Your Business Plan – More Information

by Marion G Shaw on January 10, 2016

CalculatorAfter the holiday hiatus, let’s continue with writing that business plan.

You have created the cover page and the executive summary, now you are ready to go into details of how you intend to organize your business.

After your executive summary, you need to supply some legal information.  What legal business model will you choose?  Sole proprietorship, partnership or limited corporation.  Do you know the difference between them and which one will work for you?

A sole proprietorship works for micro businesses, depending on your situation.  In this type of model, there is no separation between the business and yourself.  All income is looked upon as personal income and is taxed as an individual.  Many home salons and one person businesses exist under this type of model.  Also chair renters would be looked upon as sole proprietors if you register your business.  In a sole proprietorship your personal assets are at risk.  Should you fail at your business, your creditors can claim your personal assets in order to retire the debts.  Also the tax rates are very different.  If you make a large profit, the tax, if you are a sole proprietor, is much higher than if you are a corporation.

A Partnership – probably one of the most difficult types of business model to run smoothly and successfully.  Structurally it is very similar to a sole proprietorship in terms of liability and taxation, although the profit is split between the partners, however the most difficult thing is to find the right partner.  It’s rather like marriage – you don’t really know what you are getting into until you are there!!!  Choose well.  Beware of partnerships with a spouse or a best friend.  It can be the end of a beautiful friendship or a nasty divorce.    Before you start your business with a partner make sure each person has a valid will.  Have partnership insurance and a buy/sell agreement in place.  This ensures that if the partner dies, the insurance money will buy his/her shares out of the estate.  You get the business, the deceased partner’s family or heirs get the money.

A Corporation is the third type of business model.  It is the most expensive to set up and the most complex to run as there are government reports, meetings, etc. to be done.  Legal fees putting shareholder agreements together and the articles of incorporation are a part of this.  However, there are also advantages.  Firstly, when the corporation is formed, it becomes completely separate from the individuals who own the company, now called shareholders or stockholders.  Because of this, the assets of the individual shareholders are protected from claims on their personal property should the business fail.  The other advantage is the tax structure.  Corporate taxes are much lower than individual taxes.

There are many resources that you can research to discover which type of business model is right for you.  Do your research.

Also on this page should go your various tax and g0vernment business numbers along with your business license number.

Next time – your financial picture.  How to put together a net worth statement and much more.

 

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