Start Your Own Business

When you are starting a new business you need to make sure all of your ducks are in a row. This helps keep you on track and may help potential investors and partners see what you and your business are about. Any business owner needs to have leadership qualities as well as the motivation to keep going even if you hit a few speed bumps. In this article we will show you how to get started in your own business. This will be part of a continuing series.

First off, when you think about starting a business, you think of short hours, long vacations, and money coming from every direction. This is not true, especially for new business owners. When you start a business you will most likely work longer hours and make less money then the full time job you just quit. This is unfortunately why more businesses fail rather then succeed within the first few years. You need to climb the hill before you can sled down it….but you just have to keep climbing no matter what is thrown at you. Hopefully we will help you avoid some hurdles in your quest to become your own boss and become financially independent.

I Want A Business, Now What?

In starting a business you need to ask yourself a few questions about the business. We have listed a few generic questions all new business owners should ask themselves. You can read our questions in the following list, add your own if you need to.

What kind of hobbies do I have, and are they something I can profit from?
Do I have the time required to start my own businesses?
Do I have a background that I can use to benefit my business? For example, degree, experience, products?
Will I operate on line or locally?
What is the legal structure I need?
Will I need investors or will I have to take money from my savings?
Do I need equipment?
Do you have a lot of competition?
What is the name of your business?
How will you insure yourself and your employees?
How will you pay yourself and your employees?

Those questions are just the tip of the iceberg. You have some many things to think about before beginning the journey. Once you have the mindset of starting your own business you need to really think about what you want and how you want to get it. Don’t become a statistic by failing in the first few years because you did not know what you were getting into. Do your research.

What Type Of Business Am I?

Once you have done all of your research you can start to actually make the business a reality. First you need to decide whether you are a Sole Proprietorship, Partnership, or a Corporation. We have listed the pros and cons below to help you decide which best benefits you and your business.

Sole Proprietorship

A sole proprietorship is the easiest and cheapest of the three, but limits your growth to what you can make of it. If you fail, so does your business. The pressure is on, but it is one of the most free of the three as well….you do not have to report to anyone, you are the only one who makes decisions….that is usually what we all want anyway.

PROS

Cheapest of the three options
Easy to begin
Tax advantages
Absolute authority of business moves

CONS

Your death could end the business
You will only get as big as you want, the business will not grow unless you are very ambitious

Partnership

If you and a friend or family member is going into business together you are recommended to become a Partnership. When you make this choice you have a few options, the two most common are general and limited. A general partnership can be something as simple as a oral agreement between the partners about how to business will be run. On the other hand is the limited partnership, which can include an agreement to be signed by both partners and the business is to be shared. The latter way is usually the best in resolving disputes.

Make sure that you and your partner discuss the following and sign a document saying how certain things will be handled if they ever arise:

Restrictions of authority and expenditures
Dispute settlement clause
Duration of partnership
Compensation
Distribution of assets
Division of profit or loss
Amount invested by each
Settlement in case of death or incapacitation

PROS

Additional startup capital
Better credit rating than corporations of same size

CONS

Losing a partner due to death, withdrawal, or bankruptcy
Debt shared by all partners
Growth limited to partners’ ambition

Corporation

A corporation control is through stocks. Whomever owns 51% of the stock shares are able to make policy decisions that effect the company. You can incorporate as a “C” or “S” corporation. The latter is limited to 35 shareholders and may be taxed at the individual tax rates.

A corporation is one of the most costly and complex of the three different options, but the burden as well as the wealth is shared over a larger amount of people. Since there are some many people involved there is a greater need for records and documents of every actions to prevent fraud and improper actions. Remember, every action can be held liable to stockholders.

PROS

Limited liability for stockholders
Ownership change does not always effect management
Easy to raise investment to maximize potential
Continuity even after your death

CONS

Heavier taxes with “C” corporations
Management control
Expensive to get started
Legal formality

Conclusion

Starting a business is hard but in the end you can have the finical freedom you always wanted, but it takes planning and commitment to reach that level. Startups are hard and more then half fail within in the first few years, but with persistence you can help your business take off. We hope that you enjoyed the first segment of our “Start Your Own Business” articles and you can look for our next article on “Business Plans”.

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