James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
The pandemic has had far-reaching and wildly differing effects on small businesses, forcing closure for some while offering new opportunities to pivot and grow for others. It has also spurred significant growth in the number of new businesses being started.
According to data from the U.S. Census Bureau, paperwork for 4.3 million new businesses was filed last year, a 24 percent increase from the year before and the most of any year since the government began keeping track in 2004 – and applications are on pace to be even higher this year.
If you’re among those looking to start a new business, or to purchase an existing one or a franchise, there are critical steps to take in order to plan well for your investment. Here’s a look at some of the major considerations to think about.
This is a critical first question to consider, as it has far-reaching effects both legally and financially. There are various types of business entities, each with its own characteristics to consider. Will you conduct business as a sole proprietor, or will you instead create an entity separate from yourself, like a corporation, partnership, or limited liability company? The structure that’s best for you depends on your particular business and situation.
How you and your business will be taxed is, of course, an especially important factor to consider and flows from your decision on legal structure. For example, if you choose a C corporation as your legal structure, you may be subject to a double tax – one tax when the corporation makes a profit and another when those profits are distributed to the owners (shareholders). Alternatively, if you choose a partnership, only the owners (partners) are taxed. For this and many other reasons, tax considerations must be weighed carefully.
Accounting and record keeping
Accounting is critical to gauging business performance so you can adjust accordingly. You'll need to choose a method of accounting, such as cash-basis or accrual method, and you must decide when your business's financial or fiscal year begins and ends. For your accounting to be effective, as well as to prepare for an unexpected visit by the IRS, you must also be sure to keep thorough records.
Your insurance needs may include property and casualty insurance, life insurance, and liability insurance. If you have employees, you need to think about whether to provide medical insurance and benefits; worker's compensation insurance is typically required in most states.
Are you going to do all the work in your business yourself? If not, whom will you hire and what skills must they possess? Keep in mind that you may be subject to certain tax rules when employing family members, and that the more employees you hire, the more your company will be subject to state and federal laws – some laws are applied depending on the number of employees in your business, including federal laws relating to discrimination and the requirement to provide certain employee benefits.
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Marketing and advertising
Marketing and advertising are invaluable ingredients for the success of any business. You should develop a written marketing plan that answers questions like: Who are your competitors and what are your company's advantages over them? How will you price your product or service? Who is your target market and what is the best way to reach them? What is the key message you want to convey (i.e., your "value proposition")? You may want to conduct market research to help answer these questions and uncover opportunities.
Insufficient financing is probably the most common obstacle to starting a business. In addition to calculating how much money (capital) you'll need to start and run your business, you have to figure out where to get the funds and how the financing will be structured. Will you borrow from a bank or family member (debt), or will you take money from investors in exchange for a share in the ownership of the business (equity), or both? If you intend to seek equity financing, you will be subject to securities regulations.
Patents, trademarks and copyrights
How will you protect your intangible assets –your company's name, for example (trademark)? Perhaps you have an invention you wish to protect (patent). Or maybe you've written a book and wish to protect your written words (copyright). An experienced attorney can help you set up the protections you need.
Licenses, permits and registration
You may need to obtain licenses or permits, or even register with a government agency. For example, if you choose to create a corporation, you must register with the secretary of state. If instead you are a sole proprietor, you might be required to obtain business permits from, and/or register your business's name with the municipality. To find out more, contact the office of the secretary of state or the chamber of commerce in your state or municipality.
Additional factors to consider when buying an existing business or franchise
In addition to all the factors above, there are other things to consider when buying an existing business. Is it a stock purchase or are you buying company assets? How is the business being valued? You may also want to reconsider the form of business entity – just because you bought the assets of a sole proprietorship doesn't mean you can't change the entity to some form of corporation. If you’re buying a franchise, remember that you are obligated to pay certain fees and accept a certain level of control from the franchisor.
Bringing it all together and aligning your business and personal goals
Starting or buying a business is an exciting time, but it can also be daunting and the wrong decisions could cost you down the road – both in terms of your business’ profitability as well as your personal financial stability and goals for you and your loved ones. It’s a good idea to invest in professional help to get your business started off on the right foot.
In our work with business owners at Weiss, Hale & Zahansky Strategic Wealth Advisors, our goal is to create a holistic financial plan that offers the best possible foundation and planning for your business, and your life. Because at the end of the day, it’s about more than the business. It’s about possibility and well-being for everyone you care about. Learn more about how we serve business owners through our strategic Plan Well, Invest Well, Live Well™ process.
Presented by Principal/Managing Partner and Chief Goal Strategist James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860- 928-2341. http://www.whzwealth.com (http://www.whzwealth.com). © 2021 Commonwealth Financial Network®