Running and operating your own business is one of the best ways that you can approach your place in the economy and set yourself up for financial success and independence for your entire life. Starting a business, however, is a complicated and difficult process that involves a lot of decision making. Arguably the most important question that you need to answer early in the startup process is what business structure aligns best with your goals and abilities. Here are three things that you need to think about when choosing a business structure for the best long-term success.
The first thing you really need to think about when choosing a business structure is whether you want to be involved with a business partner. Running a business with a business partner can help as far as doubling your manpower and ability to grind, but it also complicates your business, as now you have two mouths to feed. Knowing if you want to start with a business partner, or when you plan on bringing a partner or partners into the business is important for your business structure.
The next thing you need to think carefully about when choosing a business structure is taxes. Depending on your business structure, your business will be taxed differently. Depending on which structure you choose, your business’s status as a “pass-through entity” will change. If you are a sole proprietor or partnership, you will be taxed on all your business profit as personal income and must pay FICA taxes on all of it. An S-corp allows you to avoid paying FICA taxes on everything but your salary. This can help save you tax money if you are saving business profits for an expansion or other major expense for your business.
The final thing to consider when choosing a business structure for your success is your willingness to take on personal liability. Depending on your business structure, your business assets and personal assets are either separated or not. If your business structure doesn’t separate your business and personal assets, like in a sole proprietorship or partnership, then your personal assets can be seized in a lawsuit. With a business structure that does protect your liability, like an LLC or S-Corp, your business and personal assets are separate, and your personal assets are protected in some way from litigation.
Selecting the right business structure for your startup is essential to setting yourself up for the long-term success that you crave. And luckily, choosing the right structure is easier than many people imagine it could be. Just make sure to consider these three factors to find the best business structure for your next endeavor.
Check out this article on work-from-home challenges that your business needs to address!