One of the most important tasks to check off your list is to establish your key or niche market and whether or not you should establish yourself as a business entity. They may sound simple, but these decisions will shape the direction and security of your future business. Think about what your strengths are as well as what you are most knowledgeable about. For the sake of this article, we are going to delve into the world of property appraisal businesses.
What’s Your Niche Market?
When getting into the appraisal business it is highly important to figure out what your niche market is going to be. A niche market is the specific demographic that one chooses to focus their work on. Whether that is commercial property, litigation or agricultural, finding your niche is going to help you focus on what field to focus in and the clients you’ll need to start collecting.
Here are some quick tips on how to get started finding your niche market:
- When starting out, make up a list of your passions and interests. Additionally depending on if you liked the market you trained in with your mentor, you can get an idea of what to stay in or what to explore.
- Speaking of education your level of degree, license or certification can help determine what market clientele you can professionally pursue. You could even do a combination of markets, for example taking on non-lender assessments during a down season for the real estate market. Just remember to make sure the market or markets you choose are viable and maintainable as you grow your business.
- Unsure if the markets on your list are really what you want to focus on? Take some classes or webinars on the subject to hear how experts in the field hone in on finding new markets to earn extra cash.
Should You Establish a Business Entity?
The answer is: absolutely! It is an additional cost and the process is time consuming, but it’s important to create a business entity to not only make your new business look and feel professional to clients, but it’ll also protect you and your new business.
What is a “business entity”? A business entity is an organization created by one or more people to carry on a trade or business. There are a couple of forms of a business entity that you can establish, however a Limited Liability Company (LLC) may be your best option since it is best suited for businesses that could face risks of lawsuits or debt and want to protect personal assets in case those scenarios happen. Business entities are formed at the state level and do require a couple steps in order to make sure everything is completed correctly.
How to Establish your Business Entity
1. Budgeting your Initial Costs
Calculate the start-up costs, including: permits, licenses, equipment, website, social media tools, and insurance. Depending on where you’ll be working, costs can vary from state to state, city to city. What will that cost, as a whole, look like? When will you break even and start making money off your business? Thinking about and planning what your financial situation will look like will give you a good idea on how to budget moving forward.
2. Create a Legal Entity & Acquire Business Insurance
Creating a legal business entity protects you from becoming personally liable in the case that your business is sued by someone. For example, if you created an LLC entity your personal assets would be protected in case you accidentally provided an appraisal with an overlooked mistake, and the client in return tries to sue you. This is where the entity that you created would protect you from becoming personally liable.
Insurance goes hand-in-hand when deciding to establish a business entity. Business insurance is a safety net for your company in the case that you get sued or if one of your employees gets hurt. Your insurance would cover you in the case of legal issues, property damage, or even for employee-related risks. Certain states require workers’ compensation insurance, so make sure to check if you are going to be hiring additional help.
Two types of insurance that will be absolutely necessary:
- Commercial General Liability
- Errors & Omissions
3. Protect Your Business With Contracts
It’ll be important to create some contracts to protect yourself legally. Some basic contracts to consider creating: short or long-term service contracts (such as consulting or long term contractor agreements), Nondisclosure agreement, and terms and conditions (for your website). Have a lawyer help your write up templates or review the ones you’ve created to be sure your agreements are free of pitfalls.
4. Register for Taxes & Obtaining Permits or Licenses
You will need to register for Federal & State Taxes and a Federal Employer Identification Number (EIN) Number. A Federal EIN Number, basically your ID for your business entity, is going to be required for you to open a business bank account—which is something else that will be needed as you create your business entity. Also, depending on the state you live in, a business license may be necessary!
5. Staying Up-to-Date with State Agencies
Understand what the state you register your business entity in requires of you with record keeping. For example, you may need to keep files on your annual reports or even meeting minutes. Consulting with a lawyer may help you better understand what is necessary to hold records of, but to be safe, make sure you keep personal and business finances apart with appropriate procedures and on time payments towards your taxes.