Starting a New Business - Prepare for Success
This week (May 20 – 16, 2012) has been declared National Small Business Week. I have great admiration for those valiant souls who have determined to climb the ladder they built. I have spent much of my professional career owning a small business and working with small business owners. My formative years were spent with a father and grandfather who started and ran their own small businesses. Today I read an article in USA Today entitled “Ask an Expert: Now is the best time ever for small business.” I would wholeheartedly concur in its implications.In considering whether or not to start a new business there are a host of questions you should ask yourself in determining whether it is a good idea and whether or not you have the right stuff to pull it off. However, once the decision is made to move forward, too many with great ideas and great skills fail because they did not take the time to put the businesses legal and financial framework in proper order.From the outset you should be considering what form of business entity will be appropriate. The most common continues to be the sole proprietorship, but it is also the most dangerous. A sole proprietorship can be less advantageous for tax purposes and it also exposes the owner’s personal assets to the debts and liabilities of the business. Most for-profit businesses should be organized as either a limited liability company (LLC) or a corporation for liability protection. The next question is how the business should be taxed – an LLC is the most flexible as it can be taxed as a sole proprietorship, partnership, S corporation or C corporation. Corporations can only choose to be taxed as an S or C corp.An oft overlooked area of formation planning is the exit strategy. The best time to discuss how owners can exit the business is at the outset – long before anyone wants to leave. This will allow the owners to more clearly look at both sides unclouded by a current wish to leave or stop someone else from leaving. The need to exit can come in a variety of ways: death, disability, retirement, disagreement, etc. Good planning can help you address this issue in a thoughtful way that will help avoid costly litigation. Regular follow-up will then allow the business owners to ensure their plans remain up to date for when they are needed.Growing up I played for a great high school football coach. One of the sayings he liked to quote was: “preparation plus opportunity equals success.” Don’t let business opportunities be missed because you were not properly prepared.