Thinking of starting a new business? – Congratulations!
I have been involved with starting two businesses in the past 15 years, so I understand the combination of excitement, concern, and stress you are probably experiencing. And you have good reason to be concerned. Only one in five businesses continues after the first few years. Why do so many businesses stop operating soon after opening? Many times it was because the owner did not think through the finances. My Firm can help you with your financial issues in two ways: We can help you to develop a financial plan and analyze whether it is realistic; and we can advise you about the type of entity under which you should operate, given existing tax laws and considering legal protections.
Are your Financial Plans Attainable and Realistic -- Do they Generate Sufficient Profits and Cash Flows for your financial needs?
One of the key reasons why businesses fail is that the owner does not adequately assess the financing profits, cash flow, and financing needs of their new business. New business owners tend to err towards too much optimism. They believe in themselves and/or their product or service, and they want to start the business. They reason that because their idea is good, and if they sacrifice and work hard, the business will be successful. If you feel this way, that's healthy for a new business owner -- but only if the finances make sense. Good ideas, hard work and sacrifice can help, but if the expected profitability and cash flows are not attainable using realistic assumptions, you could be one of the majority of start-up businesses that fail.
Using a business advisor such as The Firm of James E Blowers, CPA to help you to prepare documents which shows you and prospective lenders and investors your financial plans is important for two reasons. First, we have the expertise to help you to prepare the budgets and other documents that you, prospective lenders and investors will find useful to make conclusions about the feasibility of your plans. Second, we will help you to address important issues and their costs that you may not have thought of. For example, how will your prospective customers know about you? Do you need initial costs associated with marketing your product or service? Do you need to do a marketing study, and will that require outside costs? These are issues that you may not consider without the advice of a business advisor such as my Firm.
Unless you have a business background, you will need a business advisor with my experience to help you to address the following financial documents:
Depending on the size of your business, we will look for opportunities to refer you to agencies such as the New York Small Business Development Center, which can help you with some of the documentation at a fraction of our cost. We will continue to work with them as they prepare documentation, so that you can feel reasonably sure that you will have a cohesive presentation that the bank will find usable and professional looking.
What Type of Entity Should you Operate As?
Deciding on the type of entity is important for both tax laws, and for protection from legal liabilities. Making the wrong decision can cost you thousands of dollars in taxes each year!
There are basically four types of taxable entities available to for-profit businesses: A Sole proprietorship, Partnership, S corporation, and C corporation. You may have also heard about a Limited Liability Company (LLC). For tax purposes, LLC's are generally reported on partnership tax returns. You can also be a Single Member LLC, but it is treated as a Sole proprietorship for tax reporting.
If you operate as an LLC, S corporation, or a C corporation, generally you are sheltered from legal liability, unless you personally sign a loan agreement or other document to accept personal liability. Also, if you operate as a professional, you may be held personally liable for your negligence, even if you are an LLC (or LLP). We will work with you and your attorney to address the legal aspect of the type of entity before you decide on the entity under which you would like to operate.
There are benefits and disadvantages to each type of entity, depending on the number of owners, fringe benefits, whether you are a professional, whether you employ other persons, whether you plan to operate in multiple states, and more. It is impossible to explain all the factors here. When I hear about your particular circumstances, I can advise you about the best choices. Then, we can follow-up with your attorney, so you can make an informed decision about the type of entity under which your business will operate. It is wise for you to spend a relatively small amount up front in order to save much more in taxes and other headaches in the future.
Other Financial Assistance We can offer to New Businesses
Other ways in which we can help you set up your new business:
You may have initially look at developing financial plans for lenders or other investors. Hopefully you can see that you need to make sure your financial plans will generate sufficient profits and cash flows to make your business successful. We can help you to develop your financial plan and help you to decide if the plans are realistic, to avoid the common pitfalls that many new business owners make when starting their new venture. Also, if your financial plans are realistic, we can help you to present a loan or investment proposal that lenders and investors can use to make their decision whether to lend or invest in your business.
Once you decide that the financial plans of your business generate sufficient profits and cash flows, now and in the future, we can help you to decide on the type of entity under which you will operate.
If you would like to learn more about how we can help you to start your new business, please call Jim Blowers for an appointment. The initial consultation is free!