Financial well-being May 1, 2023 By
There are many reasons entrepreneurs decide to start their own business. Perhaps you have an excellent product or service to offer. Maybe you are ready to be self-employed and become free from having immediate supervisors in a corporate structure. Whatever the motive, there are many important factors to consider, including:
- Determining your target audience and what forms of marketing are best for reaching that audience
- Creating a simple business plan that includes your financing and startup cash flow needs
- Defining your business structure
Many new entrepreneurs take the time to review these topics as they begin their small business journey. Let's discuss each in detail.
Understanding your target audience. Marketing can be costly, but if done correctly, it can help you make more money in the long run. Just as you want to hire employees who can complete tasks and meet your goals and objectives, the same goes for implementing your company's marketing plan. Marketing goals are achieved, in part, by comparing the market activities generated for products or services similar to yours. Further knowledge can be obtained by developing a test market to determine product viability and uses.
Note that your marketing expense does not have to be detrimental to your operating expenses, but you should invest enough to know your customer. Do not underestimate the power of social media as a free and powerful marketing tool.
Creating a business plan. The pricing model of your product or service must generate enough profit to accommodate your set standard of living. Additionally, the plan must take into account your time and expertise. Pricing is broken down easily with simple math. Just determine how much money you are comfortable with making on a monthly basis. Then, determine how many products you need to sell to meet that number. Be sure to consider the cost involved in bringing your product or service to fruition.
Keep the initial startup expenses low by being creative and thinking as inexpensively as possible. Consider purchasing only the items necessary to the business operation. For example, if your dream is opening a yoga studio or cupcake bakery, think of utilizing a community space or community kitchen in off hours to save on the expense of purchasing or renting a building. If financing is a must, use an officer at your local bank as a financial consultant. Gather your personal financial statements (including all assets and liabilities) and your realistic sales goals and expenses. Let the officer work with you to determine the best financing options for your business.
Determining your business structure. There are several different business structures to consider when starting your own business. Each vary in personal liability protection and tax liability. Your tax professional, CPA, or attorney can help you decide which is best for you and your business. Here are descriptions of each business structure:
- Sole Proprietorship. A sole proprietorship is an individual (or husband and wife) who owns a business exclusively. The entity is taxed at the individual's tax rate.
- Partnership. A partnership requires two or more people sharing the same business ideas and goals and is defined by the amount of contributions made by each partner in the form of cash, assets, or skill set. The partnership passes earnings through to the partners at the individual level. Partners are subject to self-employment taxes. Their reportable tax basis is issued through a Schedule K-1.
- Limited Liability Company. An LLC is a hybrid between a corporation and a partnership. LLCs are very popular, because they provide the individual with the liability protection of a corporation with the pass-through taxation of a partnership.
- Corporation. A corporation is a legal entity that is separate from the owners. The corporation can borrow money, enter into a contract, and sue other entities, and it pays taxes and owns assets. Corporations often have many shareholders who benefit from the profits of the corporation via dividends. Shareholders of the organization are not personally liable for company debts and law suits.
If you are considering starting your own business or currently own a business, a First United Community Lender can help you with any questions you have regarding your financial needs.
