How to Start an IT Company
If you enjoy the fast-paced world of technology, then starting a tech company may be a great fit. Setting up an information technology company and running it is sure to keep you on your toes.
“The IT world is an ever-changing industry, so every day is exciting,” said Greg Davis, president of South Coast Computers, a full-service external IT firm founded in 1988.
An IT business can also mean making a very nice income, Davis added.
“IT is one of the few businesses where you can be profitable very quickly, and you can continue to make very good money,” he said.
Even better, a tech company is a good way to start a startup with no money.
“You don’t need a lot of startup funds to open an IT business,” Davis said. “It’s possible to open with very little working capital and grow organically. I’d actually advise this so that you don’t become overextended.”
at you don’t become overextended.”
Steps for Setting up an IT Company
If you’ve decided that an IT business is right for you, you’ll want to determine what type of tech company you wish to open. In general, you need to decide if you’re going to offer generalized services or specialize. There are pros and cons to both choices.
Specialized IT Company
The opportunities abound when it comes to working in IT. Specialties include cybersecurity, cloud computing, business intelligence and analytics, application development, networking, data recovery, data center management and web design and development.
Pros of being specialized in the tech industry include being able to charge more per hour, Davis said.
“This can allow you to make a substantial amount of money,” he said. “When you specialize, you master one particular topic.”
Cons of specializing include experiencing more demanding clients.
“Customers will have higher expectations of your company when you specialize,” Davis said. “They expect you to be the best at what you do.”
Another drawback of specializing is the possibility of your specialty losing demand or even becoming obsolete. This will require you to retrain and pivot.
General IT Company
If you decide you’d like to provide IT service in several areas, then you’ll want to generalize. Doing so allows you to service a variety of clients.
Pros of providing generalized service include a wide client base. Just about every business and person requires computer assistance. You will also have the opportunity to learn a great deal about the IT business in general and keep up to date on changes in the industry.
Cons of running a generalized computer business include not being able to charge as much as if you were specialized. You also need to be a “jack-of-all-trades” and make sure you keep up with all of the latest technology, which can be time consuming.
Form an IT Business Team
While technology is the driver when setting up an IT company, your staff is your most critical asset.
“Ensure that you have the right team members in place to do the job you intend,” said Barry Newman, chief technology officer at DentalPlans.com. “It all comes down to whether your employees have the required expertise. You need to make sure to cover all of your bases so you can do a good job servicing clients.”
If you decide to specialize, it may help to start your business with a partner, added Pedram Amini, CTO of InQuest.net, a network security company focused on cyber resilience.
“A partnership allows you to divide and conquer and can result in double the success,” he said.
Choose a Company Name
Pick a company name that completely describes what you do.
“While you want the company name to have a nice ring to it, you also want it to be self-explanatory,” Davis said. “Make the name simple and straightforward and searchable, which is critical in today’s digital landscape.”
Form a Legal Business Entity
Before starting a tech company, decide on the type of business structure you need. Although you can change later on, doing so can be difficult. Here are the four main types of business entities from which to choose.
- Sole proprietorship: Unless you will be working alone or just with a spouse, this type of business structure isn’t ideal for many IT companies. If you intend to keep the business small, however, a sole proprietorship can work. It is easy to set up and maintain, and you may pay fewer taxes than with other business entities.
- General partnership: If you’ll be working with one or more partners, you need to set up a partnership. With your partners, you will share in all of the profits and losses. You also share responsibilities. For such a structure, you must file an annual company tax return and each pay your own income taxes separately.
- Limited Liability Corporation (LLC): An LLC can include one or more owners. This type of business structure requires that members decide if they wish to be taxed as a partnership, corporation or sole proprietorship.
- C Corporation: If you plan to grow your business and go public at some point, a C corporation is the ideal choice, but these business entities are the most complicated. You need to follow certain rules when you have this type of business structure, though all owners are protected from personal liability if the company goes bankrupt.
Deciding how you’ll market your business is important before setting up an IT company.
“A good option for getting the word out about your IT company is to contact your local Chamber of Commerce and go to any events they have,” Davis said. “Another potentially helpful choice is to join lead-oriented networking groups.”
Aligning your company with other businesses is another good practice, he added: “For instance, if you’re a general IT company, you might want to develop a relationship with companies that specialize – such as in cloud computing and data recovery.”
Obtain Necessary Certifications
It’s vital that your company is certified in the industry or industries in which you are working. For example, if you’re in cybersecurity, there are corresponding certificates you will need. The same goes for cabling.
If your IT company is generalized, you will likely require several certifications. Generally, it’s required that you become certified in products you sell and install. While you can get certified once you open your business, it’s a good idea to get certified as quickly as possible. You wouldn’t want to miss out on a job because you aren’t certified.
Purchase Required Insurance Coverage
In this day and age, it’s important to have the necessary insurance coverage.
“My employees aren’t able to even step through the front door of a company until they show proof of general liability and workers’ compensation insurance,” Davis said.
Even if a company doesn’t require proof, the right insurance still protects you and your business. Other types of coverage you may need include commercial property, auto, cyber/data breach and business interruption insurance. Also, require any subcontractors you use to be properly insured.
Start your company on solid footing by developing systems from the beginning. Use accounting software to record all of your sales and expenses. Employ time-tracking software to ensure that you record all billable hours, and a good invoicing system to make sure you get paid for all hours worked. This will help you stay profitable.
Also make sure to store sensitive data, such as customer and proprietary information, in a secure digital location.
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