Starting your own business can be overwhelming.
Starting your own business can be overwhelming; but, it doesn’t have to be. Relaxing Condos is all about helping people get started with that dream. It is our firm belief that everyone capitalizes on their talent or a hobby. We want to show you how to turn that talent into a money-making business. These types of businesses are best started on the side. By starting your business on the side, you minimize your financial risks. Then, as your business grows, you can choose between quitting your job and spending more time on the business. Before we explore this further, starting your business takes grit and an optimistic grasp of reality. It is hard work, and sometimes it feels like you are right at the edge of defeat. But, you can do it!
Where to start
The first place to start is determining what your business is going to do. Your imagination only limits this. For example, Gary Dahl, pet rock creator, made a mere $73 million in current year dollars. Did you know you could get paid to be a professional cuddler? People make over $40,000 per year being professional cuddlers; I admit it is a little creepy. Two fundamental types of businesses exist material-based and service-based. Furthermore, income can be broken into two types active and passive. Let’s dive in.
Two categories of businesses to start
Businesses generally start as material-based or service-based businesses. Material businesses have inventory and sell physical products. Service businesses have services or information that they sell. While there are some things in common, they are fundamentally different business types. If you are looking at starting a hybrid of both, I urge you to focus the first year on one and then grow into the other. Your family will appreciate this :>
Similarities between the two
Both material-based and service-based businesses share top-level similarities, but how those similarities are implemented often differs. For example, both businesses need to advertise. But, first, a material business will most likely advertise locally because the new business does not have a large distribution system. On the other hand, especially with COVID-19, a service business will lean towards much geographically broader advertising. Another great example is business accounting. For a service business, cash accounting is recommended for small businesses. For a material business, accrual is recommended due to inventory. For more accounting information, see our future post on “Business Accounting.”
Material-Based businesses
As mentioned above, material-based businesses sell physical products and have inventory. Most of your hobbies are going to fall into this category. Whether you make your secret recipe barbeque sauce or designer soap, you are a material business. There are so many types of material businesses it is hard to list them. If you have ever gone to a festival and saw all the vendors selling homemade items, these are material businesses. Flipping houses is a material business since you stock supplies and houses and sell a physical product, the house when you are done. All material-based businesses are considered active income; see below. I am sure there is an exception to that; please post it in the comments :> On the other hand, drop-shipping and real estate wholesaling are service businesses because there is no inventory involved.
Service-Based businesses
Service-based businesses, as the name implies, sell services. These services can be things like consulting, accounting, writing, etc. As you can see, your talents tend to be service-based businesses. Service-based businesses do not have inventory. Again, I am sure there is an exception to that; please post it below. Passive revenue businesses are another type of service business; they do not directly rely on you to provide the service. For instance, rental properties/short-term rentals, drop-shipping, blogging, books/e-books, etc., are all passive revenue-type businesses. The first set of businesses are active income businesses, and the second set is passive income businesses.
Active vs. passive income businesses to start
For this section, I am not using the IRS/Legal definitions of active vs. passive income. This does have major tax implications. For now, we are looking at how the money is made, not the “material participation” in the business. Strictly speaking, active income depends on you doing something to earn it; and, passive income comes in without you actively participating to earn it. For example, investing in stocks/mutual funds is considered passive income for most people. We will define active income as income limited by how much you can do for this discussion. For example, there are only so many widgets you, yourself, can build to fulfill sales; hence at some point, your sales are going to be limited by you. The same is true of a service business that does accounting. There are only so many clients you will be able to take on. On the other hand, owning rental properties or selling online how-to courses are great examples of passive income. Income comes in with little participation from you. This is a fundamental decision to make about the first product of your business. It is often based on how much time you have to commit and your passion. Passive-income businesses tend to have higher up-front costs.
The 1099 Contractor
Many of the service single-person service businesses start as 1099 contractors. A 1099 contractor is a person who works independently rather than for an employer. This means that you sell your services to another business instead of working for them. For example, you may be either be contracted by a company to handle their accounting, or the company could hire you as their accountant. In the first instance, you would be a 1099-contractor. A 1099 contractor is independent of the company they contracted by, meaning they set their own hours and do not fall under the management chain of the other company. A 1099 contractor could sell services in direct Business 2 Business(B2B) sell or more likely through a third party like Fiverr or Airbnb. Third-party companies help greatly with marketing. They have a large set of active clientele that search for services on the host website. This is one of the best ways to get noticed when you are just starting. It eliminates the need for a large advertising budget. This allows you to get started immediately; of course, they charge a small percentage fee for their hosting service. As a 1099 contractor, the business will issue you a 1099-MIS/NEC at the end of the year. As mentioned above, if you are selling a physical product, you will probably need to find a way to market locally. Being a 1099 contractor, named after the income form, is just small business shorthand for these micro-businesses. By the way, Relaxing Condos is mainly a 1099 contractor small business.
Decisions to be made when starting your business
There may be a thousand ideas floating around on what you could do for a business. It is critical to narrow it down to a single idea. Starting a business requires intense passion and the ability to push through obstacles. You will be getting very familiar with your product through the nights and weekends you work on it. So don’t pick something that you are only interested in making money. After a short while, your business will show a lack of passion. On the other hand, think through how you will sell something that you are very passionate about. For example, you may be very passionate about red-stripped shoelaces, but that is a very niche market. It may be hard to get your name out and into that small of a market. In the previous example, it would be much easier to sell all kinds of shoelaces. Still stuck? Imitation is the highest form of flattery. Look at what others are selling that you are passionate about. It is also helpful to use very similar marketing. NOTE: Be careful not to violate copyrights or trademarks.
Next steps
Once you have your idea in hand, my post, Step 1: Starting a Business, goes over the fundamentals of starting a business. We strive to make this blog easy to follow. It looks at entrepreneurship through the lens of short-term rentals. With that being said, the business advice is generally applicable to all small businesses. We will cover marketing, accounting, invoicing/sales, and how to become known on the internet in future posts.
Remember, if this sounds overly complicated, Relaxing Condos offers consulting services to get you started with any of your vacation rental business needs. If you found this useful, please share it on social media using the buttons below. Also, don’t forget to sign up for our monthly Newsletter, Special Hot Tips, and our cost estimating guide delivered to your inbox!
Thanks,
–Jake
