BY MARK A. WILLIAMS
This is the second in a series of articles addressing issues confronted by entrepreneurs starting a new business. This article will focus on what steps to take once you know what type of business you want to start.
You know your business, but now you are confronted with many decisions that will determine whether your business is a success or failure. The following are just a few issues that all new business owners must consider.
A business entity is important for many reasons; however, here are my top three:
- To protect you and your personal assets from personal liability (and to protect your spouse and his or her assets as well).
- To allow you to gain certain tax and benefit advantages
- To allow you to receive outside investment or have a business partner
Current business entity choices include corporations, limited liability company, sole proprietorship and partnership. Entity choice is typically driven by liability protection and tax factors.
Regardless of the business type, some amount of capital is required. Raising capital might mean dipping into your savings, having a family member loan you money, partnering with someone that has capital, or going to a bank. If you are going to go into business with a partner, there is a whole set of issues that need to be considered.
The amount, type and source of capital are important considerations. Your business entity should be designed with capital source in mind. If you are involving investors, security issues may arise. If you are seeking loans, loan structure become important.
Structuring your business to minimize the impact of taxes is extremely important. The best type of entity for tax purposes will depend on the type of business that you are establishing (construction is different from telemarketing), whether you will have employees, whether you will be operating solely in one state and a variety of other factors. Taxes to consider include income taxes, employment taxes, sales and use taxes and many other business specific tax types.
Liability and Insurance
Avoiding liability exposure is often key in establishing your business. Key types of exposure include the financial risk of the success or failure of your business, your acts and the acts of those that work for you , and general hazards such as fire. In establishing your business, you should identify the risks that are specific to your business.
Some of the risks can be addressed with business structure. Regardless of business structure, appropriate insurance coverage is important. Start with a good commercial general liability policy. Depending upon your business, you may need special policies. If you are in a profession, you will need professional negligence or “E and O” insurance. If you have people advising you on your board, you may need officer and director liability insurance. If you have employees, you need workers compensation insurance. proper insurance is a very minimal investment for something that can save your business front disaster.
metroMAGAZINE, May 2011