Starting a Business
Starting a Business - Key Considerations
When starting a new business there are many things you have to consider in order to be successful. The first thing you need to do is develop a business plan and decide on what type of business you are going to be. Below are a list of 5 different types of organizations. Each has its own advantages depending on how you want to do business.
This is the most basic form of a business. This is ideal for one person who does a little side work and does not have to worry about any liability or risk being sued by anyone. This is simple since you really do not have to file any paperwork. Most people that have a sole proprietorship just file a Schedule C on their tax return.
Much like a sole proprietor, a partnership is more than one person who decides to split profits and losses together. Again, unless you file a LLP (Limited Liability Partnership) you are at risk of being sued and need to decide if your new business is best suited for this. Most simple types of partnerships are easy to create and put together. Each partner is normally taxed at his or her ordinary rate of income.
This is meant for larger companies or a business that as many risks and liabilities. The advantages of a corporation is that of the so called corporate veil. This is where the individual people running the company are not at risk of being personally liable for losses and lawsuits. While this is just a generalization, it is often beneficial to be a corporation, even though there are instances where one can be liable. Corporations are normally taxed at a flatter and higher rate than individuals.
S-corps are basically small corporations that have characteristics of a larger company and some of the benefits of a smaller one. They are normally limited to 100 shareholders and have a unique tax rate to them. The filing requirements are not quite as rigorous as a full blown corporation so that can offer some benefits to smaller businesses. Most times s-corps can be quite complex and often have unique management structures.
Limited Liability Company LLC
The limited liability company LLC offers a combination of protections for the smaller company. You can even have single member LLC's in most states. It offers the simplicity of a sole proprietor and the benefits of not having any personal liability. These are becoming very popular these days.
No matter which type of business you choose, there are two important facts to consider. First, most small businesses fail because they fail to have enough capital to reach a point when they are profitable. That also leads to the second point. Most people overestimate how quickly them will become profitable and never get to keep the business open long enough even if it is doing quite well. Having a conservative business plan is key and should be well thought out before going into business.
While all this information on starting a business may seem daunting, there are many quality CPA's or financial advisers out there that will guide you on your way for an affordable fee.