Structuring Your New Business

The structure of your business can have a huge impact on it's success or failure. It will determine the control you will have over it, the amount of working capital that will be available, as well as the risk of liability you will be taking on.

By structure, I am referring to the legal structure; the way you're business will be ran, taxed and financed.

The most common form of structure is the sole proprietorship. This is due to the ease of setting it up and the low cost incurred to do so.

The sole proprietor has the full ability to control the business, from the hours of operation, to the quality of service provided, and even the hiring and firing of employees at any given time. The sole proprietorship status allows you to decide how profits are spent, whether by you personally or reinvested into the business, and will be taxed as an individual would be. You will complete a personal tax return each year, reporting all earnings, deductions, and assets acquired.

Along with the control of the revenue and decision making, comes the full responsibility of debt and liability. You will be held liable for any and all bad debts and judgments, leaving your personal possessions vulnerable. Also, with the freedom of control, comes the responsibility of running the business and carrying out all duties necessary to be successful. Unless you intend to pay the price for specialists, you will need to be very diverse with your business experience and abilities.

If there are aspects you know you cannot carry out, or responsibilities that will be extremely difficult for you to handle while performing your day-to-day responsibilities, you may want to consider a partnership.

Partnerships allow for relief in areas in which you are not comfortable and can bring many options to the table. If you find someone that is able and willing to handle tasks that you are not, or if you have limited funding available to keep the business afloat until profits are seen; a partner can pick up the slack in one or both of these areas.