Flying Solo HOW TO BUILD A PROFITABLE ENTERPRISE.

DO YOU WANT TO BE YOUR OWN BOSS? HAVE YOU THOUGHT about putting your skills and ideas to work for you? If you've considered joining the growing ranks of the self-employed, this series will provide you with the vital tips and resources you'll need to make it happen. The first article in the series

Arnold Tompkins, president of Tompkins Consulting Ltd., a $250,000 Columbus, Ohio-based health and human services consulting firm, began mapping out plans for his career change well in advance of establishing his company in 1998.

"I'd always wanted to do private consulting on my own, but was a little intimidated by not having the security a job provided," says Tompkins, 49, whose wife handles his company's bookkeeping. He has one employee.

As a senior policy analyst for the Reagan-Bush campaign and the former director of the Ohio Department of Human Services, Tompkins was better prepared than many to fly solo. Yet the attorney-turned-policymaker used two years to strategically position himself in leadership roles in several human service organizations, providing himself with contacts in other states, before he made his move. He also spoke at national conferences to gain name recognition and saved $25,000 to start his business.

Crafty Sisters' Gift Boutique, a Hempstead, New York-based craft business owned by Jayne Cain, 43, was started eight years ago with just $500. Her partner, Cassaundra Williams-Anderson, 49, makes jewelry. The best friends joined a group of craftspeople who sold their goods at a local market, but the arrangement went sour and the two linked up. They have no employees. The business includes Afrocentric giftware, dolls, ancestral jewelry and black figurines. With the launch of a successful Website (www.bnl.com/aasm/crafty), the business garnered about $40,000 in sales last year.

The U.S. Census Bureau defines the self-employed as those who work full- or part-time for a profit or fees in their own unincorporated business, profession or trade. Their businesses can also be structured as sole proprietorships or partnerships. However, the U.S. Small Business Administration expands the Census Bureau's definition, reporting that the fastest-growing segment of self-employed businesses are incorporated. U.S. Census Bureau figures show that nearly 75% of all U.S. businesses have no payroll. Among African American businesses, this number grows to 90%.

Individuals become self-employed for a variety of reasons: to increase income, to be their own boss, to establish job security or to develop their own idea. The SBA's Office of Advocacy reports the number of self-employed blacks grew 28.7% between 1988 and 1998.

"The new millennium will be ripe with opportunities for those with perseverance and fortitude," says Bennie L. Thayer, president and CEO of the National Association for the Self-Employed in Washington, D.C. "But those who seek to become self-employed need to ask themselves, `Am I self-motivated? Do I really have what it takes?' Everyone is not cut out to be self-employed."

Indeed, going out on your own is a big step. And you must decide for yourself when the time is right to make the leap from employee to entrepreneur (see "Straddling Both Worlds," November 1999). Even with today's business-friendly environment, you'll have a greater chance of success if you select the right business. In this article, we'll identify four fast-growing businesses for the self-employed, according to Paul and Sarah Edwards, authors of The Best Home Businesses for the 21st Century (Tarcher/Putnam, $17.95), and provide strategies for making a profitable transition to going it alone.

ASSESS YOUR ENTREPRENEURIAL SKILLS

Do you have the skills, abilities and knowledge required for the business you'd like to start? Do you have the ability to nurture and grow a business? Are you prepared to make sacrifices? Are you self-motivated? Do you like being in charge? Do you have the financial means to start a business? These questions must be answered truthfully before you move into self-employment, suggests Lillie Taylor, director of the Bank of America's Small Business Resource Center in Nashville, Tennessee.

A.J. Archibald III, CEO of Hitlist.com in Washington, D.C., applied his technology skills and tapped into one of the fastest growing industries: Internet technology. Archibald's $300,000 online business provides entertainment news and music and videos for consumers. He launched the firm while a student at Howard University, and initial work on the business was done part-time while Archibald worked full-time. His mother invested $10,000, which he used for marketing, promotion and computers.

"I then left my regular job and began to devote full attention (60 hours per week) to the growth of Hitlist," says Archibald, 28. "In the beginning, I experienced the uncertainty of self-employment. I was waiting for that first check. After it came, I felt assured that other companies would use my services to promote their material."

4 HOT BUSINESS SECTORS

Personal/Business Services

Number of U.S. black-owned firms: 333,000

Total revenues: $11 billion

Growth industry: Business consulting

Growth factors: The ever-changing economy and increasing global competition, which require problems be solved in an efficient, cost-effective manner.

Start-up costs: $6,075 to $12,900: computer hardware and software, dues for professional and trade associations, professional liability insurance, professional development seminars, reference books, continuing education, marketing.

Qualifications: A track record of using expertise to solve problems in organizations; extensive knowledge in a particular area of expertise; strong communication skills.

Advantages: Receipt of maximum pay for your expertise in a profession that offers variety and challenge.

Challenges: To market your services successfully, you must demonstrate to clients that they're going to see tangible results because of your work. You may be held accountable for the success or failure of a company, even if the stock market or a bad product limit your effectiveness. Frequent travel for long periods of time is part of the job, and it can be exhausting and expensive. Cash flow may be a problem since it can take a long time to close a deal. There's a high failure rate because many people are looking for that next job.

RETAIL

Number of U.S. black-owned firms: 86,840

Total revenues: $7 billion

Growth industry: Internet retailer

Growth factors: Ability to reach customers globally at low cost; consumers have less time to shop; consumers seek convenient options for purchasing goods.

Start-up costs: $500 to $1,000: computer hardware and software, a digital camera, initial testing, marketing. (A site with full e-commerce capabilities: $5,000 to $39,000.)

Qualifications: Online market research skills; proficiency in maintaining a Website; skill in choosing, marketing, processing and shipping products.

Advantages: In 1997, small businesses garnered about $3.5 billion in e-commerce sales; future sales are predicted to reach $25 billion to $300 billion within this decade. Low sales costs; low overhead; 24-hour accessibility; no fixed hours, so a mail-order business can be started part-time while you're still employed; you can compete against a company 10 times larger.

Challenges: Attracting the right customers to purchase the right products at the right price, which requires products that are unique or obscure; 24-hour accessibility.

COMMUNICATIONS, PUBLIC UTILITIES, TRANSPORTATION

Number of U.S. black-owned firms: 49,000

Total revenues: $2.5 billion

Growth industry: Webmaster/Website designer

Growth factors: E-mail, Websites and e-commerce are major factors in companies keeping their competitive edge. Web design is a highly specialized field that requires skills and tools most firms don't have in order to create highly effective Websites.

Start-up costs: $3,850 to $18,450: computer hardware, secondary computer with a different operating platform from the first (to view Websites), color scanner, access to Internet, books, marketing.

Qualifications: Background in graphic design; ability to meet clients' objectives and create effective Websites; knowledge of programming languages, Web tools, the Internet; good communication, project management, organizational, marketing and promotional skills.

Advantages: No geographic barriers to entry; emerging industry; ability to help firms reach global clients/customers; industry encourages collaboration among professionals.

Challenges: Need client relations and management skills; must keep pace with technological advances; labor-intensive; technology makes results unpredictable.

FINANCE/INSURANCE/ REAL ESTATE

Number of U.S. black-owned firms: 41,000

Total revenues: $4 billion

Growth industry: Financial planner/advisor

Growth factors: Shift in retirement funding from defined benefits (pension plans) to defined contributions (401(k) plans), which gives employees more autonomy in making investment choices; changing tax laws; aging population; mounting consumer debt.

Start-up costs: $5,150 to $21,800: computer hardware and software, credentials, annual dues, licensing fees, office furnishings, insurance, marketing.

Qualifications: Client relations and communication skills, technical expertise, trustworthiness.

Advantages: Ability to transfer skills from other professions; lucrative income; moderate overhead.

Challenges: Keeping pace with new/changing information; ability to anticipate trends; potential liability for financial losses.

MAKING THE TRANSITION TO SELF-EMPLOYMENT

Are you ready to take the plunge? Don't dive in just yet. First, you should consider the joys and challenges of self-employment.

High on the list of positives are: being your own boss, the opportunity to maximize your income, the thrill of nurturing your venture into a viable business entity and self-fulfillment.

The challenges: Lack of a regular paycheck, the possibility of failure, working in isolation, the difficulty of attaining capital and the burden of governmental paperwork and regulations.

If you're still undaunted, these decisions are critical before setting up shop:

* Choose the right location. The location of your fledgling business is a key factor in controlling costs, according to Rudy Lewis, president of the National Association of Home-Based Businesses in Owings Mills, Maryland. "In addition to low overhead, [self-employed people who work from home] also enjoy the benefits of no time spent commuting, greater flexibility and they can set their own hours," says Lewis. Recent U.S. Census Bureau data indicate that 58% of black-owned businesses with no employees operate from home.

"I don't have the overhead of a store, so I can cut prices 30% to 40%," says craftswoman Cain.

Another option: executive centers with shared or co-op office spaces where you can meet clients and have access to services. Generally, fees range from $125 to $250 per month, although conference rooms can run from $10 to $25 per hour. But if you must operate a retail business from a storefront location, thoroughly investigate the neighborhood, parking, proximity of competitors and accessibility before renting or making a purchase, says Bernard B. Kamoroff, author of Small Time Operator (Bell Springs Publishing, $16.95).

* Determine your capital needs. How much money you will need to launch your venture depends on the type of business you are starting.

Identifying how much you need to earn in order to thrive and checking out your competitors' prices can help you determine what to charge and how many clients are necessary each month to reach your income goals. Identify your start-up expenses and how long you'll need to supplement your income before your business can support you.

Tompkins saved up $25,000 to start his business, in part because he had figured out what his business purchases, bills and personal expenses would be once he left his job. "I had to figure out how to fill the gaps until I got paid. I laid out a financial plan and decided that I needed month-to-month retainers to manage," says Tompkins.

Keep in mind that a business can take anywhere from three months to over a year to turn a profit. Have a plan for how you will cover your living and operating expenses during that period.

Taylor also recommends checking your credit report. If your credit is a mess, consult a credit counselor to discuss strategies for paying off excess debt prior to leaving your salaried position.

* Identify financing sources. Common self-financed sources of funds include credit cards, 401(k) plans, savings and stock. Most business loans (debt-financing) are personal loans in that you, as the owner of the business, personally guarantee the loan, and you must repay the loan whether your business succeeds or not, out of your personal, nonbusiness assets. This differs from equity financing, where you acquire a partner or an investor who only gets paid back if the business succeeds.

Most loans to new businesses come from relatives, friends and acquaintances. Private loans should be in writing and should include the names and addresses of the lender, borrower, the amount, date of the loan, interest rate and payback terms. All parties should sign and date their copies.

To successfully secure a bank loan, you must convince the bank that your business has a good potential for success, that you're competent and reliable and have a good plan to repay the loan, says Kamoroff. When you meet a banker, come prepared with your resume, business plan, a personal finance statement and a statement projecting income and expenses for the first six months or year. You'll also probably need collateral, such as a mortgage on equipment or a second mortgage on your home for a secured loan. If you've done business with or obtained a loan from a particular bank, start there. Other options include SBA loan programs (800-U-ASK-SBA or www.sba.gov).

* Manage your cash flow. Cash flow will determine whether your business succeeds or fails. Making sure you collect what you are owed is like making sure you get your paycheck.

Make sure you get money upfront: take deposits, get retainers and require partial or progress payments. Request payment in cash at the time of sale or delivery of your service. Take bank cards instead of extending credit. Always bill promptly instead of waiting until the end of the month. Also, offer discounts of 2% to 5% if payment is made within 10 days from the date of the invoice. Set up a reliable bookkeeping and accounting system to: keep tabs on how your business is doing from the start; enable you to take advantage of tax deductions; and protect you should you be audited.

* Structure your marketing plan. Formulate a plan that defines exactly who your customers or clients are; identifies who your competition is; clarifies what advantages you have over your competition in terms of price, service, quality, variety and ease of use; determines how big your market is and if there are enough buyers for you to reach the level of income you need, and identifies how you'll inform clients or customers about what you offer.

* Create a business plan. Once you've researched your market, estimated your start-up expenses and strategized a plan for managing cash flow, you have the essential elements of a business plan.

It should provide you (and potential investors or creditors) with your business idea; your background; experience; contacts; where you plan to locate; how you'll obtain or manufacture inventory; how you'll find and keep customers; financial forecasts of income and expenses; profit or loss and cash flow; the status of your competition; how much money you'll need to start and what the money will be used for; how much time and money you plan to commit to the business; how much you'll pay yourself; and how you'll repay a loan or investment.

After your business plan is complete, it's time to put it to work. This is your blueprint for operating your business. So, get busy! You are now ready to join the ranks of the self-employed.

Support Sources for the Self-Employed

Minority Business
Development Agency
202-482-5061
www.mbda.gov

National Business
Incubation Association
740-593-4331
www.nbia.com

U.S. Small Business
Administration and SBDCs
202-205-6600
www.sbaonline.sba.gov

National Association for
the Self-Employed
800-232-6273
www.nase.org

National Federation of
Independent Business
615-872-5800
www.nfibonline.con

Working Solo Inc.
14-255-7165
www.workingsolo.com

National Association of
Home-Based Businesses
410-363-3698
www.usahomebusiness.com

SCORE
800-634-0245
www.score.org

American Association of
Minority Business
704-376-2262
www.website.com/aamb