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How to Start an IT Services Business

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Everything IT pros need to know to set up a successful small business.

No matter what’s happening in the United States or the world, information technology (IT) is hot. It’s been that way for more than a decade, and the trend promises to continue no matter what happens next.

That’s why many IT professionals think about turning into entrepreneurs and opening their own businesses.

If that’s you, here’s everything you need to know to start your own IT business and do it right.

Define your IT service offerings

Most IT professionals have broad skill sets and know how to provide many services. However, most consumers aren’t looking for a comprehensive IT service provider. And many won’t trust a jack of all trades. That’s why it’s critical to select what services you plan to offer so consumers understand what you do and whether your IT business will meet their needs. Some options include:

  • Network design and installation
  • Software installation, maintenance, and updates
  • Tech support
  • IT budgeting and procurement advice
  • Hosted services and storage
  • Risk assessments
  • Cybersecurity
  • Remote network management
  • IT consulting.

The IT services you offer should be things you have extensive experience with. It can be tempting to offer services you have limited experience with in hopes that you’ll win more clients. However, you can seriously harm the reputation of your business if you don’t do an excellent job for a client. Online ratings and reviews make it too easy for unhappy clients to tell others that an IT professional isn’t competent. 

Research your market and competitors

Before settling on a list of IT services you plan to offer, learn about the target market you could serve and your potential competitors.  Some metro areas are more challenging to start an IT business in than others in terms of customer base, competition, and expenses. Do market research on competing IT businesses in your city.

  • Is your market over-served by the type of business you plan to open?
  • Is it underserved, providing you with a significant opportunity?
  • Is there a sub-segment of clients you could specialize in, for instance, providing cyber security to realtors?

Finding out what services competitors in your area offer is relatively easy. It just takes some internet research. Take some time to dig deeper to find out how much they charge. This will help you determine whether you can bill enough for your services to be competitive while still earning a reasonable income. 

If you can’t make it running an IT business in your area, you may want to explore moving to one that doesn’t have as many IT professionals who do what you do. You may find that you could earn much more money while living in a less expensive place. Or consider running a virtual business that allows you to serve customers anywhere.

Select a business structure

It’s critical to choose a suitable business model or structure for your business. It will help you protect your operation, get the financing you need, limit the paperwork you have to file and maintain, and control how much you pay in taxes.

The most common business entity options for small IT services companies are:

  • Sole proprietorship. This is the most straightforward and streamlined business structure for single-person companies. You don’t need to file any paperwork with your state. However, if a client sues you, your personal assets could be at risk.
  • Limited liability company (LLC). Forming an LLC can cost up to $500. Plus, it could take your state a few weeks to process the paperwork. However, an LLC shields a small business owner’s personal assets in case they’re ever sued.
  • S corps and partnerships. Both of these business structure types require significant paperwork to set up. They also have their own tax structures, come with different restrictions, and offer unique legal protections.

An accountant and a legal professional can advise you on what makes sense for your IT business now and in the future.

Secure a business license

Once you decide on a structure for your business, you may need to get a business license. (Your lawyer will let you know for sure.) Requirements for getting a business license vary by state, but applying for one is usually relatively easy.

Your state’s business licensing website will provide all the information you need to apply for a license, but expect to submit basic information about your company, such as:

  • Employer Identification Number (EIN)
  • Business name and type
  • Contact information and business address
  • Name of the business owner
  • Number of employees.

Depending on the state you do business in, you may have to pay a filing and processing fee to get a license. Once your application is approved, check to see how long your license is valid. Some states require small business owners to renew their business license every few years.

Create a business plan

A business plan explains everything you and others need to know to get your business off the ground and how you plan to grow it in the future. Many small businesses don’t have a formal business plan when they start, but this can be a big mistake. You can’t build a successful operation if you don’t have a blueprint to guide it. Also, if you want to get funding for your business, investors and banks will most likely require you to submit a complete and current business plan.

The U.S. Small Business Administration (SBA) offers business plan templates. It’s wise to leverage them because they typically include all the information lenders require, such as:

  • A summary of your company
  • The structure of your business
  • IT service offerings
  • A competitive market analysis
  • Funding sources
  • Budget
  • Financial projections
  • Marketing plan
  • Hiring strategy
  • Leadership team bios.

A business plan provides a solid foundation to build your IT business on.

Start a relationship with a bank

Open a business bank account and get a dedicated business credit card. Having these things will make it easier to keep your personal and business finances separate.

Separating business finances from personal ones makes bookkeeping, applying for loans, and paying taxes simpler. You won’t have to work through bank and credit card statements to determine which transactions are related to your business.

Another plus: Business credit cards typically offer better terms and higher limits than personal ones. In addition, you can take advantage of perks like rewards points and cash-back offers. Make sure you pay off the credit card quickly to avoid interest charges. 

Secure funding

You may not have enough cash to start an IT business. Start-up costs, even for basic IT consulting businesses, can be high. Here are some options for funding you could have available to you.

  • Venture capital. Raising money from venture capital firms can be a good move, especially if you have an IT company concept that’s compelling and have a solid business background. You’ll want to find a venture firm that works specifically with IT services businesses.
  • U.S. Small Business Administration (SBA) microloans. The SBA sometimes makes small loans, typically capped at $50,000, to small business owners, typically women, minorities, or those who operate in disadvantaged areas.
  • Online lenders. Unlike traditional banks, online lenders may consider making loans to startups, especially if the owner has a solid credit rating and experience in business. Be aware that interest rates can be relatively high and loan terms unfavorable for new companies.
  • Equipment loans. If you need to purchase computers and other equipment for your new IT business, you’ll likely qualify for an equipment loan. They’re easy to get because the loan is backed by the equipment, which means it can be taken if you don’t make your payments, putting your business at risk.
  • Real estate loans. If you need to purchase a store or other property to run your business out of, you may qualify for real estate financing. It’s relatively easy to get approved because the loan is backed by the property it’s used to purchase.
  • Business line of credit. Your bank may be willing to offer you a business line of credit. Like a home credit line, it provides a fixed amount of financing you can borrow against when you need it. You don’t have to pay back the money until you access it.
  • Low-interest credit cards. If you can find a zero or low-interest credit card, it could make sense to use it for short-term startup funding needs.
  • Crowdfunding. If your IT business concept is an innovative one, and you can promote it effectively, you may be able to get crowdfunding for it through a resource like Kickstarter.
  • Grants. Grant money is particularly attractive because you don’t have to pay it back or sell shares of your business to take advantage of it. Some grant money is dedicated to supporting IT firms. These could be a good option for you.

Startups typically don’t qualify for term loans from traditional banks or SBA loans.

Find a workspace

One of the significant benefits of owning your own business is choosing where you work. Some standard options include a traditional office, a co-working space, a storefront, or a home office. Your decision should factor in your business type, budget, work style, plans for hiring employees, and how often clients visit. 

Get business insurance

Startups need to get insurance coverage. A single accident or incident could be costly enough to put a new business out of operation. Some common types include business auto, property, cybersecurity, and professional liability insurance.

Create a startup budget

Your business plan will likely include a few years of budget and cash flow projections. Here are some of the costs you can anticipate incurring in your first year in operation:

  • Loan and credit card payments
  • Rent
  • Software licenses
  • Equipment
  • Insurance premiums
  • Inventory and supplies
  • Utilities.

Next, you need to estimate your revenue. Determine how much money you expect to make monthly, quarterly, and annually. Finally, calculate your profit margin. Your profit margin is the percentage of money left over from sales after subtracting your business expenses. Monitoring your profit margin allows you to determine whether you’re charging enough and keeping costs in check as your business expands.

Track your budget monthly by tallying your revenue and expenses and calculating your profit. This will help you manage your business responsibly.

Draft and use contracts

Before you start working with clients, work with your lawyer to develop contracts. Never agree to do any work until a contract is signed by the client and you. Contracts can protect you from lawsuits and let your clients know exactly what they can expect from you and what you expect from them.

A basic IT services contract should include the following information:

  • Scope of work
  • Price and payment terms
  • Timelines
  • Termination clauses
  • Dispute resolution plans.

Contracts can help prevent costly lawsuits, which can cripple startup businesses. 

Hire the right people

Your business is only as good as the people who work for it, whether they’re full-time employees, part-time workers, or freelancers.

Interview several candidates for every position to help ensure you hire the best-qualified one. Make sure anyone you employ is someone you’ll like working with who will provide outstanding service to your clients. Check their Linkedin profiles to make sure what they say checks out. Put every new hire through a thorough background check. Call their references. You may be trusting these employees to handle confidential and potentially sensitive information, and they could be visiting your clients’ homes and businesses.

Finally, make sure that all terms of employment and wages are clear in the offer letter. It can help prevent employment-related lawsuits.

Be aware: It’s likely that your state will require you to get workers’ compensation insurance when you hire employees. It provides benefits when workers become ill or are injured for work-related reasons. It also reduces the chance they’ll sue you over these incidents. 

Promote your business

Finding new customers for a startup IT services company can be challenging. Marketing and promoting your operation is critical for its immediate- and long-term success.

For IT businesses, digital marketing is a must. Many potential clients will find your business through search engines and social media. If your budget allows, hire a professional web designer to create your website. It will help make your operation seem more professional. A search engine optimization (SEO) expert can help improve your site’s Google rankings over time.

If you don’t have the budget for professional help, try designing a site yourself with online tools like Squarespace, Wix, or WordPress. Starting a blog focused on your IT area of expertise and distributing the content through social media can be an effective way to attract clients and improve your search rankings.

Also, plan to do a lot of networking when you open your business. Reach out to both current and former colleagues. Ask for referrals. Meet new potential clients and business partners by attending virtual and in-person conferences and networking events. Make a small investment in business cards and pass them out to your new contacts.

Get certified

Earning IT industry certificates and accreditations can help your new business stand out from the competition and make it seem more credible. They can be a great way to demonstrate that you know what you know and that you’re an IT expert.

Taking all these steps will help ensure that your new IT startup is a success and grows over time.

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