Choosing the Right Business Structure

In this episode of From Vision to Business Roadmap, Mira breaks down the pros and cons of different business structures, from sole proprietorships to LLCs and corporations. Learn how to choose the structure that aligns with your goals, protects your assets, and sets your business up for success.

Episode Transcript

(00:00):
Welcome to From Vision to Business, your roadmap to success, a podcast offering the tools, strategies and insights you need to succeed.

(00:10):
Whether you're starting from scratch or ready to level up, each episode delivers valuable advice to help you overcome challenges and build a business that works.
Your host, Mira Jefferson, brings 25 plus years of business experience as an entrepreneurial consultant and is here to guide you.
Your journey to success begins now.

(00:31):
Okay, let's talk about something that might not be as exciting as talking about starting your logo or brainstorming for your services, but trust me, it is absolutely essential.
Today we're going to talk about choosing the right business structure and making sure that you have the proper licenses.
If you choose the right business structure and make sure that you have the proper licenses beforehand, you are going to save yourself from a lot of headaches, legal trouble and even losing some money down the road.

(01:04):
Some of you might be feeling overwhelmed with terms like LLC, sole proprietorship or business licenses, but don't worry, that's what I'm here for.
I'm going to break it all down in simple, easy to understand terms. So let's get started.
First, let's talk about business structures.

(01:26):
Choosing the right one depends on a few things.
Number one, how you want to operate.
Two, how you want to pay taxes.
And three, how much personal liability you're comfortable with taking on.
Let me walk you through some of the most common types of business structures.

(01:47):
Number one, sole proprietorship.
This is the simplest structure and honestly a lot of people start here without even realizing it.
If you're doing business as yourself and haven't set up anything formal, congratulations, you're a sole proprietor.
What are the pros of sole proprietorship?
Pros, it's easy to set up and it has minimal paperwork.

(02:13):
But of course, with all the pros, every pro has a con.
So the con side of sole proprietorship is you are personally responsible or liable for any debts or legal issues,
meaning your personal assets like your home or your car or any other things that belong to you could be at risk.

(02:35):
Number two, partnership.
If you're starting a business with someone else, a partnership might make sense.
It's also fairly simple to set up and the profits flow through the partner's personal tax returns.
And again, liability is a concern.
You and your partner are personally responsible for the business's obligations.

(03:00):
Number three, limited liability company or LLC.
This is probably the most popular structure for small businesses.
Why do you think that is?
It's because it gives you the best of both worlds.
You get the liability protection of a corporation, meaning your personal assets are generally safe,

(03:23):
and it's still fairly easy to manage and the taxes are pretty straightforward.
Plus, having an LLC at the end of your business name just looks professional.
Number four, corporation.
If you're planning to grow big or take on investors, you might consider a corporation.

(03:44):
It's more complex to set up and has stricter regulations,
but it often offers the most protection for your personal assets.
There are two main types. There's a C corporation and an S corporation.
Most small businesses tend to stick with an LLC unless they have specific reasons for going corporate.

(04:08):
We're going to talk about how to choose the right structure for your business.
How do you decide which one is right for you?
Ask yourself just a few questions.
Question number one, do I want to separate my personal and business finances completely?
Question number two, am I okay with being personally liable for debts or lawsuits?

(04:37):
Number three, how simple do I want my taxes to be?
Number four, am I starting this business alone or with others?
If you're not sure, don't be afraid to talk to a professional.
A business attorney can help you and also an accountant can help guide you through the decision making process.

(05:01):
Once you've chosen your structure, the next important step is making sure that you have proper licenses and permits.
This part can vary depending on your location and industry, but here are the basics.
Number one, business license.
Most cities or counties require a general business license, even if you're running a small operation of your home.

(05:25):
This usually is a quick process and the fee is often pretty low, you know, something between $50 to $100.
But don't quote me on that. Do your own personal research.
Number two, industry specific licenses.
If you're in a regulated industry like food services, childcare or construction, you'll probably need additional licenses or certifications.

(05:46):
For example, if you're opening a bakery, you'll need health permits.
If you're a contractor, you might need state specific licenses.
Number three, sales tax permit.
If you're selling physical products, you'll likely need a sales tax permit.
This allows you to collect and remit sales tax to your state.

(06:08):
The application is usually free, but you'll need to stay on top of filing your sales tax to your state.
That's very important. The state will come after you if you are not kindly with remitting your sales tax to them.
Number four, home based business permits.
If you're running a business from home, check with your local government to see if you need a special permit.

(06:30):
Some areas have zoning laws and regulate home based businesses.
Oh, and don't forget about your EIN.
What is an EIN? An EIN is an employer identification number.
This is like a Social Security number for your business.
This is very important.
You'll need it to file taxes, open a business bank account and hire employees.

(06:53):
The best part is it's completely free to get it from the IRS at IRS.gov.
Just make sure you're on the official site and not a third party when trying to charge you because there are a lot of scammers out there saying,
Oh, we'll help you sign up for an EIN number and just pay us X amount of dollars.
No, it's a scam because you all you need to do is go on the IRS.gov and do a search for EIN application and it's completely free.

(07:22):
And if you're planning on opening up a bank account, a business bank account, this is very important because you cannot most places.
You cannot open up a business bank account without an EIN.
Your regular Social Security number just won't cut it if you want to actually get a business bank account.
You might be wondering to yourself right now, do I really need to deal with all of this right now?

(07:45):
The answer is yes, getting your structure and licensing in order isn't just about following rules.
It's about protecting yourself, building credibility and setting your business up for success.
When you're properly licensed and structured, you can operate with confidence, knowing that you've got all of your bases covered.

(08:08):
I know this can be overwhelming and it can seem overwhelming,
but starting a business comes with a lot of moving parts.
But don't let that intimidate you. Take it one step at a time.
Choose your structure, get the license you need and apply for your EIN.
Three steps. I'll repeat them. Step number one, choose your structure.

(08:33):
Step two, get the license since you need and step three, apply for your EIN.
And a side note is regarding your EIN, usually you can do it online and it's almost instantaneous.
A lot of times, you know, you can apply for an EIN and you get it right there.
And you'll be able to download and print it and keep it for your records.

(08:57):
And before you know it, you'll have a solid foundation to build on.
If you found this episode helpful, share it with someone who's thinking about starting their own business.
And as always, thank you for tuning in to From Business to Vision Roadmap.
I'm Mary Jefferson and I'll see you next time with more practical steps to turn your vision into a thriving business.