Four Planning Considerations for Every Small Business Owner

Four Planning Considerations for Every Small Business Owner

If you are a small business owner or thinking of becoming one, here are some things you should consider. Choice of entity Whether you are just starting out or whether you are an established business, it is never too late to consider your choice of business entity, especially as it relates to income taxes and liability protection. For income tax purposes, you and your sole proprietorship are treated as one taxpayer, while partnerships and S corporations are pass-through tax entities that pass through items of income and deduction to you, and C corporations are separate tax entities on which you pay a double tax–once at the corporate level and again when dividends are distributed. Different entities provide you with different levels of liability protection: sole proprietorships and general partner interests provide little protection, while limited partner interests, member interests in a limited liability company, and interests in a corporation may offer much greater protection against liabilities of the business entity. You may be able to reduce your liability exposure with insurance coverage. Financing for your business An important ingredient to a successful business is adequate financing (capital). The failure to acquire adequate financing often determines whether a business can get off the ground, not to mention whether it can sustain itself after it does. Generally, there are two ways to capitalize your business. You can borrow money (debt) or, if you don’t mind sharing ownership, you can find investors willing to provide the funds you need in exchange for a “piece of the pie” (equity). Debt must be repaid. Equity, however, generally does not; it is simply exchanged for...