Several Considerations....................
When making the choice to do actual business and step out into the world, there are several things to consider. Here I will try to put it in capsule form and please feel free to comment or ask any additional questions.
Risk/Liability
The form you choose for your business is very dependent on the amount of risk you want to manage. There are numerous risks and in today's litigious society, an attorney is always waiting around the corner to generate billable hours.
There are several ways to organize your business:
1. Sole proprietorship
2. Partnership
3. Limited Liability Corporation
4. C-Corporation
5. Subchapter S-Corporation (this is actually a C-Corp with a special tax and income election)
Each of these forms of ownership is legitimate and has its place. For liability reasons, it is usually best to incorporate (choices 3, 4, or 5) because the corporation insulates you from many liabilities. The accounting procedures for sole proprietorships and partnerships are generally easier. Corporation accounting does have some specialized rules that the lay person would not know about. The protections that are available by operating a a corporation far outweigh the cost of possibly needing an accountant to help with the corporate taxes.
THE BEST way to determine what form your business should take is to talk to a GOOD attorney. Now, this nation has many, many attorneys. We make lots of attorney jokes, and the reputation that attorneys have is rightfully earned in many cases. The definition of a GOOD attorney is one who saves you more money than he/she costs you. I have had one attorney for the last 25 years and he never wastes time or charges me for stupid things. He has educated me and stopped me from making some really costly decisions. He has saved me ALOT more money than he has ever costed me. He is not just a GOOD attorney...........he is a GREAT attorney. Find one that will save you money. Ask around. Get lots of opinions. A good attorney is worth the investment and is a sound business expense.
An attorney can explain in detail the risks and protections of each kind of business form. They can help you set up the business, or you can do it yourself. The main thing is to know the differences in organization and what protections the different forms can offer. What's good for one person is not always the same for everyone. Get the facts before you jump into anything like this.
Generally speaking, a simple corporation is an excellent way to protect you and your family from many risks generated from business activity.
Taxes/Accounting
No matter what form of business you choose, you will almost always be responsible for certain taxes and procedures.
Your federal tax ID number identifies your business. It is easy to get and in many states, it is THE business license number unless the State requires a separate license or registration. In many states, it is required that you have a business license, or vendors license. These are not really licenses at all, they are the way the State keeps track of the sales taxes you collect, or don't collect. You will find a variety of procedures depending on what State and County you live in. In the most common of situations, you will have a vendors license that you use to report sales taxes you collect AND that vendors license also allows you to be exempt from sales taxes when making many purchases for the business.
Your federal tax ID is for employment records. It is your employer identification number, whether you have employees or not. By having a federal tax id, you identify yourself as a business to others, AND you have certain tax forms that must be filed whether you have employees or not.
The BEST way to make your business simple, clean and easy, is to have an accountant assist you in this. Mostly, you need to have someone who can just tell you the minimum requirements so you don't fail to file some form. You need a GOOD accountant, just like you need a GOOD attorney. The definition is the same. Your accountant does not have to be expensive or do lots of work for you. Most small businesses can do all their own paperwork. You just need to know what to do. It is worth the consulting fee to talk to a qualified professional so you know what to do. Then, you can decide if you actually want to do it, or pay someone else to do it.
Don't feel overwhelmed by any of this. A couple hundred dollars spent with a good attorney and accountant can make your life very simple. If your business grows, you have the ability to get someone to help you with the forms, etc. In getting started, talk to these professionals to get the right information.
DO NOT use family. Uncle Ed may be a great guy, but you need someone who is good at his/her job and does not have the family "stuff" to get in the way.
Day to day Operations
What form of business you have also depends on what you do every day. Each form has different reporting requirements and tax rules. If you want to make/sell knives, then choose the form of ownership that allows you to spend most of your time doing that. If the business part takes more time than the knifemaking part, you may want to consider a different way of doing things.
What you have to do every day for running the business can make or break the decision as to what form your business should take. These same activities can also tell you what your budget should be for hiring an accountant or attorney. Decide what you want to do, make/sell knives or play bookkeeper/law clerk.
I hope this information is a little helpful. Whatever you do, and whatever form of business you choose, make it fit who and what you are. Make sure it is in line with your goals, your background and education. Don't be cheap. Be frugal and make good decisions, but don't be cheap. Good professionals are out there and they can help sooooooooo much!
One last comment of a more general nature. Your business is not you. The way you make a living is not what defines you. There should be a healthy separation between you/your family................and your business. Protect yourself, protect your marriage and protect your family by drawing a line between your business and the most important things in your life. Then DO NOT CROSS THAT LINE under any circumstances. The form of business you select can go a long way to protecting those important things.
Take the time, do your homework, rely on good professionals to help you along. Do not let taxes, bookkeeping, forms, paperwork, etc. keep you from doing what you love to do. Just put all this other stuff in its proper perspective and do the things you need to do so you and your family is protected.
I know there is alot more to this. Hopefully my comments can offer a little help. Remember, I have been known to be wrong up to 49% of the time.
As always, this is IMHO.
Be good............
Tim
Note:
I have been self employed for nearly 30 years in a variety of businesses and ventures. Some have succeeded and some.........not. I have a business degree from Bowling Green State Univeristy, Bowling Green Ohio and a Master of Business Administration degree from Cleveland State Universisty, Cleveland Ohio. My credentials are currently under review at several institutions for admittance to a Doctoral degree in Business. My various businesses have taken me across the world and I've done work in Russia, China, India and a good part of Europe.
I've done lots of things and been lots of places. It is my priviledge to try to pass on at least a little of what I have learned. Thank you for reading my ramblings!
