The American Dream is, and always will be, to come up with an
idea, start a business and become rich from your own efforts.
Based upon this motivation, thousands of businesses fail each
year, due primarily to not being familiar with the basics
involved in running
a business.
This report will enlighten you, and give you a number of
suggestions you can use to better guarantee your chances for
success. This report is written with the warning that any and
every business venture contains certain inherent risks, and any
number of alternatives. We do not espouse that any one way is
the right way or that our suggestions are the only way. On the
contrary, we advise that before investing any money in a business
venture, you seek counselling and help from a qualified
accountant and/or attorney.
Just about the first thing you should consider before deciding to
start or purchase a business is the legal form you'll be
operating under. There are basically four choices: sole
proprietorship, partnership, limited partnership, and/or
corporation.
Each has a number of advantages and disadvantages. We'll try to
enumerate some of them for you.
As much as anything else, for many people starting a business is
a form of ego-gratification, and they form a corporation for some
sort of prestige gain - just to say, "I own a corporation."
With just a little bit of observation, you'll find that one of
the major causes of business failures is due to the founder
wasting start-up capital on frills, such as an impressive
store-front office, expensive furnishings, and corporate legal
costs.
One of the basic traits you must develop it you're going to be
successful in business, is a tight hold on your expenditures. In
fact, a good rule of thumb is that anything that does not make
money for yo or protect your investment, should not be purchased
at this time. Very definitely, this applies to the expense of
setting up your own corporation.
Unless you have a partnership and start your business as such,
the only real advantage to forming a corporation would appear to
be that a corporate structure will semi-protect the property you
personally own.
As an example, you own a home and car. You form a corporation to
protect these possessions from business losses. Yet, if you can
be found guilty of misusing corporate funds, your business
creditors can pierce the corporate shield and come after your
possessions.
Basically, if you invest everything you have in your business, as
most newcomers do, you don't usually need a corporation because
you have nothing to protect. Your household possessions,
personal belongings, generally your car, and even a portion of
the equity in your home is protected by the homestead provision
of the Federal Bankruptcy Act, and cannot be taken away from you.
As a sole proprietor or partner of a business you'll be paying
taxes on your overall earnings, much the same as if you were
holding down a salaried or hourly paid job. Whether you do or
don't take out money as a salary will have no bearing on the
earnings of your business and tax return.
The often advertised advantage of incorporating, that you can
manipulate your salary in order to save on tax dollars, is real
because of corporation laws. However, the IRS frowns on this
practice. When your business is successful and making a lot of
money, definitely check with your accountant on the advantages of
incorporating.
As a corporation, you'll be subject to a number of other
drawbacks as well: generally higher state taxes, stricter laws
concerning the operation of your business, more elaborate
accounting procedures, and legal papers that are required just
about every time you make a major move or sign almost any
contract. Thus, your legal and accounting fees will be much
higher as a corporation than will those required for a sole
proprietorship type of business.
As a sole proprietor or partnership, you'll find many areas
require the registration of your business name. The cost
however, is minimal, ranging from $5 to $100. About the best way
to find out what laws apply in your area, is to call your bank
and ask if they need a fictitious name registration card or
certificate in order for you to open a business account.
Selecting a name for your business is quite important to you and
particularly relative to advertising. Your business name should
describe the product or services you offer. Fancy names such as,
Linda's Clipping Service will lose potential "walk-in and
passing" customers to the beauty shop across the street that
calls itself, Patti's Beauty Salon or Jane's Hair Styling Shop.
The advantage of using your full name in the title of your
business, such as Johnny Jones' Meat Lockers, has the advantage
of making credit somewhat easier to come by - provided you pay
your bills on time - but it also includes the disadvantage of
confining your services to a local or at most, a regional area.
Should you buy, lease, or rent a space for your business? think
twice before you make any decision along these lines. Most
businesses tend to grow quickly or they never get off the ground.
There are a few exceptions, but only a very few, that tend to
grow at a modified rate.
So, buying a piece of property and setting up your business on or
within that property, obligates you to ownership regardless of
what happens to your business.
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