Step 03
Build a strong business foundation with the correct tools.
Before you start running your business, ensuring you have the right corporate structure, are insured properly, and have tools to help your accounting practices will make all the difference.
Deciding on a Corporate Structure
The decision on how the business is owned will impact who can make decisions, who is responsible or liable for activities of the business, who shares in the profits or losses, and how the income is taxed by the government. It is an important decision but it is also one that can be changed as your business evolves and circumstances change that warrant a change in ownership.
Sole proprietorship
A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.
Corporation
A corporation (sometimes referred to as a C corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements.
S Corporation
An S Corporation (sometimes referred to as an S Corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation.
Limited Liability Company (LLC)
A limited liability company (LLC) is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members.”
Partnership
A corporation (sometimes referred to as a C corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements.
Accounting & Bookkeeping
Accounting is an important part of running a business, allowing new and growing companies to keep track of their finances while being legally compliant with finance and tax law. There are several best practices specific to accounting for small business owners that can help you stay organized. Consider these best practices when establishing your accounting policies for your business:
- Decide if accrual or cash accounting is best
- Invest in accounting software
- Separate your business from personal finances
- Schedule regular reviews of your financials
- Create backups
- Record everything! (sales, purchases, payroll costs, accounts receivable, accounts payable, loans payable, inventory, etc.)
Insuring Your Business
Insurance coverage is available for every conceivable risk your business might face. Cost and amount of coverage of policies vary among insurers. You should discuss your specific business risks and the types of insurance available with your insurance agent or broker. Your agency can advise you on the exact types of insurance you should consider purchasing and help you assess the risk specific to your business.
Business insurance options to consider can include:
General Liability Insurance
This coverage protects against financial loss as the result of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgements.
Product Liability Insurance
This coverage protects against financial loss as a result of a defective product that causes injury or bodily harm.
Professional Liability Insurance
This coverage protects against financial loss as a result of malpractice, errors, and negligence.
Commercial Property Insurance
This coverage protects your business against loss and damage of company property due to a wide variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism.
Home-based Business Insurance
Coverage that’s added to homeowner’s insurance as a rider can offer protection for a small amount of business equipment and liability coverage for third-party injuries.
Business Owner’s Policy
A business owner’s policy is an insurance package that combines all of the typical coverage options into one bundle.
They simplify the insurance buying process and can save you money.
Self-Evaluation Tools
The following quiz is meant to be a tool for self- discovery and is intended to focus you in thinking about you and your business idea.
Have Questions or Need Help Getting Started?
Contact us via email or call the office at 815-233-1350.