A great number of people have considered the possibility of starting a business, and quite a few of these have actually gone on to do so during the COVID-19 pandemic. The thought of working without a boss breathing down one’s neck and being on one’s own terms is quite appealing.

Despite the attraction of this career, it is extremely tough, and not all startups are successful. Sufficient preparation is necessary if the hazards of starting a business are to be avoided. Between passion and hard work, a number of other ingredients are required for a new startup’s success.

This article will explore some of the factors to bear in mind when starting a new company.

Business Entity Type

Limited Liability Company

LLCs (otherwise known as limited liability companies) are an extremely popular business entity type that is favorable to a great number of startups. Two of its characteristics make it perfectly suited to this type of business: its limited liability protection, and its status as eligible for passthrough taxation.

The first of these characteristics is beneficial for small business owners because it allows a legal separation to be created between their personal assets and the business’s assets. This is extremely important as it protects the owner from being held personally liable for the business’s debts and legal fees. In other words, creditors cannot chase their personal assets.

Additionally, small business owners prefer a structure that enjoys passthrough taxation because it means more of the business’s profits are saved from tax. Furthermore, the business is not subject to the ‘double taxation’ of corporations and is instead only paid by the personal income and self-employment tax of the owners’ salaries drawn from profits.

Corporation

Another popular business entity choice for businesses is the corporation. This structure also benefits from limited liability protection, so the personal assets of the business owner are not at stake when the business incurs debts or a lawsuit. That being said, it is not considered a passthrough entity and must thus pay ‘double taxation’.

This means that it is liable to pay both corporation tax on the business’s profits and then personal income tax on the salaries the owners pay themselves from this. However, one benefit it does have over an LLC is that owners are recognized as employees of the company, and thus do not have to pay self-employment tax.

Additionally, since owners have a share of the company, structuring a business as a corporation is an excellent way to attract investment (since those who invest would become shareholders). Both of these options are far better than informal business structures, which leave the owners open to being held personally liable for debts.

Business Idea

Having knowledge and an understanding of current small business trends, and implementing this information into a business idea, is pivotal to creating a company that will thrive. Coming up with a strong business idea to support your company guarantees its profitability in the long run.

For example, at the moment consulting businesses are doing very well. As natural problem solvers, the advice consultants offer to clients is invaluable, and thus consulting firms are always in high demand. There are several areas in which this type of business is particularly helpful, including project management, human resources, legal, health and safety, and financial consulting.

Another business trend doing well at the moment that would make a good idea is a company in the beauty industry. This market has been booming for years now and represents an excellent way for people to utilize their skills and knowledge in this area in order to earn some additional money.

Additionally, many online businesses are a good bet for those with no other ideas. Look at social media, for example, the opportunities that revolve around these platforms are never-ending. Content creation is an extremely viable profession on these mediums, as is working as the manager or consultant for a company’s social media.

Our Thoughts

Indeed, starting a business is never easy. To ensure that this process is as streamlined as possible it is worth thinking about how your business will be structured as well as the idea behind it.

With regards to the first factor, many people struggle to understand the important difference between llc and s corp. For an elucidation of this distinction, please refer to TRUiC’s resource on the topic.