How to Decide What Structure Is Best for Your Business

There are several factors to consider when deciding what structure is best for your business. Although cost and convenience of your business should be a consideration, it is not the major consideration that will affect your business in the long run. The business structure you choose will affect your ability to control the decision-making and management, your liability to third parties, and the taxes you pay personally for your business. It is therefore important to understand the basics about the different business structures and affects of each, when deciding what structure is best for your business.

LIABILITY

Depending on the business structure you decide is best for your business, you can be either "jointly and severally liable," or virtually not liable at all to third parties. Under most circumstances, LLCs and Corporations are liable to third parties, thus freeing the business owner from liability. However, there is an exception where the courts can Pierce the Corporate Veil, which has the affect of passing the liability of the business entity to the individual owner(s). Conversely, Sole Proprietorships and Partnerships hold each owner "jointly and severally liable." This means each owner is individually liable. Creditors and parties that may win suits against the business can collect the full amount from any and all of the owners to the extent the liability is resolved. The owners can then seek recovery from the other owners according to liability agreements among owners and/or fault.

TAXES

Pass-Through Taxation

The type of business structure that you decide is best for your business will affect your tax liability in two ways. Either you will experience "Pass-through Taxation" or "Corporate Taxation" (Double Taxation). In "Pass-through Taxation," the earnings/losses are passed from the business to the business owner, thus giving the affect of only being taxed once, on the business owner's personal taxes. Choosing this business structure can have positive and negative consequences depending on the productivity of the business. If there are losses, those losses are passed to the individual owner, offsetting the tax liability from the owner(s)' personal earnings. However, if there are larger profits, those profits also pass through to the personal tax liability of the individual owner(s). This can propel the owner into a higher tax bracket, thus forcing the owner to pay more taxes, even if the owner is not cashing out the money for personal use. The entities that bring this effect to the business owner are Sole Proprietorships, Partnerships, S-Corporations and sometimes LLCs.

Corporate Taxation (Double Taxation)

Under "Corporate Taxation," earnings are taxed twice. Earnings are taxed at the corporate level, and then at the personal owner level when the earnings are distributed. This is usually less desirable for smaller start-up businesses because it leaves less money to be used either for the business or by the business owner. However, there are some other tax benefits from choosing a business structure that has corporate taxation. The business entities that use this taxation are C-Corporations and sometimes LLCs.

CREATION

The creation of the different business structures varies according to which structure you decide is best for your business. Sole Proprietorships are created by merely acting as one, even without filing anything with anybody. LLCs and corporations typically cost under $1,000 to create, unless you have needs for complicated shareholder agreements (for Corporations) or operating agreements (for LLCs).

Key Steps in Transitioning to Business Ownership

The key question is why some businesses fail and others succeed. This is a debatable question and there are many opinions on this subject. However, I believe the core of the problem lies in the inability to develop good business habits from the onset of the transition into business ownership.

Too many people jump into business without fully understanding the level of involvement required to run a successful business. A common mistake, often made, is miscalculating the volume of effort needed and the resilience required to manage the ups and downs of business ownership. The bottom line is that those who are not mentally prepared for the journey of transition will have difficulties with business management and growth.

Here are 7 important steps to consider in transitioning to business ownership:

Develop a business plan from the inception of the business all the way to the exit strategy. The best way to begin the process is to start with a vision which is often the big picture outlook. You can go about this by writing down everything you want to achieve. Consider this exercise the playground of ideas and exploration; a place where you have emptied all your toys to get a clear picture of what's available in order to contemplate your next move.

Take an inventory of your skills and abilities. Understand your strengths and weaknesses. This exercise will be helpful in the future as you come face-to-face with the daily management of the business. Don't try to do it all. Don't haggle with those things you are not strong in. Seek out the experts; it is well worth the investment.

Know your industry thoroughly. Stay informed and be aware of the trends and how they can affect or impact your business. All the while, be ready to make necessary adjustments to your business strategies, such as implementing new approaches to old challenges based on what's taking place in your industry.

Set powerful goals and work towards achieving them because they are the lifeline of your business. Follow the SMART acronym for setting goals. Be sure they are Specific, Measurable, Attainable, Realistic and Timely. Select goals that reflect the different aspects of your life, such as spiritual, business, family, etc. Les Brown says: "Life takes on meaning when you become motivated, set goals and charge after them in an unstoppable manner". Without goals we function aimlessly and have purposeless lives. Goals give direction to fulfilling one's purpose.

Integrate your marketing strategy into your business. Remember that the business plan is the guiding tool and is not an ornament for display. Follow the strategy and adjust as needed. Though the foundation will stand, but the implementation may vary. Get to know the pain points of your target market. Understanding their needs and challenges is critical in developing appropriate solutions to solve your clients' problems.

Build up a network of support. In addition to our own self motivation, much is said about external motivation and inspiration when interacting with other like-minded individuals. Take time to be inspired by the success of others and learn from their mistakes.

Apply technology to streamline the business. Make deliberated efforts to keep up with technology as it relates to your business and apply it to improve business efficiencies and enhance management. Understand how technology can be useful and appropriate in your business.

There is no doubt business ownership helps to realize dreams. It also requires consistent, intentional, and deliberate actions to deal with industry changes and other economic factors that can adversely affect the business. At times we need additional direction and support to transcend to the next level. Don't overlook the high returns you will achieve when you make the right investment. They can make the difference in running a successful business.

Does Social Media Belong in Your Business Plan

Social Media has become a worldwide phenomenon but does it belong in your business plan? The growth in usage statistics are staggering across the numerous platforms that make up this online world. I recently read a blog post that discussed 52 different social media sites. These were presented in groups under the following categories - sites that you can use to network with others, those that help you promote your products/services and those that enable you to share information with others.

The starting point for answering the question "Does social media belong in your business plan" is the understanding that a business plan is a living, breathing, ever-changing document. My concern is that too many business owners of small to medium size businesses either don't develop a business plan at all or if they do, they don't revisit it periodically to keep it fresh and relevant.

While social media has existed for some time now, its use for business is a rather recent development. This has come about as a result of its increasing acceptance by the population in general, businesses finding ways to capitalize on it, larger businesses dedicating resources to it and the social media platforms offering more business oriented capabilities. Those business owners that are keeping their plans current are likely to already have included it as a consideration. For others, this new technology may force them to dust off their current business plan and take a fresh look from a new perspective.

So, how should social media be incorporated into a business plan? To answer that question, let's examine some of the key elements of a business plan. First, let's look at "Market Analysis". Has social media had an impact on the specific industry related to your business? For example, if you own a restaurant you need to know whether or not any of the these platforms could help you grow your business. In this case, two immediately come to mind - Yelp and Foursquare. It would be important to be proactive with the use of these platforms in your business planning. Another area of market analysis is "Competitive Analysis". In this section of your business plan have you analyzed how your competitors are using social media platforms? For example, do they have a business page on Facebook? Do they use Facebook ads? Along these same lines, you need to consider how investing in these platforms can help you with your competitive differentiation. How can you use them to make your business stand out from the rest?

Another area of your business plan that should include consideration of social media is the "Organization and Management" section. The use of these technologies requires resources. Consideration needs to be given to whether these will be internal or external. In addition, social media can provide an effective platform for managing customer service, including issues. It has provided new methods for people to share their opinions about a business and its service. It is important to follow these developments and pay attention to whether or not your customers are providing information to their online friends about your business.

A third area of your business plan to consider is "Marketing and Sales". This is a crucial area for those that decide to dedicate time, energy and money to the use of social media. A focused strategy is critical to success or you may spend thousands of dollars with little return to show for it. Consistent messages, attracting people to your products and converting them to customers requires proper business planning for successful execution.

The last area of your business plan to consider is the "Financial" section. Unfortunately, I have encountered owners of small to medium size businesses that have spent money for online services such as a web site that are never going to give them a return on their investment because the site is not likely to be found among the millions of web sites that exist today. However, these new platforms can provide very cost effective alternatives for promoting your business. The 2011 Social Media Marketing Industry Report compiled by Social Media Examiner reports that small business owners are seeing the greatest benefit from marketing with these new tools.

In summary, the growth of social media indicates that it is here to stay. That doesn't mean that every platform will survive however. It is important to periodically review your business plan using the sections highlighted in the business plan format used throughout this article to ensure that your business is taking advantage of the growth opportunities that social media has to offer.