Self-Employment

Female business owner holding stalk of corn

In this section:

The Basics
Who is the Small Business Owner?
When to Take the Plunge
Ensuring success
Types of Businesses
Financing
Social Security Work Incentives
Benefits
Business Planning
Necessities of Self Employment Development
Resources

The Basics

Owning a business is part of the American dream. People with disabilities are part of that dream — starting, staffing, and financing new businesses just like other entrepreneurs.

Here is information to help you guide people with disabilities towards their dream of self-employment.

Statistics about Self-Employment and Micro Business

In the United States, small businesses represent nearly all employer firms and employ about 50 percent of all private sector employees.

Approximately one-tenth of the general population seeks self-employment.

The United States has experienced a steady increase in small business ownership over the past 10 years. While there are many myths about the survivability of small businesses, the facts are generally positive.

66 percent of new businesses survive at least two years
44 percent survive at least four years
31 percent survive at least seven years

Self-employment and small business ownership are viable options for individuals with disabilities. If an individual with a disability is receiving services through the Massachusetts Rehabilitation Commission (MRC) or Massachusetts Commission for the Blind (MCB), he or she may be able to obtain a portion of business financing through the supporting agency.

In 2007, the MRC served 68 self-employed individuals with disabilities. The average weekly wage for self-employed individuals who received was $296, compared to $341 in regular employment.

Who is the Small Business Owner?

Business owners are often dedicated, creative, persistent, independent, self-confident, and self-reliant. Most people who venture into a business are passionate about what they do. Usually a person starts a small business because:

of prior work experience (73%)
joined family business (41%)
have more control over future (36%)
tired of working for someone else (27%)
fulfill longtime goal (25%)
downsized (5%)

It is important to understand that starting a business has risks and disadvantages, including financial risk, unsteady income, long hours, legal and financial record keeping and filing requirements. Owners should also be prepared for the start-up to take twice as long and cost twice as much as planned. Most importantly, business owners must realize that it is rare to turn a profit in the very beginning.

To read a collection of success stories from people who started their own business, visit the Start-Up federal demonstration project.

When to Take the Plunge

The first step towards business ownership is to identify interests, hobbies, capacities, abilities, experiences and skills that may lead to business opportunities. Also, it is important for the individual to identify the environments, hours, tasks, and people that he or she prefers as part of this vocational exploration. Situational assessments, job tryouts, volunteer jobs, work experiences and interest inventories can help.

Additionally, self-employment and micro-business ownership may require that the individual is an organized self-starter and is willing to network and interact with a diverse group of people when necessary. He or she must be comfortable making decisions and must be able to follow through with plans. Also, many self-employed people must work long hours. It takes time to build a business and the owner must have patience since results may not be realized for some time.

Here are several questions to ask when deciding about starting a business:

Is there a window of opportunity?
What is happening in the industry?
When will I have to start getting ready? For the disability service system, employment readiness is not a pre-requisite for self-employment—ready in this sense means starting the planning and information seeking processes for the business.
How long do I have before the competition poses a threat?
How long before I turn a profit?
What impact will starting a business have on my friends and family?
What impact will starting a business have on my health, social and recreational life?
Do I need continuing education before I proceed?
What resources will I need?
How will I acquire these resources?

Ensuring success

There are major factors that affect the long-term success of owning a business, including an ample supply of capital, the ability to hire employees, an owner’s education level and the owner’s reason for starting a firm.

“The best method to determine who is actually capable of opening a potentially successful business is giving a prospective entrepreneur the chance to determine for themselves if they can succeed.” (Alice Doyle, 2000)

Types of Businesses

There are several variations of self-employment with important distinctions between self-employment, small business and home-based employment.

Entrepreneur
A person who organizes and manages a business, usually with considerable initiative and risk

Home-based employment
Work based in one’s home, including accounting services, tax preparation, billing services, computer work, and telemarketing and consulting.

Micro-business
A business that employs one to five employees.

Small business
A small, independent business with fewer than 500 employees.

Self-employment
The owner controls the investment, the means of production, distribution and income of a business operation, which is designed to return a profit (Rizzo). Examples include manufacturing businesses, sales operations, retail stores, and franchises. The owner directs how the work is organized and managed.

Self-directed employment
The owner, to a significant degree, plays a decision-making role in the kind of work that is done, how time is allocated, what kinds of investment in time and money should be made, and how to allocate revenue generated. Supports are often provided to help the owner make these decisions, including performing the work and securing financing. Also, other essential services may be purchased such as bookkeeping and completing and filing legal documents.

Financing

Many owners use a diversified funding mix to start up their business. It is unusual for a potential business owner to secure all of the start-up financing from one source of funds. Fortunately, there are resources throughout the state to assist individuals with funding.

In Massachusetts, there are eight Small Business Development Centers to help entrepreneurs get started with their business. Six of these feature Business Advisory Centers (Pittsfield, Springfield, Worcester, Salem, Fall River and Boston). Services include feasibility studies, business plans, cash flow analyses, marketing strategies, financial planning, and technology assessment.

The Centers also sponsor seminars, workshops, courses and conferences, often in partnership with chambers of commerce and colleges and universities.

The Small Business Development Center website provides additional information about their services and can help you find a center near you.

Another nonprofit organization, SCORE “Counselors to America’s Small Business”, helps entrepreneurs form and grow small businesses nationwide. SCORE uses a network of 11,200 volunteers to provide individualized technical assistance to small business owners. Click here to learn more.

The following are sources often used to fund the start-up of small businesses:

personal funds
savings accounts, credit cards, personal bank loan (collateral), refinance home, retirement funds
relatives & friends
partners
local loan programs
sale of stocks or other assets
social security work incentives

Social Security Work Incentives

The average cost to start a small business ranges from $4,000 to $6,000. For some, this capital may be hard to come by, and may force the entrepreneur seek out a variety of sources for funding a business.

With the current state of the economy, many banks are tightening up their credit. If an individual has no employment history, no money in the bank or no assets such as a home, it may be difficult to obtain a loan.

Social Security Work Incentives are becoming a popular and effective way to fund self-employment and maintain benefits. Work incentives are not for every individual with a disability or every beneficiary, but incentives may be an excellent option for “customized self-employment”, that is, a business that is tailored to fit the unique capacities and interests of the individual. With customized self-employment, profits are tracked carefully and managed by the individual or a service provider to ensure that the individual does not lose benefits because of a large increase in assets.

Plans for Achieving Self-Support (PASS Plans)
Plans for Achieving Self-Support, or PASS, allows an SSI beneficiary or one who qualifies for SSI, to set aside other income besides SSI and/or resources for a specified period to pursue a work goal.

For example, if a person receives SSDI, wages, or other income, he or she may set aside a portion of that money to pay expenses or education, vocational training, or starting a business, as long as the expenses are related to achieving a work goal.

When determining an SSI payment amount, the Social Security Administration does not count the income set aside under a PASS nor does it count these resources when determining continued eligibility for SSI.

A PASS can help establish or maintain SSI eligibility and may increase the SSI payment amount. Each PASS Plan is individually prepared with the person’s work goals clearly stated.

PASS is an underutilized resource — only 1,500 plans were approved last year in the United States. Assistance is available to Massachusetts citizens who are interested in pursuing PASS Plans for starting a business. For more information, contact a Benefits Planner or the Social Security PASS Cadre at 800-297-4291 or 781-595-2301. The PASS Cadre is the person at Social Security who is responsible for PASS.

Benefits Planning

Massachusetts has two organizations that provide benefits planning:

BenePLAN is operated by the University of Massachusetts Medical School, serves Worcester and Middlesex counties as well as the four counties in Western Massachusetts and can be reached toll free by calling 1-877-937-9675.

Project IMPACT is operated by the Massachusetts Rehabilitation Commission, serves all other counties in Massachusetts and can be reached toll free by calling 1-800-734-7475.

Property Essential for Self-Support
A PESS may include land, buildings, equipment, inventory, and/or liquid assets such as cash. There is no upper limit to the assets under PESS. Property must be in current use for self-support to qualify.
Individual training accounts from a One-Stop Career Center, when available, may be used to purchase services or resources.

Business Planning

Developing a business plan is the core of small business and self-employment development. The business plan is a blueprint that helps an owner allocate resources, articulate goals, and make good business decisions.

A business plan is required for bank loans and for funds from the Massachusetts Rehabilitation Commission. It is an important tool to help customers, employees and suppliers understand a business.

Business plans should never exceed 20 pages and should contain the following:
• Table of Contents
• Executive Summary
• Mission, Goals and Objectives
• Company Description
• Products and Services
• Balance Sheet
• Personal Financial Statement
• Income Statement
• Cash Flow Analysis

Since the plan includes how a business will repay borrowed money, a good business plan is a crucial part of any loan application.

There are several free resources available to help a prospective owner develop a plan including bizplanit.com and SCORE.org.

Necessities of Self Employment Development

Before starting a business, an owner must determine the structure of their corporation. SSI recipients need to be aware that the structure they chose may impact their continued eligibility for benefits. For example, an SSI or Medicaid beneficiary will lose eligibility benefits if they form a Limited Liability Corporation (LLC), a C Corporation or an S Corporation.

Other considerations for self-employment and small business start-ups include: