Did you know that February is National Start a Business Month?
Neither did I.
But, in light of the fact, I decided it might be nice to do a detailed post of some of the benefits behind starting a company and exactly what it entails.
I am a small business owner myself. In fact, I’m the owner of two companies: Flynndustries, which is my company that heads the websites that I create (including this one), and LOLer Apps, which is my iPhone app company. Additionally, I just helped a friend start his own company the other day, so the process is still fresh in my mind. I just wanted to make sure I could share as much as I could remember with you today.
In the past, starting a company was no easy task. Usually involving a lawyer, the process took much longer and was far more expensive. You can still hire a lawyer to setup a business for your today, but luckily for us, there are online services such as LegalZoom that can take care of everything in less than 30 minutes.
Before I go on, I must first write this quick disclaimer: I’m not a lawyer or a certified public accountant of any kind. Nothing I say or write should be held against me or my companies, and this information shouldn’t be taken as legal advice. If you’re looking for professional advice, I recommend consulting with a lawyer or CPA on your own.
Why Would You Want to Start Your Own Company in the First Place?
There several different reasons why you might want to create your own business entity. For me, starting a business was a dream of mine ever since I was little, so there was some personal fulfillment involved in my decision, among other things.
Here are some other reasons why you may want to start a company:
- Freedom: Probably the number one reason why people start companies is to break away from the rat race and the 9 to 5 lifestyle. By starting a company, you become your own boss and can finally make your own decisions.
- Professionalism: In my experience, having my own company has made what I do online seem much more professional. It may not make a difference to you or even my customers, but it definitely makes a difference to other companies that I’ve worked and dealt with. Most established companies are far more comfortable and more willing to work with other companies, instead of just individual people.
- Protection: Many people start companies for protection against their personal assets. If a company (not a sole proprietorship or general partnership, which I’ll talk about later), get’s sued or finds itself in debt, the owners’ personal assets would not be liable.
- Tax Advantages: By starting a company, you grant yourself the ability to write off certain business expenses, which can save you a lot of money. As to what exactly you can write off, I recommend discussing this with your CPA / Accountant.
Why Would You NOT Want to Start Your Own Company?
As I always do here on this blog, I try to look at both sides of the equation.
The truth is, starting a business is not for everyone. Some of you may be comfortable in your 9 to 5 jobs, and for others, there are these things to think about:
- It’s ALL You: As cool as it is to be your own boss, there’s a lot more to think about. Working a 9 to 5 job, you just have to worry only about the job you’re assigned to, and that’s it. As a business owner, you have to worry about every single aspect of the company, including financial, legal and all that jazz. For some, this can be too much.
- Schedules are virtually non-existent: As much as I don’t like the 9 to 5 lifestyle, at least you know that by 5pm, you’re done. When you’re your own boss, it’s hard to keep steady hours because it just seems like there’s always more you can do to improve the business. It’s hard to turn off that switch, trust me.
- Benefits: When you start your own company, you don’t automatically have access to a 401k plan, a health or dental insurance plan. You have to figure all of that stuff out on your own, and it sucks! Not only do you see exactly how expensive it is to really get insured (we don’t see really how much our employers are paying for us while at our 9 to 5 jobs), but we get to see exactly how cruddy the whole system is.
That being said, I still don’t ever regret going down the path that I’m on as a small business(es) owner, and if you’re still interested in possibly setting up your own company one day, I invite you to keep reading.
The Different Types of Business Structures
Before you start a business, you must first decide on which type of business structure you would like to form. I’ll briefly summarize the different types for you below, but I definitely recommend reading more about each type here on the IRS website.
A sole proprietorship is a business that is owned by a single individual, and it’s definitely the easiest and cheapest to create. No paperwork needs to be filed with the state, and all you basically have to do is register for a DBA (which stands for “Doing Business As”) so you can run your business under a name different from your own.
Unfortunately, the major downfall of a sole proprietorship is that the business owner is personally liable for any debts that the business incurs. Additionally, it can be very difficult to get funding (loans from banks or investment capital) as a sole proprietor.
A general partnership is basically the same thing as a sole proprietorship, except it involves two or more people. A little bit more work needs to be done as far as dividing who is responsible for what and the percentages of ownership between all of the owners involved, but again – no paperwork needs to be filed with the state.
The scary thing about partnerships is that you are personally liable for any one of your partners’ wrongdoings. If one of your partners decides that it’s a good idea to drink and drive in a company car, if he gets into an accident, you could end up paying for the damages and medical bills that come as a result.
For both sole proprietorships and general partnerships, all income and expenses are simply reported on the individual’s personal tax returns.
A corporation is a business entity that is recognized as a totally separate legal entity from its owners. Think of a corporation as a whole different person, with it’s own ability to conduct business, sue or be sued.