How to start a small business

How does it feel being your own boss? Best decision ever. What are your biggest concerns? I don't want to get too comfortable. We've always had this dream to open a coffee shop. So kind of seeing it come to life is just super surreal. It's definitely better than your regular job. So we love that. Are you paying yourself well? I'm not going to say well. I'm not going to say well. Welcome to Money Unscripted, a podcast from Fidelity Investments. We're having candid conversations about life and money jargon and judgment free. I'm Ally Donnelly. Thanks for joining us. Starting your own business can be overwhelming, stressful and, of course, incredibly rewarding. So today we're going to walk through best first steps when launching a new business, including what questions to ask when you're setting up your business plan. And because who doesn't love a little help, we're also going to map out resources and networking options for small business owners. But right now, we want you to meet two young businesswomen and lifelong friends. Their shared love of coffee, even in middle school, yes, middle school, entrepreneurial spirit and a never quit attitude led them to the title of boss sooner than expected. My name is Mhaine Ribeiro. Thank you so much. And I'm Nathalia Araujo. I do it every day, a million times a day. And I love it. We are the owners of Infused Cafe. How long have you guys been friends? I think we've been friends since we were, like, nine. Friends for life and now business partners too, running the coffee shop they dreamed of as kids. What we became specifically known for is our acai bowls. Yum. I remember we had a middle school project. And I remember we wrote we want to own our own cafe because we've been addicted to coffee since forever. The friends took that shared love of coffee to college together. And by sophomore year, they were both ready to trade in their books for a business of their own. I think we have this weird stigma because of our age. We thought that we couldn't do it because we were so young. We always had that like, OK, maybe we should work, almost like waiting for the right time. And then the right time presented itself when they found this cafe. Talk to me about the moment you saw this space. We saw this space. And just seeing it fully equipped, I mean, the windows too, just the location, it being downtown, I think we were just like, this is perfect. So you're 20 years old. And you have enough savings with your parents help to open a legit coffee shop. It being fully equipped definitely helped so, so much. And it was also a lot of us trying to do as much as we could on our own. You've sanded. You've wallpapered. You've done all the things. So fast forward for me to the day you opened your doors. Describe that emotion for me. Oh my God, it was so hectic. I think everything went wrong that morning. As soon as we were opening the doors, we were panicking because nothing was working. When the day really came, we were like, we did it. It was definitely like one of the best days ever. How did you make a plan for budgeting, for employees, for things like insurance, and those things that I certainly wouldn't have been versed in coming out of sophomore year of college? The internet was definitely our best friend. Anything that we didn't know, we were just on our phones typing away. And we also have some people around us that are in business. So they helped us a ton, a ton. I'd be like, OK, we don't have enough money, we don't have enough money. And they would be like, you do. You're just putting it in the wrong place. You could just budget here, or you could just do this yourself. And it was almost like a puzzle. Where do I put this? Where do I spend this? How can I make this work? I would say we were also just not afraid to ask questions, especially since we had a lot of business people around us. I mean, I think too to take that leap of faith in the first place, there has to be a certain level of confidence, right? Yeah. We've always been so confident. We're just going to keep going. Until we get it, we're going to keep going. Where do you think that comes from? Maybe our parents. I would say our parents. Yeah, they kind of just raised us to, you can do whatever you want. Both of your parents came from Brazil. Yes. You're first-generation Americans. Yes. What's the work ethic in your family? So we grew up watching our parents work like six days out of the week, sometimes even seven. they sacrificed so much for us. So it really made us want to put 110% into everything we did. And we really wanted to succeed just for them really. We kind of have that-- Mindset. --just get it done mindset. And it definitely got us here. Are you paying yourselves well? I'm not going to say well. I'm not going to say well. What are your biggest concerns? We carry so many different positions. We're the social media person. But we're also the barista. We're also the manager. And so we're learning to really organize it. And putting it on paper has really helped us. We are young. And a lot of our employees are the same age as us. So it's kind of setting up that boundary with your employees. How do you become a boss, but you also have a good relationship with them? What advice would you give to somebody else who wants to be their own boss? Definitely just go for it and try and do as much yourself as you can. We can do one on that window and then one on that window. Don't be afraid of failure. And then Sunday, Sunday is going to be really busy. I know we all have a vision for how we want our business to be. You're not going to start off perfect the first time. How does it feel being your own boss? Amazing. Absolutely amazing. Best decision ever. Beautiful. Mhaine and Nathalia are part of a much larger shift in the US workforce. About 40% of workers now work for themselves. And when you are your own boss, there's a lot to navigate. So I want to bring in Meredith Stoddard to the conversation. Her job here at Fidelity is to help people navigate those major life events, like taking the leap into launching your own business. Meredith, thanks for being here. Thank you for having me to cover such an important topic. It is. It is. So I want to go through that stat again and make sure I get it right. I was surprised by it. 40% of the US workforce is now working for themselves. And that's about a 30% jump from a decade or so earlier. Is that the pandemic? Is that people coming out of the workforce? What is that? Yes and yes. There's a number of factors. And for each person, it's of course, different. But the pandemic absolutely had a lot of shifts in childcare, in support in the workplace. And so a lot of people are saying, wait a minute, what am I doing with my life? And what do I want to be doing with my life? And so they're taking that risk and taking that leap. It also helped that when there were layoffs, people sometimes just need to find a way to survive. And so they used that opportunity to segue into starting their own business. OK, so here I am. I want to start my own business. Where do I start? Yeah, that is a loaded question. We could spend a lot of time on it. But at a really high level, it's making sure that you understand what it is that you're doing. Is it a service? Is it a product? What is your offering? What differentiates you? Why would someone come to you versus somebody else? What do you think you might charge from a price standpoint? So what is the market? What do other competitors do on that level? And then start to sketch out a little bit of a business plan. It doesn't have to be super formal. But just what do I think I could earn by doing this? What do I think my expenses might be? So if it's a physical product, am I shipping? Do I need a website design, for example? And then do I want to just start small and grow? Or is this something that I really want to go big and have a big, grand plan? So super high level. But that's a starting point. Yeah, grand plan. I mean, it takes a lot more than passion to strikeout on your own. So when we're talking nuts and bolts, dollars and cents, the financial questions, whether it's your own savings, or a loan, or maybe getting help from friends and family, what are some things people should consider? Yeah, I mean, I think there's a really big spectrum there. So first of all, someone might be starting a side hustle while they're still working their full time job. And that gives them a way to get some small earnings without very high stakes. And they learn the marketplace. They learn their business. They learn what they're good at and what they're working with. Somewhere in the middle, someone might reach out to friends and family. If their family doesn't have a lot of money, maybe they'll move in with someone for a while to save on rent. And then they can save that money towards their business. It might be a loan that you need a small business loan. So everybody's going to have a little bit of a different answer to that. But I think the first step is getting that business plan, and then using some different resources to help figure out, where might I get some funding? You said two scary words there, business and plan, putting them together. I think that would intimidate me. So what should folks think about there? Yeah, I mean, first of all, you're not alone. It's one thing to have a skill set or something you want to market. Two, it's how do you deal with the customers? How do you deal with the business aspects? So again, don't put so much pressure on yourself to have it all figured out right at the beginning. But specifically, what's in it? Yeah, I mean, a business plan has a few fundamental elements. One, it's who's your target audience? Who do you think might buy your product or your service? Two, it's, what is the product and service? What do you offer? What might you charge? What kind of income can you derive from selling that product or service? What kind of expenses might you incur? The reality is that it's going to start small. So it's just writing things down. It could be on a piece of paper. It could be an Excel spreadsheet. It could be some software. But there's a lot of support out there in terms of, how might you sketch it out? How do you organize it? And then how do you take those step forward? Because you're never going to have a place where you have the perfect business plan, and on day one, it's going to be gangbusters. It's going to be a phased approach. And then you iterate. And you learn. And you adjust over time. OK, so you say a lot of resources or support. What are some of those? One example is the Small Business Administration. They have come a long way in terms of templates for a simple business plan, a more complex business plan, how might you get financing, different resources. Two is you might want to look at online social media type sites. So for example, there's small business support groups. Some communities have different support. Three, we did actually create a life event called Becoming Your Own Boss. If you go to Fidelity.com/LifeEvents, there's a bricklet that says becoming your own boss. We lay it out step by step on exactly how you do it. So that's just a start. We know that the independent workforce is diverse. I mean, Mhaine and Nathalia are first generation Americans. We heard them talking about their Brazilian roots and how they're putting that into their business. And we also know that Hispanic and Black Americans saw the largest, or have seen the largest, rise in full time self-employment work since the pandemic. What do you make of that? I think one of the wonderful things is that systems that may not have been accessible before, you can go out and create your own system and have it work for you. The other thing you mentioned is they are first generation Americans. To pick up and move to a place that you're not familiar with and don't have the support system and still thrive is a huge quality that's going to serve you really well when it comes to a small business. And so I think it reflects the changing nature of our country and what it looks like to make a living. I want to get back to those fundamental building blocks. How important is it when you're thinking about your small business to keep the personal and the business finances separate? Because there's a lot of cross contamination, I might imagine. Yeah, well, and it can be really easy to lump things in and figure you'll deal with it later. But the reality is it's going to be a heck of a lot harder later. So it's going to be a lot easier if you separate out your business expenses from your personal things because you don't want to come to the end of the quarter to pay your quarterly taxes and have to take it out of your mortgage money. You want to make sure that it's separate, that you protect your assets, if you have any, protect yourself with an umbrella insurance policy, for example, and keep that separate. When it comes to a larger business, there are laws saying that you can't co-mingle those. And so you do want to make sure that you're absolutely not mixing those accounts. So I have friends with small businesses and they've got the LLC afterwards. Yeah. I know it's legit. But what are some of the things you should think about when you're thinking about your business structure? This is an area where you're going to want professional help, whether you're getting into the decision around, do I want an S corp, a C corp, an LLC? You want to have some guidance to make sure that you're setting up a structure in a way that's going to protect you, protect your personal assets, and keep them separate from the business, and that you're filing taxes separately as your business, and that you've got those all buttoned up. As a general best practice, even if you're doing a sole proprietorship, it does make sense to keep at least separate accounts. I would also say that if you are doing a sole proprietorship, looking at an umbrella insurance policy to protect your home or any personal assets that you might have and keep that hedge against the business risk. If you don't have all the answers, that's OK. Use your resources in order to figure out what's right for you. A decent amount of financial work is involved in launching a business. For those things, what are some good resources? It can be intimidating. And it takes a lot of skills to run a business. Stay organized out of the gate. So whether it's just documenting your expenses carefully because you don't want to end up with a giant pile of receipts at the end of the year and try to figure out, what was that for? So just dedicate time every week, every day to just get ahead of it, document, and start to get organized. And over time, your system might evolve and get more sophisticated. That's fine. Just at least make sure that you're documenting it and having it all organized in one place. Awesome. OK, so one thing that got a little tricky for Mhaine and Nathalia was transitioning from being in the same room or having fun at work to being people's boss. And I think that there's two questions there, kind of the relationship shift and then how you care for your employees. Yeah, and having the difficult conversations. Maybe there's an employee who's coming in late all the time. And you're like, shoot, do you have to say that? Do I say it? What do I say? How do I say it? You don't have a boss to lean on. You don't have HR to lean on. And so I would say, first of all, lean into those conversations that you're afraid of early and often to build that skill set. It can be scary and very easy to avoid for a long time. But then these issues can start to fester and become a lot bigger if you don't tackle them. So I'd say at the very least, work on those skill sets and recognize that you're the one who has to handle these things and get after it as soon as you can. And what about as you're thinking about maybe a 401(k) or those planning types of things? Yeah, so again, you're the HR department. You're the benefits department. It can be very easy to say, next year, or next month, or next week we'll start it. Even if it feels like it's pointless to put $25 a week into a retirement account, over time it's that habit. It's understanding, which kind of retirement account do I open? It's accounting for time off for yourself, whether it's to rejuvenate or for doctor's appointments, figuring out your health insurance. So again, you don't have to figure it all out on day one. But make that part of your business plan. Start to work towards it. And don't let too much time pass before you get all those pieces into place. You mentioned taking care of yourself. And I think for a lot of small business owners, it's almost a point of pride that your sweat equity, and you're doing all the things, you're working weekends and crazy hours. Let's lean into just a little bit more about, how important is it to really take that breath and take care of yourself? And I acknowledge that in any business, if it's the week before tax season and you're a CPA, you probably have to work a little extra. If that becomes the only way that your business can survive, then you don't have a viable business. So you need to shift aspects of your business so that you can sustain it over the long term because you're not doing anyone any good if you burn out after three years. You want to create something that can handle itself for the long haul, can grow over time. You've got to be able to trust people. You've going to be able to delegate. You've got to be able to upskill. And that's really important because you're not going to help your business, you're not going to help your customers, or you're not going to help your team if you can't figure out how to put yourself first in some ways and make that a priority. And pay yourself. 100%. That is something that a lot of small business owners take for granted is, well, I could just go without for a while. And again, that's fine on a given month or to start until you can get the first month's of deposit. But that is not a viable business. And you're not in this world to work for free. It's not a volunteer organization. It's something that you want to create a viable business. And you've got to bake that into your plan. Yeah, I mean, it's such a great point to really celebrate. I'm mindful of the best laid plans. We all know nothing goes perfectly according to plan every single time. How can small business owners really think about the unexpected? I think you have to assume that your business plan is a directional template and not a roadmap of exactly how things will go. I use the analogy sometimes of you have a birth plan because this is how you want your child birth to go. And the reality is that you really don't have control over a lot of it. And so figuring out, how do you pivot in times of change? So don't cling to the plan that you put down on paper before you launch the business. Face the reality that you're in now and figure out what adjustments do you need to make. And that'll help you be resilient, adaptable, and charge yourself into the future. And what about, you build networks. And then how do you kind of put them to work? That can be your lifeline. And it does take an investment of time because if you don't have any relationship with someone, calling them out of the blue for help in a moment of crisis is probably not the time to build that relationship. Relationships are two-way streets. So you want to be able to give. You want to be able to have people support you when you need help. There are scenarios where maybe you have an upset customer slamming you on social media. And you're not sure. What do I respond? What do I say? How do I say it? And so it's great to be able to have someone to bounce that off of. And you can learn a ton from other people, even if their businesses are quite different. Just best practices on businesses. What's a good CPA? How do you market? Who did your website? Those things can really make a difference. So that's an investment of time that is well worth it. Being your own boss, it's a lot of work. But it's really satisfying too. And I want to quote the research here because compared to traditional workers, people who are their own boss report more personal growth, time with family, and life satisfaction. Yeah, I mean, I think there's something to be said for having autonomy over your future, over your day to day, and how you structure things. And it can be really scary to make a leap into the unknown. And a lot of times, those pay off in terms of life lessons, in terms of businesses that you've grown over time, and the sense of satisfaction and confidence that you've done something that a lot of people spend a lot of time not doing because they're scared. So if I'm someone that's kind of on the fence or I'm just still mulling it over, what's your message to me? Here's the thing. There are going to be people who are over planners who want everything perfect before they take a step forward. If that is you, just take the step. Get a semblance of a plan and start to venture into it. And maybe the first step is talking to another small business owner who's already doing it. For other people, they may be ready to leap, and then look where they're going after the fact. So be self-aware, and introspective, and say alright, if I'm just diving in and I'll figure it out along the way, do take a little bit of time to do your research. Talk to other people. Check out the life event on becoming your own boss. Check out the Small Business Association. And join some networking groups so that you can get started because action is going to be what gets you there. And you're never going to regret giving it a try. Awesome. Awesome. This has been such a good conversation. Meredith, thank you. Thank you so much for having me. This was fun. Of course. Thanks to Meredith and thanks to all of you for joining us. If you have a money life question, and who doesn't, shoot us an email at [email protected].. Make sure to like, follow, subscribe to the podcast. And we'll see you next time on Money Unscripted. [MUSIC PLAYING] Footnotes and Disclosures: MBO State of Independence Report, 2022 Bureau of Labor Statistics Current Population Survey, 2022 CEPR Analysis of the 2017-2022 Current Population Study Freelance, side hustles, and gigs: Many more Americans have become independent workers, McKinsey, August 2022 Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. The views and opinions expressed by the Fidelity speaker are his or her own as of the date of the recording and do not necessarily represent the views of Fidelity Investments or its affiliates. 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