Recs

3

Starting a Small Business

At some point during their careers, most people consider going into business on their own. Whether they want to escape an evil boss, have the freedom to run things their own way, or take full advantage of an idea they have, laws in the United States make it relatively easy to try to reach this dream.

In fact, the only thing you really have to do to start a business of your own is to make yourself available to work, and start working.

On the other hand, you should consider several decisions before you get started. There are many different ways to establish a business, and the method you choose can make a big difference not only in how your business will work, but also in what kind of impact your business will have on your entire financial situation.

The types of business entities that you can establish include sole proprietorships, partnerships, corporations, and limited liability companies.

Sole proprietorships
According to statistics released by the Small Business Administration (PDF file), sole proprietorships -- businesses run and managed by the owner directly, without any separate business entity -- represent 73% of all businesses in the United States. Sole proprietorships are very simple to set up. In many cases, people who go into business for themselves without any additional formalities end up as sole proprietorships without realizing it.

While the main advantage of forming a sole proprietorship is simplicity, its primary disadvantage is its inability to protect its owner from business liabilities. If someone makes a claim against the business, and its assets are insufficient to pay the claim, then the person making the claim can collect from the owner's personal assets. Although business liability insurance is available in many industries to provide additional protection against claims, the sole proprietorship's lack of additional business protection makes it unattractive to certain types of businesses where liability is a major concern, such as medical and legal practices.

Sole proprietorships are not treated as separate entities for tax purposes. Most taxpayers who own a sole proprietorship must simply add Schedule C to their regular 1040 annual income tax return. It's extremely important to remember that sole proprietors must generally pay self-employment taxes on their earnings, typically at a rate of 15.3%.

For additional articles in the series:

To learn the ins and outs of issues relating to retirement, try a risk-free trial for 30 days toRule Your Retirement.

Fool contributor Dan Caplinger welcomes your comments.


Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2009, at 1:48 PM, mysoftballcoach wrote:

    Anyone considering starting a small business should consider the new information era we now live in and considering beginning their business as an online advice/information website. The rewards can be enormous due to the leverage offered by the enormity of the internet, and yet the risk is nominal compared to starting a bricks and mortar type business. Another advantage is the online information business can be started part time (so you don't have to quit the day job...NOW THAT'S RISKY!) and then the success can be monitored to determine if the owner wants to later incorporate a bricks and mortar business to go along with the online business. Interestingly, to be successful offline, you will more than likely need to be successful online anyway. So rather than take the risk of beginning offline, start online and then add the offline. MUCH SAFER, much less costly, much easier to manage and measure. For more about how I started mine, http://www.mysoftballcoach.com/sbi-software.html.

    Enjoy and Good Luck!

    Coach

  • Report this Comment On January 26, 2009, at 1:50 PM, mysoftballcoach wrote:

    Anyone considering starting a small business should consider the new information era we now live in and consider beginning their business as an online advice/information website. The rewards can be enormous due to the leverage offered by the enormity of the internet, and yet the risk is nominal compared to starting a bricks and mortar type business. Another advantage is the online information business can be started part time (so you don't have to quit the day job...NOW THAT'S RISKY!) and then the success can be monitored to determine if the owner wants to later incorporate a bricks and mortar business to go along with the online business. Interestingly, to be successful offline, you will more than likely need to be successful online anyway. So rather than take the risk of beginning offline, start online and then add the offline. MUCH SAFER, much less costly, much easier to manage and measure. For more about how I started mine, http://www.mysoftballcoach.com/sbi-software.html.

    Enjoy and Good Luck!

    Coach

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 505330, ~/Articles/ArticleHandler.aspx, 10/25/2014 1:11:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 15 hours ago Sponsored by:
DOW 16,805.41 127.51 0.76%
S&P 500 1,964.58 13.76 0.71%
NASD 4,483.72 30.92 0.69%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement