Considering self-employment: What to think about before starting a business – recommendations for those who seek self employment

Considering self-employment: What to think about before starting a business – recommendations for those who seek self employment – includes related self employment statistics within various occupational groups

George T. Silvestri

Working for oneself holds great attraction for many people. Some view self-employment as a chance to advance professionally by becoming their own boss, earning more money, or gaining status. Others seek the personal advantages it may provide, such as the ability to work at home, have more flexible working hours, or create profitable ventures from activities they enjoy. Still others want to try something different from their current job or the one they retired from.

Whatever the reasons for its appeal, self-employment continues to be the career of choice for about 8 percent of the work force. In 1996, self-employed business owners accounted for nearly 10.5 million workers, a number projected to increase to over 11.6 million by 2006. (The box on page 16 explains the way the Bureau of Labor Statistics counts self-employed workers.) However, not all of these self-employed workers stay in business long enough to realize their dreams: According to the U.S. Small Business Administration, over half of all entrepreneurships fail within the first 5 years.

Nobody can guarantee success for any business. But you can increase your chances by taking steps before starting one. This article focuses on the importance of preparing for self-employment by making informed choices, exploring business and personal suitability, and planning carefully. It does not discuss the day-to-day management and operation of a business. For those details and additional information, consult the sources at the end of the article.

Choosing a business

Many people pursue self-employment because they would like to develop some area of expertise into a full-time business. Those who decide to start a new business or buy an existing one must first determine if it holds enough appeal for them to invest their time and money into making it work. In addition, some occupations and industries are more conducive to self-employment than others, especially over the next decade. Choosing a business requires attention to both your interests and the realities of the occupation you choose.

Personal resources. When deciding on a business, you will want to find a venture that satisfies your career goals. Start by considering your own abilities and knowledge. Do you have a hobby, such as interior design, that can be converted into a business? Do you have experience or skill in doing something well, such as setting up personal computers? If so, you probably already have ideas about what you want to do.

If you have no clear ideas about the kind of business you would like to own, consider your personality and preferences along with your background. Do you enjoy working with your hands? Do you prefer working behind a desk to dealing with the public? Evaluate your work experience to see if all or part of it can be used to start a business. And read as much as you can about small businesses; magazines and trade journals may provide inspiration for your project.

Another option for self-employment is to buy an existing business. Although it may not hold the same excitement as starting from scratch, buying an established business has several advantages. These advantages include a history and track record already in place as well as an opportunity to readily acquire customers, employees, suppliers, equipment, and facilities. And financial institutions usually have more confidence lending to an established business. If you buy a franchise, you will have the added benefit of a recognized name, trademark, and business appearance.

Self-employment by occupation. Opportunities to start a business exist across a broad spectrum of occupations. The table on pages 17-19 lists prevalent occupations of self-employed workers who depended on their businesses as the primary source of their income; it also shows the projected outlook for these occupations between 1996 and 2006. The chart on this page shows the distribution of self-employed workers by occupational group.

The largest number of self-employed workers were in sales occupations–about 1.8 million people, or just over 17 percent of the total number of self-employed. Although the group is expected to increase more slowly than average overall, some occupations are projected to provide more opportunities than others do. For example, the Bureau of Labor Statistics (BLS) projects the number of self-employed securities and financial services sales workers to grow faster than average through 2006 as investors rely on financial planners to help them choose among the many alternatives for managing their money.

Almost equal with the number of self-employed sales workers were the nearly 1.8 million people, or about 17 percent of business owners, working in executive, administrative, and managerial occupations. Self-employed people in this group were in all industries, either managing their own businesses or working for themselves in management support occupations such as accounting and auditing. Most of these occupations are expected to grow as fast as or faster than average, providing continued opportunities for self-employment through 2006. The increase in personnel, training, and labor relations specialists is expected to be much faster than average.

Precision production, craft, and repair occupations accounted for about 1.6 million self-employed jobs, or 15 percent of the self-employed. More than half of these workers were in construction trades occupations, which are expected to grow more slowly than average overall; carpet installers is the only construction occupation projected to increase faster than average. In fact, the precision production, craft, and repair group as a whole is expected to increase more slowly than average through 2006, with growth in most occupations projected to slow or cease.

Significant opportunities for self-employment have long existed in professional specialty occupations. This group of workers numbered 1.5 million in 1996–14 percent of all business owners–and is expected to increase as fast as average through 2006. The largest concentration of self-employed professionals was among writers, artists, and entertainers; most occupations within this category are expected to have average or faster than average growth. Two professions expected to increase much faster than average, providing even more opportunities for self-employment, are therapists and computer, mathematical, and operations research occupations.

The large number of self-employed workers in the agriculture, forestry, fishing, and related occupations group is expected to decline through 2006. The numbers of self-employed farmers and fishers, hunters, and trappers are expected to decline significantly. However, self-employment opportunities in gardening, nursery, and greenhouse and lawn service occupations are expected to be good.

About 1.2 million self-employed, or 12 percent of the total, worked in service occupations, which are projected to grow faster than average through 2006. The largest occupation was child-care workers, and the trend toward formal child care and away from informal at-home arrangements is expected to provide numerous opportunities for starting a business. Contracting for janitorial and cleaning services is projected to create expanded opportunities for cleaning and building service occupations. And homemaker-home health aides should experience much faster than average growth.

Fewer opportunities for self-employment exist among operators, fabricators, and laborers; administrative support occupations, including clerical; and technicians and related support occupations. Each of these groups had less than 6 percent of the total number of self-employed workers in 1996. The operators, fabricators, and laborers and administrative support groups are projected to grow more slowly than average. The technicians group is expected to increase faster than average, spurred by much faster than average growth for computer programmers.

Exploring feasibility

Choosing a business is only the first step to pursuing self-employment. The next is determining whether you understand–and can manage–the business and personal demands required for success.

Most new businesses fail because their owners do not look far enough beyond their dreams. Enlisting the aid of experts, especially those who have worked with other business owners, will help you analyze your capabilities. That knowledge should reveal gaps between your expectations and the reality of succeeding with a business idea, allowing you to rethink your plan before your livelihood depends on its success.

Business considerations. Two of the most important requirements for starting a business are having access to enough money and marketing your product or service well. An accountant or financial advisor can help determine how much capital you need for startup costs and operating expenses. Advertising or sales workers and other business people may be able to assist with your marketing strategy.

The amount of money needed for a new venture varies greatly from one business to another. But lack of capital is a major cause of failure in the early years of new businesses. Educate yourself by getting as much information as possible about your chosen business concerning the costs of employees, rental space, materials, equipment, and other necessary items. Then, consider how much personal money you have to invest in the business and how much, if any, you will have to borrow.

Lending officers will be more likely to support your business proposal if you do your homework before requesting funds. Plan a sound, realistic budget. Your startup budget will usually include one-time-only costs such as major equipment, licenses and permits, utility deposits, beginning inventory, and down payments. An operating budget reflects the continuing expenses you will incur and how much money you need to make to meet those expenses. Because it often takes time to develop a customer base, you should allocate enough money to operate for the first 3 to 6 months without steady revenue. Finally, your budget should show how much income from the business is required just to break even.

Having access to capital helps you get your business started, but the degree of your project’s success depends on how well you market it. Get to know your customers–their likes, dislikes, and expectations–to determine whether people will buy a product or service from you rather than from someone else.

Begin informally by talking to your friends and neighbors to find out if they would buy what you have to offer. Explain why your product or service benefits them and what makes your business different from others like it. Then, do an in-depth investigation of your market. Consider the size of the market and your expected share. Determine the maximum price customers will pay for your product or service and whether your prices will be competitive. Finally, identify the strengths and weaknesses of your competitors and how your business compares with them. Try to target gaps in the local economy where opportunities exist for you to start a new venture.

As you review your options, you may again wish to consult local experts and business people about the growth potential of businesses in your area. Enlist the help of experienced people who can help you match your background with the local market. Together, you can establish a plan to define your target market and develop sound marketing strategies.

Personal considerations. Successful business people share certain traits. Most can handle a great deal of responsibility and are hard working, persevering, and capable of honest self-appraisal. They understand that self-employment usually involves the pressure to perform, long hours, and irregular income.

To decide whether you should become self-employed, you must examine your motivation and commitment to such a venture. Then, you need to honestly evaluate your strengths and weaknesses. Once you identify them, you can capitalize on your strengths and compensate for your weaknesses.

When making your decision, some questions you should ask yourself include:

* Will becoming self-employed meet my career goals?

* Am I willing to work long hours each day?

* Do I have skills in a profession, trade, or hobby that can be converted into a business?

* Does my idea for a business effectively use my skills and abilities?

* Am I a good planner and organizer?

* Can I make my own decisions?

* Am I willing to postpone my plans in order to get more education, if necessary?

* Does my family support my endeavor?

* Can I afford the financial and emotional risks if the business fails?

If you answered no to some of these questions, give more thought to whether you really want to start a business; the desire to own a business is not sufficient to go ahead with your plan. Part of determining your personal suitability to self-employment is the willingness to accept that such a career path might not be for you. After all, it is better to discover this fact before you invest a lot of time and money.

Creating a plan

Prior to its inception, every business needs a plan. A business plan precisely defines your business, identifies your goals, and serves as your firm’s resume. It incorporates much of the financial and market information you’ve already gathered. Prospective lenders and investors will use your plan to decide whether your ideas are sound.

Preparing a business plan also allows you to anticipate and solve many problems before you open for business. According to the Small Business Administration, a business plan should clearly describe the business, the marketing plan, the financial management plan, and the management plan. It should address additional details about the organization and legal requirements of your business.

You may need a lawyer to assist you in drawing up a business plan and setting up the details of operation. There are often Federal, State, and local licenses and permits required. In addition, most business owners find they need some kind of insurance protection for their ventures.

When writing your plan, you will need to address legal issues such as who will actually run the business, how it will be organized, and what its structure will be–sole proprietorship, partnership, or corporation.

The business plan will reflect other business decisions as well. One of the more important will be your business’ location. You must decide where you should rent a store or office or whether to operate your business from home. Your location will need to be accessible to customers and in compliance with zoning laws.

Remember: Each business plan is unique because there is no single route to follow in starting a business; each is based on individual goals and circumstances. But a well prepared business plan increases your chances for success. Take time to investigate, consult with experts, and prepare a plan that closely resembles what you expect of your business.

For more information

Your local library is a great place to find information on starting and managing a business. Look for books and periodicals on topics such as self-employment, entrepreneurship, and small or home-based businesses. Also consult sources on the type of business you intend to start–books on subjects such as baking, food design, and catering, for example, might be helpful in preparing for a pastry business.

The Occupational Outlook Handbook contains information on the education, training, and other characteristics of numerous careers that may be appropriate for you to pursue as an entrepreneur. The Handbook is available in most libraries and school counseling offices. It is also accessible online at http:// stats.bls.gov/ocohome.htm.

In addition to the Handbook, your college and career counselor has other resources available. A source of information for college students is the Association of Collegiate Entrepreneurs (ACE), an international organization for students interested in entrepreneurism. Most colleges and universities have an ACE chapter, and many chapters have websites.

The U.S. Small Business Administration (SBA) has numerous publications on starting a business. In addition, Small Business Development Centers throughout the Nation offer training for owners of small businesses. Several associations affiliated with the SBA, such as the Service Corps of Retired Executives and the Women’s Network for Entrepreneurial Training, offer business counseling and mentoring at no charge. To request information, locate the Center nearest you, or receive business counseling from an SBA-affiliated group, call the SBA answer desk at 1 (800) 827-5722. You can also access the SBA website at http://www.sba.gov.

The National Association for the Self-Employed (NASE) provides access to specialists, resources, and other information to answer your questions and to help you keep current on legislative matters affecting self-employment. For more information, visit its website at http://www.nase.org or call 1 (800) 232-6273. You may also write:

NASE

PO Box 612067

DFW Airport

Dallas, TX 75261-2067

The American Association of Home-Based Businesses is a national, nonprofit organization formed to support and promote home-based businesses. Locally run chapters address the needs of their members. For more information, visit its website at http://www.aahbb.org or call 1 (800) 447-9710. Or, write:

AAHBB

PO Box 10023

Rockville, MD 20849

Who are the self-employed?

In this article, self-employed workers are defined as those who rely on their businesses for their primary source of income. According to the Bureau of Labor Statistics (BLS), these are owners of unincorporated businesses who get their income directly from their profits.

But BLS also collects data on two other entrepreneurial groups: secondary jobholders, who work for wages or salaries in a job and have another job in their own unincorporated businesses as well, and owners of incorporated businesses, whose primary form of compensation is a regular wage or salary. Some people might consider workers in both groups to be self-employed. However, because they are primarily wage or salary earners, they do not meet the narrow BLS definition of self-employed.

Three examples clarify the BLS definition of self-employment. BLS counts as self-employed a freelance carpenter who earns money only when a customer pays him or her and there is money left after expenses. On the other hand, a carpenter who works for a construction company for $9 per hour and occasionally does freelance work would be considered a secondary jobholder by the BLS definition. An owner-chef who runs an incorporated restaurant with several investor partners and receives a salary of $500 per week, plus a share of the profits of the business, is counted by BLS as an owner of an incorporated business rather than a self-employed worker.

Data from the 1996-2006 projections for self-employment, discussed in this article, are based on the number of unincorporated business owners. Of course, the number of self-employed workers is larger–and the distribution slightly different–when the total comprises incorporated business owners and secondary jobholders along with unincorporated business owners. Below is a table showing self-employed workers by occupational group in each of these definitional categories, ranked according to each group’s distribution as a share of the total. The data are from the 1997 Current Population Survey.

[ILLUSTRATION OMITTED]

Distribution of self-employed workers by occupational group, 1997

(numbers in thousands)

Total

self-employed

Unincorporated

Occupational group Number Percent businesses

Total, all occupations 17,250 100 10,513

Executive, administrative, and

managerial occupations 3,958 23 1,832

Marketing and sales occupations 3,219 19 1,730

Professional specialty

occupations 2,639 15 1,600

Precision production, craft,

and repair occupations 2,226 13 1,651

Agriculture, forestry, fishing,

and related occupations 2,015 12 1,403

Service occupations 1,402 8 1,179

Operators, fabricators, and

laborers 841 5 629

Administrative support

occupations, including

clerical 808 5 414

Technicians and related support

occupations 142 1 75

Incorporated Secondary

Occupational group businesses jobholders

Total, all occupations 4,341 2,396

Executive, administrative, and

managerial occupations 1,692 434

Marketing and sales occupations 969 520

Professional specialty

occupations 629 410

Precision production, craft,

and repair occupations 370 205

Agriculture, forestry, fishing,

and related occupations 156 456

Service occupations 107 116

Operators, fabricators, and

laborers 131 81

Administrative support

occupations, including

clerical 256 138

Technicians and related support

occupations 31 36

Source: Current Population Survey

Self-employed workers by occupation, 1996, projected 2006, and

percent change 1996-2006

(numbers in thousands)

2006,

Occupation 1996 projected

Total, all occupations 10,490 11,615

Marketing and sales occupations 1,809 1,957

Cashiers 17 20

Insurance sales workers 123 123

A 795 860

Real estate agents, brokers, and appraisers 265 284

Brokers, real estate 50 56

Real estate appraisers 11 13

Sales agents, real estate 203 215

Salespersons, retail 183 196

Securities and financial services sales

workers 64 86

Travel agents 22 16

Executive, administrative, and managerial

occupations 1,783 2,169

Managerial and administrative occupations 1,469 1,781

Construction managers 40 48

Education administrators 30 36

Financial managers 9 11

Food service and lodging managers 206 240

Property and real estate managers 113 127

Management support occupations 318 388

Accountants and auditors 108 136

Management analysis 111 134

Personnel, training, and labor relations

specialists 15 23

Wholesale and retail buyers, except farm

products 12 13

Precision production, craft, and repair

occupations 1,594 1,706

Blue collar worker supervisors 188 195

Construction trades 843 918

Bricklayers and stone masons 32 31

Carpenters 310 347

Carpet installers 39 49

Drywall installers and finishers 39 39

Electricians 61 66

Hard-tile setters 13 14

Painters and paperhangers, construction and

maintenance 185 206

Plumbers, pipefitters, and steamfitters 71 73

Roofers 41 40

Mechanics, installers, and repairers 401 438

Electrical and electronic equipment

mechanics, installers, and repairers 18 23

Machinery and related mechanics, installers,

and repairers 58 61

Vehicle and mobile equipment mechanics and

repairers 241 265

Automotive body and related repairers 43 40

Automotive mechanics 158 184

Heat, air conditioning, and refrigeration

mechanics and installers 38 38

Production occupations, precision 158 153

Metal workers, precision 37 35

Jewelers and silversmiths 12 10

Textile, apparel, and furnishings workers,

precision 69 69

Custom tailors and sewers 45 43

Upholsterers 16 17

Woodworkers, precision 26 23

Professional specialty occupations 1,501 1,722

Engineers 46 52

Architects and surveyors 39 41

Life scientists 8 10

Computer, mathematical, and operations

research occupations 61 102

Physical scientists 10 12

Social scientists 73 72

Psychologists 58 56

Social workers 16 22

Lawyers 196 214

Teachers, librarians, and counselors 170 181

Health diagnosing occupations 228 209

Chiropractors 24 29

Dentists 73 73

Physicians 91 63

Veterinarians and veterinary inspectors 20 24

Health assessment and treating occupations 60 80

Registered nurses 14 18

Therapists 28 41

Writers, artists, and entertainers 573 706

Artists and commercial artists 158 197

Athletes, coaches, umpires, and related

workers 13 16

Designers 128 163

Musicians 74 96

Photographers 63 73

Producers, directors, actors, and

entertainers 29 34

Writers and editors, including technical

writers 90 105

Agriculture, forestry, fishing, and related

occupations 1,476 1,395

Animal caretakers, except farm 34 37

Farmers 1,106 995

Farm workers 37 34

Fishers, hunters, and trappers 30 23

Forestry and logging occupations 29 29

Gardening, nursery, and greenhouse and lawn

service occupations 219 255

Gardeners, nursery workers and laborers,

landscaping and groundskeeping 176 206

Lawn service managers 35 41

Service occupations 1,210 1,467

Cleaning and building service occupations,

except private household 164 219

Janitors and cleaners, including maids and

housekeeping cleaners 138 189

Food preparation and service occupations 76 82

Health service occupations 34 41

Nursing aides, orderlies, and attendants 34 41

Personal service occupations 814 994

Barbers 44 39

Child-care workers 477 613

Hairdressers, hairstylists, and

cosmetologists 251 280

Homemaker-home health aides 21 34

Protective service occupations 11 13

Detectives and investigators, except public 10 12

Operators, fabricators, and laborers 621 664

Machine setters, setup operators, operators,

and tenders 98 107

Printing press operators 11 12

Textile and related setters, operators, and

related workers 26 23

Laundry and drycleaning machine operators and

tenders, except pressing 22 27

Hand workers, including assemblers and

fabricators 93 86

Welders and cutters 27 28

Transportation and material moving machine and

vehicle operators 374 411

Motor vehicle operators 329 363

Taxidrivers and chauffeurs 34 34

Truckdrivers 293 326

Material moving equipment operators 41 43

Operating engineers 14 17

Helpers, laborers, and material movers, hand 56 60

Freight, stock, and material movers, hand 14 15

Vehicle washers and equipment cleaners 18 19

Administrative support occupations,

including clerical 427 444

Adjusters, investigators, and collectors 11 15

Computer operators, except peripheral

equipment 6 4

Information clerks 18 20

Messengers 11 11

Material recording, scheduling, dispatching,

and distributing occupations 8 8

Records processing occupations 227 233

Secretaries, stenographers, and typists 101 101

Technicians and related support occupations 70 91

Health technicians and technologists 25 30

Engineering and science technicians and

technologists 12 13

Technicians, except health and engineering

and science 32 48

Computer programmers 20 32

Percent change in

self-employed,

Occupation 1996-2006

Total, all occupations 11

Marketing and sales occupations 8

Cashiers 20

Insurance sales workers 0

A 8

Real estate agents, brokers, and appraisers 7

Brokers, real estate 12

Real estate appraisers 12

Sales agents, real estate 6

Salespersons, retail 7

Securities and financial services sales

workers 34

Travel agents -27

Executive, administrative, and managerial

occupations 22

Managerial and administrative occupations 22

Construction managers 19

Education administrators 22

Financial managers 24

Food service and lodging managers 16

Property and real estate managers 12

Management support occupations 22

Accountants and auditors 25

Management analysis 21

Personnel, training, and labor relations

specialists 54

Wholesale and retail buyers, except farm

products 7

Precision production, craft, and repair

occupations 7

Blue collar worker supervisors 4

Construction trades 9

Bricklayers and stone masons -1

Carpenters 12

Carpet installers 27

Drywall installers and finishers -1

Electricians 9

Hard-tile setters 8

Painters and paperhangers, construction and

maintenance 12

Plumbers, pipefitters, and steamfitters 3

Roofers -1

Mechanics, installers, and repairers 9

Electrical and electronic equipment

mechanics, installers, and repairers 28

Machinery and related mechanics, installers,

and repairers 4

Vehicle and mobile equipment mechanics and

repairers 10

Automotive body and related repairers -8

Automotive mechanics 16

Heat, air conditioning, and refrigeration

mechanics and installers 1

Production occupations, precision -3

Metal workers, precision -4

Jewelers and silversmiths -14

Textile, apparel, and furnishings workers,

precision -1

Custom tailors and sewers -4

Upholsterers 9

Woodworkers, precision -11

Professional specialty occupations 15

Engineers 13

Architects and surveyors 4

Life scientists 19

Computer, mathematical, and operations

research occupations 66

Physical scientists 15

Social scientists -1

Psychologists -5

Social workers 34

Lawyers 9

Teachers, librarians, and counselors 6

Health diagnosing occupations -8

Chiropractors 18

Dentists 1

Physicians -30

Veterinarians and veterinary inspectors 17

Health assessment and treating occupations 34

Registered nurses 29

Therapists 47

Writers, artists, and entertainers 23

Artists and commercial artists 24

Athletes, coaches, umpires, and related

workers 18

Designers 27

Musicians 30

Photographers 17

Producers, directors, actors, and

entertainers 18

Writers and editors, including technical

writers 16

Agriculture, forestry, fishing, and related

occupations -5

Animal caretakers, except farm 10

Farmers -10

Farm workers -6

Fishers, hunters, and trappers -22

Forestry and logging occupations 3

Gardening, nursery, and greenhouse and lawn

service occupations 17

Gardeners, nursery workers and laborers,

landscaping and groundskeeping 17

Lawn service managers 17

Service occupations 21

Cleaning and building service occupations,

except private household 34

Janitors and cleaners, including maids and

housekeeping cleaners 37

Food preparation and service occupations 9

Health service occupations 23

Nursing aides, orderlies, and attendants 23

Personal service occupations 22

Barbers -10

Child-care workers 29

Hairdressers, hairstylists, and

cosmetologists 12

Homemaker-home health aides 65

Protective service occupations 22

Detectives and investigators, except public 22

Operators, fabricators, and laborers 7

Machine setters, setup operators, operators,

and tenders 9

Printing press operators 9

Textile and related setters, operators, and

related workers -11

Laundry and drycleaning machine operators and

tenders, except pressing 27

Hand workers, including assemblers and

fabricators -8

Welders and cutters 4

Transportation and material moving machine and

vehicle operators 10

Motor vehicle operators 10

Taxidrivers and chauffeurs 1

Truckdrivers 11

Material moving equipment operators 6

Operating engineers 23

Helpers, laborers, and material movers, hand 6

Freight, stock, and material movers, hand 3

Vehicle washers and equipment cleaners 4

Administrative support occupations,

including clerical 4

Adjusters, investigators, and collectors 33

Computer operators, except peripheral

equipment -31

Information clerks 12

Messengers 4

Material recording, scheduling, dispatching,

and distributing occupations 0

Records processing occupations 3

Secretaries, stenographers, and typists -1

Technicians and related support occupations 31

Health technicians and technologists 19

Engineering and science technicians and

technologists 11

Technicians, except health and engineering

and science 47

Computer programmers 60

George T. Silvestri is an economist formerly with the Office of Employment Projections, BLS.

COPYRIGHT 1999 U.S. Government Printing Office

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