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Software businesses are appearing all around us. Nowadays doing software business is much easier than it used to be, because there are many helpful tools for both tech entrepreneurs and managers. This article will try to investigate what kind of software business jobs are out there, how tech entrepreneurs can make it big with their own startup company.
Software is ubiquitous in today’s world, and many people and organizations can no longer function without the programs they rely on. These programs, of course, must be created, distributed and maintained. That’s the work of software development companies.
The software development industry is both big and strong. According to IBISWorld, the software publishing industry has an annual revenue of $238 billion and a growth rate of 3.9 percent per year. In total, the industry employs more than a half-million people.
Ready to form your LLC? Check out the Top LLC Formation Services.
Learn how to start your own Software Development Business and whether it is the right fit for you.
oftware product business[edit]
In the Software product business, Software is licensed for installation and execution on a user- or customer-supplied infrastructure. In the software product business, revenues typically originate from selling software upgrades to the customer.
Software service business[edit]
Software services business is a strategy of a software company whose offering consists mainly of services or consulting relating to software development.
Characteristics of software services business[edit]
Generally, business model of a software company can be categorized as a product company, services company or a hybrid between these two models.[5] Software service business can also refer to offering Software as a Service.
Software services business can be categorized into the following categories:
- Companies that provide consultation services related to software business
- Companies that provide software development services as a subcontractor.
Service Operations[edit]
Characteristics of Service Operations [6] that are relevant to software services industry:
- Intangibility: Service is produced instead of tangible product. Therefore, service innovations can be easily copied by competitors.
- Perishability: Human resource intensive services cannot be produced in advance, therefore demand and supply is difficult to manage. This also affects business scalability.
- Heterogeneity: Service encounters are unique and customer needs vary, therefore software services are difficult to standardize and productize. Therefore, service business is also difficult to scale…..
Start a software development business by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your software development business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a software development business?
The costs associated with opening a software development company can range from very little (i.e. less than $1,000) to extremely high sums (i.e. venture capital funds). The money invested in a business typically goes toward:
- website hosting expenses and data storage fees
- specialized programs that a project requires
- copyright, trademark and patent fees
- additional employees or contract workers
The variance in startup costs is primarily due to the number of employees and contract workers brought onto the project. Workers speed up the development timeline, but also increase costs.
Paul Jarvis’ company OfCourseBooks is a good example of how a successful business can be started for very little. Jarvis and his team spent $1,125 in startup costs. The funds paid for a website, specialized fonts, stock photography, legal fees, the first month’s operating expenses and a couple other miscellaneous items.
John Sung Kim took a different approach with his company, getting a $40,000 initial investment before developing a call center software program.
What are the ongoing expenses for a software development business?
The ongoing expenses for a software development company also vary. OfCourseBooks costs $45 per month to maintain. A program like Microsoft Dynamics 365 require many more servers and a lot more personnel to maintain, and therefore, has much higher operating expenses.
Who is the target market?
The target market for a software development company can be almost anyone, but it must be well-defined. Business owners need a clear understanding of a need that people or businesses have, and how a program addresses that specific need.
How does a software development business make money?
Software development companies have traditionally charged customers on a per-license basis, but many companies are transitioning to a software-as-a-service (SaaS) structure instead. In SaaS arrangements, customers pay an ongoing fee in order to use the developing company’s program. Some level of support is usually included in this fee.
A few outlying software development companies don’t charge license or subscription fees. Instead, these companies typically either build advertisements into their programs or offer training that does have a fee associated with it.
How much can you charge customers?
There is a great range in how much computer programs cost. Simple apps are frequently free or just a few dollars. Complex enterprise solutions can cost tens of thousands of dollars. For example, Angry Birds originally cost $0.99 to $2.99 and is now free. Microsoft Dynamics 365 can be $190 per user / per month.
How much profit can a software development business make?
While not every business reaches this level, the profit potential for a software development business can be enormous. John Sung Kim stayed with Five9 until its revenue reached $10 million. An IPO on the NASDAQ valued the company at $350 million.
Even much more modest companies have substantial profits. For instance, OfCourseBooks brought in a little over $11,000 in profit before even launching a program.
How can you make your business more profitable?
Software development companies can increase their profits by providing additional services to clients. Expedited support, extra training and program customizations might be offered at an extra cost.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Software Development Business Name Generator
If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.
When registering a business name, we recommend researching your business name by checking:
- Your state’s business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It’s very important to secure your domain name before someone else does.Find a Domain Now
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STEP 2: Form a legal entity
The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your software development business is sued.
You can start an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It’s really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Learn how to get an EIN in our What is an EIN guide or find your existing EIN using our EIN lookup guide.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business’s name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company’s assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term “net-30,” which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business’ expenses all in one place.
- It also builds your company’s credit history, which can be useful to raise money and investment later on.
Recommended: Read our guide to find the best small business credit cards.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a software development business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A software development business is generally run out of an office. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a software development business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your software development business will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers’ Compensation Coverage.
Recommended: Learn what business insurance for your Software Development Business will cost.
BUSINESS INSURANCE FOR
SOFTWARE DEVELOPMENT BUSINESS
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren’t feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we’ll give you helpful tips and advice for creating the best unique logo for your business.
Recommended: Get a logo using Truic’s free logo Generator no email or sign up required, or use a Premium Logo Maker.
How to promote & market a software development business
Most software development companies market their programs online, through websites and other platforms. What other platforms are most appropriate for a particular business to use depends on what programs that business creates. A business that makes spell checkers for legal documents won’t want to market in the same place as a video game.
How to keep customers coming back
A software company’s programs must work well, or else customers will switch to more user-friendly and error-free programs. For this reason, the testing and debugging phase of development shouldn’t be rushed.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites – full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
Recommended: Get started today using our recommended website builder or check out our review of the Best Website Builders.
Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Conclusion
We can’t do much to “fix it”, but we can certainly “work around it” by making one small adjustment. We’ve compartmentalized software jobs and the staff that work in them to make them easier to manage. The same has happened with marketing and sales jobs.