Things to Know Before Beginning Your New Business Venture
When I started my business, I didn’t even know how to register with the state. It took several tries and a few minor name variations before my company was even officially “incorporated." Then, when meeting with a business consultant from the Small Business Development Center (SBDC), I learned that I’d missed even more steps in the process. From registering with the city and county to submitting my DBA, it became clear very quickly that I was out of my element.
If you’re thinking of starting your first business, the entire process can be quite daunting. Determining which business type is best, what software to use, and how to fund your start-up are questions that often come without real and immediate answers. In case you don’t want to fumble through it like me (😊), here are some helpful tips to help you as you begin your new business journey.
A Few Common Business Types
Limited Liability Corporation (LLC): Think of an LLC like a shield between you and your business. It limits your liability in the instance of a lawsuit, but because it’s a disregarded tax entity by the IRS, you are still considered self-employed and will end up paying self-employment taxes or 15.3% of your profits for Social Security and Medicare. If your business is a hobby with minimal income, this is probably the best choice for you. If you’re profitable, however, this business type could cost you over others in the long run.
C-Corporation: C-Corps are your best bet if you expect to grow quickly and want to someday be publicly traded. However, this business type is subject to a corporate income tax rate of 21%, followed up by taxation on your personal profits, leading to double taxation.
S-Corporation: S-Corps provide a happy medium between LLCs and C-Corps, as there is no corporate income tax, and, by paying yourself a “reasonable” salary on a W2 (the same rate you would pay someone else to perform your job duties), you can reduce your personal tax liability by only paying self-employment taxes on your W2 wages, rather than your net profits.
Best Low-Cost Software for Start-Ups
Microsoft Office 365 – for the business that needs a professional email along with basic software such as Excel, PowerPoint, and Word, Microsoft offers a subscription of only $6.00 per user per month for online access and $12.50 per user per month for online and desktop access to these and several other Microsoft products.
Adobe Acrobat Pro – from collecting signatures, to editing and organizing PDFs, Adobe Acrobat Pro is a great tool at a low monthly price of $19.99.
Squarespace – from just $16/mo, Squarespace is the ultimate website builder for non-marketers. With their user-friendly page and block templates, Squarespace helps even the least literate of computer users to build a professional site to communicate your offerings.
QuickBooks Online – as a QuickBooks Online Accountant, I would be remiss if I didn’t mention this incredible tool for your business. For everything from inventory management, estimates, invoicing, and project profitability tracking to categorizing revenue & expenses for accurate financial reporting, QuickBooks Online has fantastic features at a low starting price of $35/month.
P.S. – Reach out to learn how you can save on this monthly subscription by working directly with B.K. Consulting.
Funding
This last one is tough, because it’s a common question asked by most new founders as they begin the journey toward starting their own business AND because it’s one that often comes without definitive answers. Full truth? Funding is few and far between for most small businesses. However, even if you’re starting out on your own for the first time and don’t have a large nest egg saved, there are still options.
Home Equity Line of Credit (HELOC) – if you own and have equity in your home, a HELOC could be the answer to the funding you’ve been looking for. With lower interest rates than most personal loans, HELOCs are a great way to supplement your income until your business becomes profitable.
401k/IRA Retirement Savings – if you’ve been working in corporate America for decades, chances are you have a significant amount of money sitting in a retirement account somewhere. While normally taking funds prior to 59½ results in a 10% penalty, there are a few options that allow you to either take a business loan from yourself or even set up a rollover (ROBS) if you are buying an existing business.
You may be thinking, “What if I fail and I lose my house? What if I spend part of my 401k for nothing?” If you take nothing else away from this post, please take this—if you can’t bet on yourself, who will? You spent your whole adult life investing your time and effort to build another person’s company. What makes you think you can’t do it for yourself? Invest in your dreams; I promise you won’t be disappointed.
Still have questions? Reach out to B.K. Consulting today for support with your new business journey.