Many people work in jobs that pay you just enough so you come back on Monday morning. That means you’re working in someone else’s business, helping them grow revenues and adding to their net worth rather than your own.
By contrast, owning your own company is the most direct way to control your economic future. Whether you are a business entrepreneur or a real estate investor, working for yourself and focusing on financial goals that are personal to you and your family gives you several advantages. This article is a short course on doing just that.
Is Owning a Business in Your Future?
Look at your own financial situation. Are you satisfied with it? Does it provide you the freedom to control your own time and financial choices? What are your talents and strengths? If you have the desire to be more in control of your financial future, then you may very well possess the necessary attributes to have your own business.
Many small business owners start part-time. That is, they keep their ‘day jobs’ and begin developing their own business on the side, on their own time. That might be having an eBay® business – as do some 1.5 million others. Or it might be investing in real estate. It might be providing a local service to your neighbors and community. Either way, you have lots of resources – from both the federal and state departments of commerce, to the national and local chamber of commerce, and the Small Business Administration.
What’s the SCORE?
Your community probably has access to a local chapter of SCORE – the Service Corps of Retired Executives. This is a volunteer-based service initiative of the Small Business Administration. Retired business executives who still want to contribute voluntarily join together to serve as mentors and consultants to new business owners starting out in their local community. They hold monthly seminars for new business, review and make suggestions for business plans, and often help open doors by using contacts and resources you may not know about.
Where Do You Start?
The start-up phase of any business can at first seem daunting, yet exciting. Choose a name for your business and check the website of your secretary of state to see if that name is available. Get a business license in your city or county in that name, and follow any local requirements such as filing a Fictitious Business Name statement in the local legal newspaper.
You’re going to need a business plan – one that helps you get focused and get financing. Though many business minimize the importance of a dynamic business plan, those willing to devote the time and attention it takes often see longer term success. Many of my clients over the years have come to see the wisdom of updating their business plans and financing arrangements so as to make their business as attractive as possible to potential business lenders.
What’s the Best Form of Business Entity?
The vast majority of business owners operate as a ‘Sole Proprietor’ – meaning that they do not choose to form either a corporation or LLC but rather operate solely in their own name. That is certainly the least expensive way to start a business. It requires little in the way of capital. It has only the most minimal of legal requirements. Yet though it is inexpensive, it is also potentially the most financially unstable due to the fact that if you and your business are legally one-and-the-same, then any liability arising from the business can result in complete financial devastation to you – since all of your personal assets are 100% at risk and can potentially be taken away from you.
It makes much more sense to use a company to start with. Having a company of your own provides a separate identity – that is, you are not the company and the company is not you. Plus, a company gives you a better way to control your taxes. There are approximately 4 times the number of tax deductions available to a company than are available to a sole proprietor. In addition, you can do so much more for yourself financially in retirement planning through a company than you can on your own as a sole proprietor.
There is clearly a national trend today towards the formation and registration of more Limited Liability Companies (‘LLC’) than corporations. This is primarily due to the fact that corporations require far more formalities and have far less flexibility than do LLCs. Using a corporation is still a viable option for many. It is perpetual in nature and can be an effective and tax-efficient way to do business for many. Corporations are used by many business owners and if you plan to take your company public for shares to be sold on a stock exchange, you’ll want to use a corporation rather than an LLC.
However, there is no denying that the number of LLCs formed every year now exceeds the number of corporations being formed on a national basis. With an LLC, the Operating Agreement drafted by a competent attorney will be a key element to the management of your business. It will set forth who is responsible for management, the sharing of profits and losses, the contributions of additional capital to the business, the nature of the business investments and holdings, and much more.
You cannot overlook the wisdom of having a solid business plan, however. It should set forth a clear mission statement and set of goals, as well as a description of how you and your business will achieve those goals. It should set forth a financial picture, including what you need in the way of financing so that your loan application to a small business lending source will have credibility and can be funded. It would make sense to attend live-training events that show you step-by-step exactly how to prepare a dynamic business plan and how to build a small business loan application that a lender will find credible enough to fund.
Bottom Line: You and not your current employer is responsible for your financial future. Your employer sees you as a means to an end – their own, and not you. The lifestyle you enjoy, the money to pay your bills and make purchases, and the way you spend your work time and time away from work can be within your control but you must act. The tax laws favor small business owners, and you should be one of them.