Many people start a new business without knowing the costly pitfalls. The form of business organization, lack of business insurance, and the need to file for bankruptcy are some pitfalls that trap entrepreneurs who rush into business. Planning is key for successful businesses.
Entrepreneurs should know what form of business organization is best for them. Although sole proprietorships let owners receive all profits, the owners are responsible for all losses. Owners could lose their life savings in bankruptcy. A partnership divides profits, but in the event of bankruptcy, you could be responsible for your partner’s share of the debts.
Corporations limit your losses to your investment, but your share of profits and control may also be limited. Corporations must register with states and pay corporate taxes. S Corporations register with the state and have shareholders. Profits pass through to individual stockholders who file individual tax returns. The owners’ liabilities are limited to their investments.
Limited Liability Companies (LLC) must register with the state.
Liabilities are limited to investments, and they may elect to be taxes as partnerships or S Corporation. LLCs offer management flexibility. The wise entrepreneur carefully chooses his business organization.
Business Organization Determines Taxes, Licenses and Fees
All businesses may be subject to local taxes, fees and licenses. Corporations must also incorporate in states in which they do business. Some states require online business to collect and pay sales taxes. Since laws and regulations vary with each business area, entrepreneurs should consult with attorneys or the local city management so that they may be in compliance with all laws and regulations.
Insurance and Bonding
Business insurance is a necessity. Entrepreneurs should consider every conceivable disaster to evaluate needed coverage. Customers who slip on wet floors, fire or flood damage, equipment failures, and many other disasters may halt your business transactions. Personal items used in business are not covered by homeowners insurance. Using your pickup truck as a business delivery truck can result in a major loss if it is not covered buy business insurance.
Your reason for buying insurance is to protect your business against loss. Bonding employees is also essential protection. Although your employees are trustworthy, you should protect yourself from the unexpected. Entrepreneurs should consult with many professionals about laws, regulations, insurance and other business people to learn details about starting a business. You should protect yourself from costly mistakes.