The views expressed in the blog are the author’s view and not the expressed views of SoFi. This article provides general information about the subject matter and does not purport to provide individualized tax or financial planning advice.
It’s a common story: your friend or family member has “a million dollar idea,” but doesn’t have the money or wherewithal to back it. Then another person comes along and invents it, getting all the money and notoriety that comes along with it. While it was nothing more than an idea in your Aunt Debbie’s head, she still takes it personally whenever she hears about it on the news. Who knew that a social network for dogs would take off?
Here’s the thing, though: for everyone who has a half-baked idea, there are great ideas that go unfulfilled due to the uncertainties of becoming a first-time entrepreneur. If you are a recent college graduate or a young professional, you might have a legitimate idea for a business. However, you might also have a lot of student loan debt, so if you have a good-paying job, you may feel it would be foolish to give that up. That’s not an irrational concern; failure is a real possibility. However, there are legitimate paths to success and following one could be life-changing.
First and foremost, you need to understand a problem or need people have and how your product or service can fulfill that for your customers. This is called product-market fit. If you’re not helping your customers, your idea won’t take flight. But beyond that fundamental question, taking a number of other steps can help you find success. Here are some important things to keep in mind if you are trying to decide whether to go out on your own.
#1 Understand the financial basics of running a business
Not every entrepreneur has a head for finances and that’s okay. But just knowing the basics of how to buy what you need and account for your profits could be the difference between paying tens of thousands in taxes or paying virtually nothing in your startup years. You need to understand the difference between a long-term investment and a short-term expense, as well as when a sale legally counts as income. But most importantly, since you’re not going to understand everything at the beginning, you should know when to stop researching online and get some advice from your accountant.
One example: if you need equipment for your business, you can purchase it outright, lease it, or pay somebody who already has the equipment to do the required work for you. If you choose to buy it, it is counted as a long-term investment on your taxes and you cannot fully subtract that cost from your first year’s revenues. On the other hand, if you lease it, you can subtract the lease payments from your revenues, but the payments will never end as long as you own the equipment because leasing means that you forgo ownership. If you take the third option and pay another business to use their equipment to do your work for you, you will pay a mark-up for their work, but you may get access to trained staff and better quality machines. Since every payment you make to them can be written off in your first year, paying the mark-up – however counterintuitive it may seem – could be your best option.
#2 Remember that debt can be mastered
If you have student loan debt (and you probably do) you might think it’s not the right time to start your business. That’s a common mistake: most successful business owners see debt as a kind of asset which can give them a business advantage if managed properly. In fact, if you’re making more money from the loan than the loan is costing you in interest, debt can be a good thing. Such is the case with business expansion activities like financing new equipment, facilities, and certain kinds of staff.
If you find yourself worried about starting something new when you have student loan debt, keep in mind that there may never be a perfect time to start. Even if you finish paying off your student loan debt, you may then wish to buy a house or a car, or have an expensive wedding, incurring new debt. Sure, maybe one day you’ll be totally debt-free — but maybe not. So use that debt to your advantage. Refinancing with a company like SoFi can be a smart idea, freeing you up to pursue your dream. Don’t be the person who says “Maybe I can do it next year.” There’s nothing more frustrating than watching another year of potential pass by. You have options for managing your debt – the question is whether you choose to take them.
#3 Boldly seek advice from people you respect
We all love the myth of the solo genius who changed the world through sheer force of will. And while nothing gets done without visionaries, they don’t exist in a vacuum, and everyone needs help along the way.
Most successful people love to help. More often than not, if you ask for advice, training, and sometimes even mentorship, you will receive it. Many small businesses owe a substantial portion of their success to having asked accomplished people to join their advisory board, either on a voluntary basis or in exchange for some combination of pay and equity.
Don’t feel it is compromising your individual pursuit of excellence to take advice; no man (or woman) is an island. If you are eligible, you might want to look into applying to SoFi’s Entrepreneur Program, which offers top shelf mentor and investor contacts as well as temporary deferment for your refinanced student loans.
#4 Take complete control of your expenses
Starting a business means deciding how to allocate resources. Let’s say you start off working in your garage. Is that sufficient, or is it necessary to have one of those modern offices downtown with exposed rafters and a ping-pong table? Should you be answering phones yourself, or hire a receptionist? Questions like these are the start of learning to assign costs.
Assigning costs is more than just figuring out what is less expensive: you have to figure out what will ultimately make you money. Maybe a cool office is, in fact, what you need to attract the clients and workforce you require, and you estimate you can afford it in the time it takes to turn profitable. Maybe you can get away without hiring anyone to answer phones, and doing so won’t distract you much from coding anyway. Above all, avoid the most common mistake of assuming that the cheapest way to run your business is the best way; in fact, paying for things that aren’t an efficient use of your time is one of the first principles of business ownership.
That being said, when making serious decisions about how to run your fledgling business, use every advantage you have. Talk to the people on your advisory board. Call professors whom you respected in school. Consult family members and friends you know to be business-savvy. Post on Internet forums. Watch YouTube videos. Spending seed capital wisely is so crucial to a startup.
#5 Cover the skills you don’t have (or don’t want to focus on)
To get a business off the ground, you need to be covering all aspects of running a business. You can have the most useful product the world has ever seen, but your success will ultimately come from having the right people in the right places.
Some of the best business people are simply good at assigning responsibilities to people who are smarter than them in various areas. You might, for instance, be great at financial analysis but not know how to manage people or handle the legal aspects of a business. There will always be technological, logistical, human, legal, and economic issues to consider, and each can become complex quickly. No one is good at everything. Work with people you trust and who can do the job.
I hope these points mark the beginning of your journey as an entrepreneur. There may not be a surefire path to success, but waiting to start a business because you have debt is no longer necessary in today’s day and age. Take advantage of every option available to you, especially social student loan refinance programs for entrepreneurs like SoFi’s Entrepreneur Program, which comes with social capital in the form of contacts in addition to lower rates.
SoFi is a leader in marketplace lending with over $1 billion in loans issued and more than 11,000 members. We help ambitious professionals accelerate their success with student loan refinancing, MBA loans, mortgages and personal loans. Learn more about SoFi’s products and services here.
Brian O is a freelance journalist who has published on a number of topics, from US foreign policy to evolutionary science. Like most freelancers, he has had to develop ways to make finance work, and that inspired him to focus more on financial journalism and analysis. He now focuses his writing on helping young professionals navigate the new economic climate. He once dunked a regulation-size basketball, but no one saw it, and it haunts him to this day.
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Reprinted with the permission of Sofi. Original post: Starting a Successful Business While Having Student LoanDebt Is Totally Possible
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