Many employees working eight to five – and often even longer – working their fingers to the bone or doing boring repetitive assembly work for inadequate wages dream of starting their own business: of being their own boss, of not having a supervisor constantly looking over their shoulders telling them what to do, of not having to deal with the constant stress.
Before the COVID-19 pandemic, dreams of starting one’s own business could be realistic if certain steps were followed. But with the pandemic, it is exceedingly tough for a small business to succeed and prosper. Restrictions such as no inside eating, six-foot social distancing, wearing a mask, limits on the number of customers permitted in a store and other restrictions, make it hard for a small business to survive. In fact, the number of small businesses—even those that have been in operation for decades--that have gone under is astonishing.
How to Create a Comprehensive Business Plan
If you are planning on starting your own business, the first thing you need is a comprehensive business plan. If you are not familiar with what a business plan consists of, there are several good books that will take you through the whole process and considerations you need to consider before you make the commitment to open your own doors. Better than a book, you might consider hiring a professional who advises people on starting their own business. While this is certainly more expensive than a couple of books, the information and advice of a professional is usually infinitely more valuable. Plus, if you don’t quite understand the book, the professional can explain it in terms that don’t confuse you. If you can’t afford a professional advisor, you might try the advisors at SCORE. SCORE is made up of retired professionals who share their knowledge and experience with people intending to start a business. The fees are reasonable and often free, and the advice is usually good.
Perhaps the first thing to consider is the type of business you plan on starting. There are a number of formats you can choose from, each having their own legal, tax, and financial considerations. For the single person who desires to be the head of the company and not have any co-owners or partners, the best option is to be the sole owner, or in legal terms the sole proprietor. A husband and wife can be considered sole proprietors. In a sole proprietorship, the net income from the business is considered ordinary income and is included on your tax return as such on the appropriate schedule. “Net income” is the total money brought in by the business, minus the cost of doing business, such as wages paid to full-time and part-time employees, the rent, the cost of inventory, property, sales, and other taxes, the cost of electricity and other utilities, the cost of having a cleaning service clean the store, the cost of cleaning uniforms, aprons and the like, and any expenses reasonably relating to the running of the store.
How to Get Your L.L.C.
A relatively recent form of conducting business is the Limited Liability Company (L.L.C.). This is available to sole proprietors as well as partnerships. The advantage of the L.L.C. is that it is treated as a partnership but taxed as a sole proprietorship, saving the members of the L.L.C. a considerable amount of money in taxes. While there are a number of books telling you how to set up an L.L.C., we highly recommend that you consult a lawyer experienced in advising whether the benefits of an L.LC. outweigh the detriments in your particular situation, and have the lawyer prepare the documents creating the L.L.C.
General Partnership Vs. Limited Partnership
Another common form of setting up a business is a partnership. There are two types of partnerships: general partnerships and limited partnerships. In a general partnership, each partner has an equal say in the conduct of business, although it is usually rule by majority. When it comes to monetary liability for, e.g., hurting a third party in an automobile accident while on a partnership errand or business each partner is fully responsible for the full amount. That means the injured person can sue the partnership as a whole, or he may choose to sue any one member of the partnership, usually the one with the most money or best insurance. In a limited partnership, the limited partner has no say in the partnership affairs, and when a general partner injures someone, the limited partner’s liability is restricted to the amount of money he contributed to the limited partnership, and not to the full amount of the victim’s injuries.
Definition of 'Corporation'
Another form of business, usually reserved for larger enterprises, is the corporation. Corporations are subject to many rules and regulations, cost a lot to set up, and are expensive to maintain records, file forms and reports with the government, which makes it unattractive for the average person who wants to start his or her business to form a corporation.
Consider the Cost
One thing people who plan on starting their own business but usually underestimate is the cost of doing so. Besides renting a store front or office space, which is not cheap, they usually must pay all of the utilities. Electricity is unusually expensive, as there are usually a number of lights all of which are on during open hours, plus the cost of running the outside promotional night, often all day and night. Also, the former wage earner will no longer receive a steady paycheck, and even if the store is successful, it will still have to make enough net revenue in several months to replace the former wage earner’s income. After three or four months, it is not unusual for the wanna be self-employed former wage earner to run out of money, especially during the time he is not receiving a steady paycheck. As a general rule, it takes at least one year for a new business to start showing a profit. In this time of pandemic, that time is much longer and the probability that the new business will last long enough to become profitable is slim indeed.