As 2013 has come to a close with a U.S. economy on the slow, yet progressive rise, it is not surprising to feel the excitement of what personal business opportunities are in store in the coming year. Richard Branson, founder of Virgin, recently named 2014 as the “Year of the Entrepreneur”, and this idea has already been embraced by so many who share this vision of organizing and operating their own business.
Before moving forward with your dream however, it is important to first keep in mind that the creation of a business plan is absolutely essential in order to forge ahead and run a successful business. Any business plan, regardless of what type of market your business will be in, may be separated into three categories in which certain various factors fall under. The first category encompasses the organization of the business, i.e., what type of entity do you wish to use in order to organize your business. The second category includes all those factors to be considered for your marketing strategy, from creation of an action plan to implementation and review. Finally, the third category concerns the financial management of the business, an obvious necessary.
The following is Part One of a three-part series intended to discuss each separate category along with coinciding factors particular to each. Part One addresses business organization and what factors one might consider in determining their choice of business entity.
Part One: Choice of Business Entity
The first step in any business plan is first figuring out what type of entity your business should be organized as. This may be accomplished by simply describing (in writing) what your business will be (for example, is it a business for the sale of a particular type of goods or service?). Regardless of the entity, the following is a list, although in no way a limited one, of factors to be considered in deciding on your choice of entity:
- Ownership structure – Is there more than one owner and if yes, what level of involvement may each founder have and what is the responsibility of each as well.
- Limited liability – The amount of liability one wishes to subject themselves to is a common, principal interest of business owners and differs between each entity and upon the level of responsibility desired by each partner/investor.
- Tax ramifications – The level and type of tax on business profits varies among business entities. A sole proprietorship for example, has “pass-through” tax treatment wherein taxes on business profits are considered on an owner’s personal tax returns only.
- Management structure – A written business plan is important because it should clearly describe, amongst other items, the management of the business, identify the responsibilities of the various founders, and the level of liability for each. For example, is there a board of directors and are there particular rules concerning voting rights amongst the members? These are issues which must certainly be placed in a business plan.
- Dissolution or continuation of the entity – As with everything in life, it is important to plan for the future of one’s business in an effort to react to any unforeseen circumstances which may arise, for example, whether it be early retirement or death of a founder or owner.
As stated above, this list is not an exhaustive one, as there are many other factors that must be considered when determining which type of entity best fits one’s business. Only after careful consideration and further discussion (with your attorney and a tax advisor, among others) will one know which entity works best under the circumstances. Please note that this process should never be an overwhelming endeavor so long as one is organized and prepared so as to anticipate what to expect in the next step.
Robert F. Kennedy once said, “[t]here are those that look at things the way they are, and ask why? I dream of things that never were, and ask why not?” Organizing and owning your own business can be a terrifying endeavor, but is well worth the reward. Good luck in discovering your own dream and stay tuned for Part two of this series concerning ideas in marketing strategies for your business.
Please consult an attorney for advice about your individual situation. Note that this site and its information is not legal advice, nor is it intended to be. Feel free to contact the Law Office of David Click via electronic mail, phone or at the Contact address. Contacting Attorney Click does not create an attorney-client relationship. Until an attorney-client relationship is established, please withhold from forwarding any confidential information.