conserve Loot

Consider working from your house/apartment to start, especially if you have clients that will never visit you, or if you live in an expensive metropolis (NYC, LA, Chicago, San Francisco, etc).  Keep your expenses down!  Don’t buy a new quad Xeon workstation if your current machine can cut it, or a truckload of networking equipment for two computers.  Be cheap!  Look for sales at OfficeMax, clip coupons, and just shop smart. You’re going to need the start-up capital down the road, so don’t drain it on frivolous expenditures.  (And yes, the folded die-cut business card with the metallic ink counts as a frivolous expenditure.)

Don’t Undercharge, but Be Flexible

If there’s one thing to remember from this article, it should be this point.  Proper pricing is the one thing that keeps the business alive, on multiple levels.  When you charge appropriate amounts for the work, the client will feel like they hired the right people; when you undercharge, the client will know this and take advantage of you by demanding similar rates in the future.

If you give every client a discount just to get the job (and this will be tempting, especially in the beginning), you’ll find yourself working twelve-hour days and not being able to pay the bills.  Undercharging hurts the industry in general as well; undercharged clients come to expect and request absurdly low prices.

Legal Software

Make sure all the copies of your software are retail versions.  Do not use “educational” or pirated software. This is very important, and should be part of the start-up budget.

Separate Personal and Business Finances

Nothing much else to say about this.  It will save you innumerable headaches come tax season.

Marketing

Even the most reliable clients have dry spells, so make sure you are constantly putting your company’s name in the marketplace.  Word of mouth is the best, but getting truly fresh work usually requires spending money.

The Importance of Image

The importance of maintaining a positive image in the eyes of your clients and potential clients cannot be overstated.  Know your firm’s identity so you can project that identity to the customer.

The visual identity is critical.  Get business cards, letterhead, and envelopes.  Design a good logo or pay someone to do it if you’re not a design firm.

Dress the part.  When meeting with a client, look like someone who’s come to do business, not some clichéd black-turtleneck half-shaven graphic designer who’s gracing them with your presence half an hour late.  It sounds exaggerated, but it happens all too often.

Make the office welcoming.  If you entertain clients, keep the office clean, organized and hospitable.  Make good coffee.  Purchase comfortable chairs.  Make sure they have a place to park.

Use Outside Resources

Running a business takes long hours and a willingness to learn.  However, there are many services that exist to help businesses succeed and get work. For instance:

  • Your local Chamber of Commerce
  • SCORE
  • Attend business seminars.  You can learn a lot and do some powerful networking.  Many are free.
  • Creativepro.com.  Full of valuable resources like stock photos, business contracts, freebies and more.  $29.99 / year.
  • Elance.com. A cause of dissention among many designers for the ridiculously low rates you have to work for, but a good place to find work when the rest of the world has shut its doors.

If you still decide to start a business, there’s nothing more I can say except good luck.

You’ve got to have the “fire in your belly,” or you will fail.  There are long hours, hard work, and incredibly frustrating and stressful times ahead.  But the rewards — being your own boss, being able to work on a variety of projects, feeling that proverbial sense of accomplishment — these are all very real results.

A Special Note for Those Still in School

When I was in school, what I wanted more than anything was to start a business creating customized audio solutions for multimedia content creators.  I asked my teachers — they said it was a good idea.  I asked my classmates — they thought it was a good idea.  Then I took a six-month internship at a “new media” company whose focus was streaming audio and met people so poor they slept in the warehouse with the equipment because they didn’t have the experience to succeed in what they were doing.  (Incidentally, they didn’t have a business plan either.)

Before you start a business fresh out of school, wait and get some real world work experience first.  I started my design company when I was 23, and the business clearly suffered because of it. Not because I was young and dumb (well, not that young and dumb anyway), but simply because I didn’t have enough street smarts to REALLY succeed.

Technical knowledge and raw talent only go so far. When working at a company, you see how established businesses function: how workflow is managed, how clients are dealt with, how managers treat workers, and the absolutely critical nature of deadlines, no matter how tight.  These are invaluable lessons that school does not teach.

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