3 Tough Lessons I Learned During My First Year Of Entrepreneurship
People say the first year of marriage is always the hardest. I say the first year as a new entrepreneur could give any set of newlyweds a run for their money.
I started my business a little over a year ago, after being let go from a startup that was struggling with cash flow. I took on one business client right after I was let go. I also took a job offer, but kept my own business running. My thinking was that I could grow my own business part time while not starving. My plan paid off and I was able to secure several more clients for my business while working full time.
As great as that was, things got rough at times. I learned some pretty tough lessons during my first few months as a new entrepreneur.
For example, I learned how to manage my time and resources when some months were fat, and others were lean—gone were the steady paychecks directly deposited into my bank account.
Those early lessons shaped me into the business owner I am today. That being said, hindsight is 20/20, and oh how I wish I could write myself a letter to warn my new entrepreneur self of what was to come.
If I were going to write that letter, here’s what I would say.
1. Have An Accountant—Always
One of the best business tips for a new entrepreneur is to hire an accountant. Accountants are just golden. They are essential, even if you don’t have a dime. Why? Because if you don’t have a dime, a good accountant can figure out how to get you refunded for that missing dime come tax season.
I called up an accountant the day I decided to start my own company (before I was running my business full time). He was referred to me through family, and from day one, he had excellent recommendations for me. He taught me that I should register as an S Corp, not an LLC (although they are kind of the same, you need an extra form to be treated as an S Corp which will save you thousands of dollars—more on that later). He saved me tons of money by helping me to register my business in Virginia and not in New York.
He had a list of all the websites I would need to visit to get everything set up and registered—there are quite a few forms. He walked me through the process and instructed me on which agencies to call should he not have the knowledge on how to do something.
Besides being full of knowledge on how to get a business set up, accountants can help you save tons of money on taxes.
For example, let’s compare earning a full-time, annual salary of $100,000 to earning $100,000 as a registered business.
Taxes on a full-time income of $100,000
In New York, if you’re earning around that much, you’re looking at about $30,000 or more paid out in taxes.
Taxes on $100,000 income as a registered business
If you’re a registered S Corp, with a business earning a total of $100,000 yearly, then you and your accountant will decide what to claim as your “salary.” This determined salary amount is the only portion of your total income that will be taxed at a ridiculously high W2 income tax rate.
So let’s say that with the help of your accountant, you decide that out of that $100,000, a mere $20,000 will be your “salary” taxed at the standard W2 rate. You’ll probably pay around $6,000 to $7,000 in W2 income tax out of your total $20,000 salary.
Note: Paying yourself a small salary doesn’t mean you can’t spend the rest of the money your business earns. I might pay myself a $20,000 salary, but if I want to buy a new car, groceries, or pay my netflix bill with my other $80,000 in business earnings, that’s perfectly fine.
The remaining $80,000, minus business expenses, is taxed at around 15 percent.
Which brings me to my next point…
Business expenses. My accountant helped me claim my grad school tuition as an expense. Part of my rent is calculated as an expense because it contains my office space. My car and gasoline are expenses, my cell phone, my laptop, my internet, you get the point. Let’s say your expenses add up to $2,000 per month (which is very conservative if you live in San Francisco, London, New York, anywhere expensive).
So now, take that $80,000 remaining balance and subtract $24,000 ($2,000 x 12 months).
That leaves you with a yearly profit of $56,000 being taxed at about 15 percent by the feds, around $8,400. Add that to the $6,000 you paid out of your “$20,000 W2 salary,” and your total tax liability is around $14,000 to $15,000.
Being taxed as a business means you’d pay less than half of what you would pay if your $100,000 income was taxed as a full-time salary.
To sum up, an accountant can help you:
- Get your business registered
- File your taxes
- Provide recommendations based on your company’s profits and losses
- Help you claim business expenses
- Good accountants can also connect you with business organizations and other supporting companies. Mine connected me with an organization that can collect late payments from my clients and help with legal paperwork.
The bottom line is that you shouldn’t wait to work with an accountant. The services an accountant provides can help you from day one and also set you up with a nice foundation upon which to build your business.
So how can you find a great accountant? I got mine through a family recommendation, and I recommend going through a referral from someone you trust if you can. If not, then I’d set up some meetings and calls with folks who don’t charge astronomical fees.
2. Write Everything Down. Everything.
Another piece of solid advice for new entrepreneurs is to write everything down. Here’s an example from my first year to explain why.
My solopreneur adventures were off to a great start. I landed three clients in one week and was feeling really pumped about it. But nothing will ruin your business-is-great high like a client not paying their bills. Thank goodness I had everything written down. And I don’t just mean a client contract (please, pray you, have client contracts). In this particular circumstance, it was a great thing that I also had every email ever exchanged between myself and the client, because we might have ended up in a weird legal mess (which we didn’t because they eventually paid me).
Again, this rule applies to everything, but here are some particulars to keep in mind.
Always Have Secure contracts
This may go without saying, but I`ll take it a step further than just having contracts in place. Have legit contracts in place. Don’t always rely on something you fluffed together with Rocket Lawyer. Because, heaven forbid, someone could decide to not pay you, or they file suit against you. It’s just safe to be prepared in case the worst thing happens. Minimize risk! If you’re into saving money you could have a law friend take a look at your contracts. You could also find an attorney to read through it for less cost than if they put it together for you. Make sure it’s ironclad and beneficial to both parties.
Keep Track of Email
I`m not a huge fan of keeping emails. Actually, I love deleting them. But in several instances, I’ve been happy that I’ve had many of them archived for free in myhubspot.com account. Hubspot will provide you with a free BCC email to record and archive your convos in the Hubspot CRM anytime you BCC that email address. Here’s how you can sign up and get it going:
Step 1: Create ahubspot.com account
Step 2: Make sure you’re on the sales dashboard, and from there, click on settings
Step 3: Once you’re on the sales settings page, click “sales” in the left side menu. Then you’ll see the BCC address that you can copy and paste into any emails you send out that you’d like to archive.
I rely on HubSpot to archive my messages because I also use HubSpot as a CRM tool. It’s super convenient for me and it allows you to automate much of your sales and marketing cycles down the road.
Remember, Your Clients Might Not Be Rich
Be wary that your new clients might not have gigantic cash flow. If they’re outsourcing for your services, chances are they’re small and can’t afford to hire an in-house team to handle what you provide. If you work primarily with other startups or small businesses, beware of cash flow issues. If your clients are strapped for cash, they may be less likely to pay their bills on time.
I had a great client, loved ‘em, and they called me up to explain that they didn’t have enough money to pay my full retainer. We renegotiated and worked out a payment plan. This plan was put into a contract.
Another client cash flow issue that can creep up on you: If you provide a product or SaaS, make sure you’ve got some great terms and conditions and please make sure that your customers are aware of your subscription terms. You don’t want an inbox full of complaints from confused customers who are ranting about why they are being wrongly charged or why they are unable to cancel their subscriptions. Make your terms crystal clear to customers before they sign on, and include as much detail as possible to thwart customer complaints and dissatisfaction.
Your Ideas Won’t Stick Around Forever—Write Them Down
I can’t tell you how many times I’ve cursed at my computer screen because I forgot the totally amazing idea I was going to write about because I didn’t write it down when it first hit me.
I finally learned my lesson and bought a tiny notebook to carry around. It’s really come in handy. I’ve also gotten in the habit of keeping an “ideas” list in my iPhone—I use the Reminders app. It currently has over 100 random ideas that I occasionally look back over and sometimes have a good laugh thinking to myself, must have written that while I was having a glass or two of wine. But some of the ideas are good and some of them do end up in my client work. So I recommend getting in the habit of keeping an idea list in your phone.
3. A Good Salesperson Is The Toughest Hire You’ll Ever Make
Hiring is never an easy task, especially for new entrepreneurs. I’ve got a background in sales and marketing management, and hiring a good salesperson is still probably the hardest hire I’ve dealt with to date. It’s especially hard if you’re not familiar with sales processes and sales folk. The best ones are unicorns, a different breed, but even if they’ve got a great personality for it, they may not be the best fit for your product or service.
It’s also very hard to tell if someone is good. There are all types of personalities out there, and good salespeople have a wide variety of characteristics and demeanors, (some of the best salespeople are introverts, in fact). Hate to break it to you, but you can’t just assign a personality test and pick the right people. So why is it so hard to find great salespeople?
The best salespeople don’t work for anyone but themselves.
Now this probably isn’t 100 percent true, but the exceptions are very hard to come by, for good reason. Why would someone who is seasoned, with the skillset to bring in millions of dollars, waste their time bringing in all that money for someone else? If they’re smart, they don’t. Sure there are great salespeople working their way up ladders in various companies, and some of them are making millions at big tech companies.
This means that, when making a great sales hire, you have to get a few things right. Ask yourself:
- Do you have the money to convince them to come join your startup? Salespeople make bank if they’re good. If you’re strapped for cash, you’re not going to attract the best sales talent unless you’re offering incredible benefits and shares. If you can pay higher salaries, great! Get the best salespeople out there with the help of experienced sales recruiters.
If money is tight, don’t hire a mediocre or entry-level salesperson. Instead, I recommend hiring a sales or business development consultant. This way, you’ll have the help of someone more seasoned without spending a lot of money. Plus, a seasoned sales consultant can also help you make your first full-time sales hire.
Look for someone more senior, both when taking on a consultant and when making that first hire. If they’re good, they’ll be worth every penny.
- Do you know how to sell your product or service? This is one of the biggest mistakes I see founders and new entrepreneurs make. They often don’t have a defined sales cycle or process, yet they bring in early or mid-level talent expecting them to be able to pull all the weight. Huge mistake. Again, hire a consultant if you’re still figuring out how your sales process will work and can’t afford a full-time senior person to lead the way. Let them help you get things going. Then, let said consultant help you hire.
- Can you avoid being played by a good salesperson? Good salespeople are often charming, fun, contagious, etc. Even if they’re not the best fit, if they want the job, they might make you think are. Especially if they’re well trained. Not only are they good at selling products and services, they’re the best at selling themselves. So, when hiring, be cautious. I advise a trial period of a month or so to see how candidates fit in and if they can really make rain.
If you look hard enough, you’ll find someone who can really improve your growth efforts. When you do, be grateful and treat them well. You wouldn’t want them leaving you. Start with a trial, and see how things unfold.
As a new entrepreneur, I hope that you can put these lessons I learned the hard way to good use.
Count your money and keep every dime you can! Write down your deals and write down your ideas, because you never know when you’ll need to rely on what’s in ink. Remember the Chinese proverb: The palest ink is better than the strongest memory. Put your best effort forth when hiring the people who are going to be responsible for bringing in more business, as that’s the most important part of growth. If you can manage these few things, then you’ll be a step ahead of the competition.
3 Tough Lessons I Learned During My First Year Of Entrepreneurship was originally published on Foundr