Getting Your New Company Off the Ground
For 15 years, I worked at a magazine publishing company. The job was rewarding, but eventually I was ready for a change. I decided to start my own business, and be my own boss. I’ve had few regrets in the years that I’ve been working for myself, but I’ve also learned a lot about what it takes to keep a company running on a day-to-day basis.
These days, a lot of people are becoming self-employed out of necessity. Unemployment is at more than 9 percent. Layoffs are constantly occurring, and new jobs are few and far between. In recent months, a number of friends have told me they’re thinking of starting home-based businesses, and have asked for my advice and suggestions. Fittingly, National Families in Business Week begins tomorrow. If you’re thinking about starting your own company, here are some important things to consider.
Pick the Most Appropriate Corporate Structure
Businesses are generally organized as sole proprietorships, partnerships and corporations. If you will be the company’s only owner, then you should choose a sole proprietorship. If more than one person will own the business, you can choose a partnership or a corporation.
There are advantages and disadvantages to each organizational form:
- If you are a sole proprietor, you own the business and its assets, and make all of the decisions. However, you are personally responsible for the business’ debts, and the business ends when you die.
- With a partnership, you and your partners share profits and losses, but you have to make business decisions with your partners.
- With a corporation, the corporation continues after the death of the original owners and the owners can limit their liabilities, but this organizational form is more complicated than the other forms.
Before beginning any business, it makes sense to get the advice of a small-business attorney. Your lawyer can also help you set up a partnership or a corporation.
Location, Location, Location
You also have to decide where your business will be located.
A home business can be an economical and efficient way to get your new business off the ground. But before deciding whether to operate out of your home, you’ll need to confirm that a home-based business is permitted under local zoning laws and any homeowners’ association rules.
While your town or city may not have restrictions on home-based businesses, you should read your local laws to make sure. Some ordinances are worded so vaguely, it’s difficult to interpret them. Other ordinances list specific types of businesses, such as professions or services, that are allowed and exclude all other businesses.
If your business will be located outside of your home, make sure your real estate agent shows you only properties that are appropriately zoned. Do not sign a lease, make an offer to buy or make any deposits on a property without first confirming that the real estate is zoned for your type of business.
Your local zoning department should be able to answer any questions about the types of businesses that can legally operate in each type of real estate zone.
If you’re based out of your home, ensure that your homeowners’ or renters’ insurance will adequately cover your business equipment and property. Most homeowners’ insurance policies require you to disclose to your insurance carrier the existence of a home business. Be upfront with your insurance agent and pay whatever additional premium is necessary in order to be properly covered.
If you decide to rent dedicated space for your business, you’ll need to purchase a separate insurance policy.
Licenses and Taxes
You’ll probably need to get a business license from your city or town, and register your business in order to pay local or state business and occupational taxes. If you profit from your business and don’t pay these taxes as you go, you could be subject to back penalties and taxes.
If you are working from home, you can potentially take a federal tax deduction for business use of your home. You’ll be able to deduct some of the costs of utilities, rent, depreciation, home insurance and repairs of your home if you meet these requirements:
- You must regularly use part of your home exclusively for a trade or business. "Regularly" means on a continuing basis, not just once in a while. "Exclusively" means that you use that portion of your home only for business purposes, not for other purposes such as entertaining or family use.
- You must use your home as your principal place of business. That means you must conduct all of your business from your home, or conduct the administrative or management activities of your business at home and have no other fixed location where you conduct those activities.
- If you sell products and store your inventory at home, you can deduct expenses for the business use of your home as long as you don’t have an office or business location away from home and store the products in a particular area of your home. You can use the space for other purposes as long as you regularly store products there.
Even if your home isn’t your principal place of business, you may still deduct expenses for the business use of your home or a separate building if you consistently use part of your home just for meeting with customers.
Being your own boss can offer flexibility and financial rewards, but it’s not a walk in the park. While you have complete control, you also have more at stake. But if you think you have what it takes to own a business, I’d encourage you to give it a try.