You have a great idea for a business. Where do you start?
You are tired of the daily grind. There is more to life than just earning a paycheck. You have always had a dream of owning your own business.
Starting a business is a lot of work. Make no mistake about it, you will spend countless nights and long hours working on your business. However, it is also one of the most rewarding experiences you will ever have. You get to call the shots. If something needs changing, you can change it in a heartbeat.
There are many factors to consider when starting a business. Over the next several weeks we will discuss many different facets of beginning and operating a business.
One of the most important considerations is what type of entity are you going to form.
Sole Proprietor
As a sole proprietor, you will begin your business in your name. It is simple. You accept payment for services or merchandise. You can then “deduct” (or subtract) the expenses from your income. Your net income is the amount of your revenue minus your expenses. The net income is then reported to the IRS and is taxed. A sole proprietor is similar to an independent contractor. Taxes are typically paid quarterly.
Although a sole proprietor is easy to begin, there are some significant downsides. As a sole proprietor, you are personally liable for all the debts. In short, if you are unable to meet your obligations, you may lose your personal assets, such as your automobile or even your house. If someone sues you and you lose, then the judgment will be against you personally, and the opposing party can take your personal assets.
Additionally, obtaining capital (funds needed to grow your business) is more challenging because the investor will be personally liable. The investor will also have a hard time selling their ownership interest if they want to move on. Last, securities laws make obtaining a qualified investor limited to a select few individuals.
Final Thoughts on Starting a Business
Life is short, do not waste it building someone else’s dream. When you work for someone else, you are there to make them a profit. When you are working for yourself, that profit is yours. There are very few wealthy wage earners. It is hard building a business, but if done correctly you can build wealth for the rest of your life.
