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How to start an IT services business

Insureon Staff.
By Insureon Staff
May 6, 2020
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Researching competitors, finding funding sources, and protecting yourself with contracts are just a few of the steps you should take when you start an IT services business.
A view of people working on computers through a glass wall.

As the modern business landscape is being driven by technology, companies in all industries need the right tech infrastructure to stay competitive, reduce risk, and protect data. As a result, IT services professionals like you are in high demand across every industry.

Businesses are boosting their IT budgets to bring in these professionals and consultants. A recent Gartner report shows that global IT spending is predicted to grow by nearly 4%. And IT security spending is forecast to grow by more than 40% over the next five years.

You can capitalize on this need by starting your own IT services business.

Regardless of your field of specialty, there’s ample work to be done. And most importantly, high earnings potential. In this guide, we’re outlining the steps you can take to create a successful IT services business.

Decide on your IT service offerings

Remember that your services will be a main selling point for potential clients. Some of the IT services your practice might provide some combination of include:

  • network design and installation
  • software installation and updates
  • tech support
  • IT budgeting and procurement decisions
  • hosted services and storage
  • risk assessments
  • security strategy
  • remote admin management

When deciding your offerings, commit to ones you have experience with. It can be tempting to offer services outside of your skill set in hopes that you’ll win more clients. But taking on an IT project you have no experience with can backfire.

Research your market and competitors

Once you’ve settled on potential IT services, determine what type of clients you’ll pursue. You might target customers by business size. Or you could focus on companies in sectors where you have made a name for yourself.

Some cities are more difficult to start a business in than others in terms of customer base, competition, and expenses. Do market research on competing IT businesses in your city.

Finding out what services they offer is relatively easy, but dig deeper to learn how much they charge. A competitive analysis will help you identify opportunities to fill gaps in your local IT services market.

You can use our study of the seven best cities to start an IT consulting business to get a sense of which areas have the most potential. Some cities are pricier than others, but you can charge higher rates for your services in more expensive cities.

Make continuing education and certifications a priority

Earning IT industry certificates and accreditations can make your new business stand out from the competition.

Continuing education will help you stay up-to-date on trends and best practices and give you the chance to learn new skills. CIO Magazine offers a list of the top certifications for IT professionals, and you can find many more programs online depending on your area of expertise.

Some popular certifications include:

  • Certified in the Governance of Enterprise IT (CGEIT): The CGEIT tests your ability to manage security threats and your understanding of IT governance.
  • Certified Information Systems Security Professional (CISSP): A CISSP cert proves your knowledge about IT security, including information assurance, organizational structure, budgeting, risk management, and more.
  • Information Technology Infrastructure Library (ITIL): An ITIL cert shows your expertise in the ITIL framework, with a focus on using effective strategies to manage teams and improve efficiency across an organization.
  • Six Sigma Certification: Six Sigma’s certification program helps IT professionals hone their project management and leadership skills, especially when it comes to organizational transformation.
  • Certified ScrumMaster (CSM): Earning the ScrumMaster badge means you understand how to keep IT projects on track, limit distractions, and improve project team efficiency.
  • Certified Associate in Project Management (CAPM): The CAPM certification tests your ability to oversee multiple IT projects at a given time, as well as manage a product or service life cycle.

Your business can also pursue certifications for a vendor’s technology. This includes companies like Microsoft, Cisco Systems, and Amazon Web Services (AWS). These certs can be a huge selling point for potential clients because they know you’re an expert with the technology they use.

Choose a business structure

When you're starting an IT services company, don’t overlook finding the right business structure. It’s not enough to simply have the required experience and enough money to get started.

Most small IT services businesses opt for a sole proprietorship, a partnership, a limited liability corporation (LLC), or an S corporation (S corp). The structure you select for your company will impact your taxes, the amount of paperwork you’ll need to do, and your personal liability.

For instance, a sole proprietorship is the easiest business structure for single-person companies. You won’t have any paperwork to file with your state. But if a client sues you, there’s no distinction between personal and business assets.

Forming an LLC can cost up to $500, and your state could take a few weeks to process the paperwork. However, an LLC shields a small business owner’s personal assets in the event of a lawsuit.

S corps and partnerships each require their own paperwork and filing procedures. They also have different tax structures and various restrictions. Your accountant can provide advice on what makes sense for your current state and future plans for the business.

Get a business license

Once you decide on a company structure, you may need a business license. The process of getting a business license varies by state, but applying for one is usually straightforward.

Your state’s business licensing website will offer specifics, 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, if any

Depending on your state, you may have to pay a filing and/or processing fee. Once your application is approved, make sure you know how long your license is valid for. Certain states require small business owners to reapply for their business license every few years.

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Write a business plan

A business plan is essentially a snapshot of your company’s current state and a road map for its future growth. Many small businesses don’t have a formal business plan when they first start. But if you want to get funding for your business, investors and banks will probably require one.

The U.S. Small Business Administration (SBA) offers templates for traditional and lean startup business plans. Traditional business plans are longer and take more time to write, but you’ll probably want to choose this format if you seek major funding.

Business plans typically include:

  • a company summary
  • your business structure
  • product or service offerings
  • a competitive market analysis
  • funding sources
  • budget
  • financial projections
  • marketing strategy
  • hiring strategy

Open a business bank account and dedicated business credit card

A business bank account will make it easier to keep your personal and business finances separate.

Separating business earnings and expenses from personal money makes bookkeeping and taxes far less complicated. When you know which transactions were related to your business, it’s much easier to calculate your income and track deductions.

A business credit card makes it that much easier to separate business expenses. And these cards typically offer better terms and higher limits than personal cards. Plus, you can enjoy perks like rewards points and cash-back offers.

Most banks offer competitive small business checking accounts and credit card options. You may also want to consider talking with your accountant about banking options. NerdWallet offers a guide to business checking options and the top-rated business credit cards if you’d like to do the research yourself.

Secure funding

Before you can get your business off the ground, certain costs may stand in your way. If you can’t foot the bill with your savings or help from friends and family, you have options.

Raising money from venture capital firms can be helpful. You’ll want to find a venture firm that works specifically with IT services businesses. For example, America’s Seed Fund is one of the leading investors for early-stage IT companies.

Besides a business plan, venture capitalists will want to see a compelling pitch that explains why they should invest in your business and what return you hope to offer them.

You might also be eligible for a grant through the SBA, such as the 7(j) Management and Technical Assistance Services grant. This grant provides funding to companies that offer technical assistance and management services to other small businesses.

If these options don’t seem like the right fit, research business grants funded by third-party companies and organizations. For example, the National Association for the Self-Employed awards small businesses grants for purchasing equipment, hiring part-time help, creating a website, and more.

Other small business funding sources include SBA microloans, low-interest credit cards, and crowdfunding platforms.

Choose your workplace

One of the major benefits of self-employment is choosing where you work.

You can opt for a traditional office, a co-working space, or your home office. Your decision should factor in your budget, working style, plans for possibly hiring employees, and how often clients will visit.

If you plan to rent office space, keep in mind that most landlords will want you to carry commercial property insurance to protect against theft or damage to items in your space.

Home-based IT service businesses that do most of their work at client sites should consider commercial auto insurance or hired and non-owned auto insurance. Most personal auto insurance policies won’t pay for accident damages that occur when you’re driving for business.

Create a basic budget to start

Understanding any upfront costs for your IT services business can help you save money over time. Before you start making big investments in your business, create a simple budget to help you stay on track. Here’s how you can get started:

  • Calculate the costs: Add up your business expenses, including loans, rent, software licenses, insurance premiums, and so on. If your business hosts websites or applications for customers, you may need servers and other expensive equipment.
  • Estimate your revenue: Determine how much money you expect to make monthly, quarterly, and annually. If you’ve already started making money, you can use that as a baseline to forecast your revenue. If not, you can estimate revenue based on your financial goals.
  • Calculate your profit margin: Your profit margin is the percentage of money left over from sales after your business expenses. Monitoring your profit margin allows you to see if you’re charging enough and keeping expenses in check as your business expands.

Track your budget monthly by tallying your revenue and expenses at the end of the month. This will help you spend responsibly.

As your business grows, so will your budget needs. You may want to review steps for a thorough small business budget now to help you plan for your business’s financial future.

Invest in marketing and networking

Finding clients for your new IT services company can be challenging. But it’s the most important step for long-term success. That’s why your marketing and networking are critical.

As an IT business, digital marketing is a must. Many potential clients will find your business through search engines. If your budget allows, hire a web firm or freelancer to create your website. A search engine optimization (SEO) consultant can help boost your site’s Google rankings.

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 can also be an effective way to attract clients and improve your search rankings.

Social media is another powerful tool for reaching prospective clients. Create LinkedIn, Twitter, and Facebook accounts for your IT services business and post content relevant to the industry and your potential clients. You can also run paid ads that target users by geography, demographics, income, and other criteria.

But don’t forget the human touch. There’s still no substitute for networking.

Reach out to both current and former colleagues. 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.

Draft and use client contracts for every engagement

Before you start working for a client, have contracts that outline your terms and conditions. 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 the work
  • price and frequency of invoicing
  • timelines for the project
  • termination clauses
  • dispute resolution details

Client contracts will frequently require your business to purchase technology errors and omissions (E&O) insurance. This policy protects your company from lawsuits caused by work mistakes or missed deadlines. It will pay for attorney's fees, court costs, and settlements if a client sues you.

For some projects, you might also need cyber liability insurance to help pay for recovery from a data breach or your response to a lawsuit caused by one. Many insurance providers now bundle cyber liability insurance with E&O coverage. Even if this isn’t a contract requirement, it’s still a sound investment.

Hire strategically

When your business begins to grow, it could be time to consider hiring employees or freelancers. Beyond lightening your workload, it can allow you to take on new projects.

But don’t necessarily hire the first person who applies. Every new hire should undergo a thorough background check. You may be trusting these employees to handle confidential and potentially sensitive information. Call their references, and make sure that all terms of employment and wages are clear in the offer letter.

You can purchase fidelity bonds to guard against employee theft and fraud. In fact, your clients may request it in their contracts.

Most states require businesses with employees to carry workers' compensation insurance. If an employee suffers a job-related injury or illness, workers’ comp coverage pays for the injured employee’s medical expenses and partial lost wages.

These policies will also cover attorney's fees, court costs, and settlements if an injured employee sues your business.

You may also consider employment practices liability insurance to protect against lawsuits over wrongful termination, harassment, and similar issues.

Starting an IT services business provides a significant opportunity to pick your own projects, boost your income, and work for clients in a range of industries. Investing the time and effort into covering all your bases increases the chances that your business will enjoy long-term success.

 

At Insureon, we’ve helped countless new IT businesses protect themselves and limit their risk. Complete our easy online application today to compare quotes for business insurance from top-rated U.S. insurers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.

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