Starting a business requires motivation, dedication, and stamina. Most research indicates that starting a business demands some common traits in the business owner, especially good planning and organization. If you are interested in being your own boss, consider your strengths and weaknesses carefully.
Can you motivate yourself? It will usually be up to you and only you to get the business going each day. Are you able to connect with and relate to a variety of people? You have to deal with all the good and bad that each customer, vendor, and employee brings to work each day. Can you make decisions constantly? Often the business owner has no one to turn to for help or guidance, must make a decision with limited information, under enormous pressure, and with little time to consider the consequences.
Can you work 12 hours a day for 6 days a week? Even this might not be enough when important deadlines are looming on the horizon. Can you put together a plan and work to stick with it? Good planning is important to identifying and achieving your goals. Is your personal life stable so that you may focus on your business without straining your relationships? There can be financial and emotional sacrifices to be made in starting a business.
On the positive side, you get to be your own boss, your work benefits you directly rather than your employer, there can be large earnings and growth potential, and running a business will provide constant variety, challenge, and opportunities to learn. For the right person, the advantages of business ownership can easily outweigh the risks.
If you have a business idea, and you have decided to pursue it, the next question is: "What form of entity should I have?" There are several types, and some of these have subtypes. Many people are Sole Proprietors. This means the business is not separated from the owner as a person. A sole proprietor runs the business and his personal life together. An example of how this works is the income tax paid by the owner. The business income and expenses are shown directly within the owner's personal income tax (i.e. schedule C for federal income tax).
A Partnership is another form of entity. They can be easy to get started, something like a sole proprietorship, but with one or more business associates. The traditional partnership has 2 or more partners who have equal say in all the affairs of the business. But, each partner can be held 100% responsible for the acts of the other partners, including some acts that are more of a personal nature than business. This is not always a good idea.
A Corporation can be set up that will separate the business activities from the personal life of the owner (the stockholder). This also provides liability protect for the owner. Under many circumstances, if the corporation is properly operated, a lawsuit against the corporation cannot affect the stockholder's personal life except for the amount of investment by the stockholder in the corporation. That is, the stockholder could lose the entire investment in the corporation but that is all.
Finally, Limited Liability Companies can provide some of the ease of a sole proprietorship, but also with the liability protection of a corporation. This is the newest business form and is available in all 50 states. It is a good form for many small businesses. However, keep in mind that the best form for a business will depend on a numerous factors, including the type of business, the risks associated with that business, the preferences of the owner, and any of a number of other factors.
For any business idea, it is essential that a business plan be written for the proposed idea. The business plan should examine in detail the idea and the business that is necessary to turn the idea into a viable business. Among many other things, the plan will describe the product or service to be created, the marketing strategy, the physical assets, the knowledge and experience of the owners and others involved, and it will include financial statements and analysis covering the first 3 to 5 years of the business life. A good plan is a necessity if the business owner intends to borrow money to get the business going.
These are just a few of the many questions that a prospective business owner needs to think deeply about before embarking on the business. I highly recommend to my clients that they find a good team of advisors when the get started. This includes an insurance agent, a CPA, a financial planner, and an attorney. Depending on the business, there might be other advisors as well, but virtually every business will need the advice of these four.