When you start a new business, you have to make some important decisions. These decisions will be unfamiliar to you if you have been working your 9-5 day job in corporate America for your entire career. So here’s a good place to start.
One of these important decisions is whether your business will be a proprietorship, partnership, or a corporation. Proprietorships and partnerships are tightly connected to their owners, whether that’s one person or more than one. A corporation, on the other hand, operates separately from its owners, with the owners serving as shareholders who take a portion of the business’s earnings as shares.
For tax purposes, it isn’t as easy as grabbing a company model and implementing it. You need to do a bit of research and decide, based on your unique business model, which works the best for you. There are some steps you’ll need to take to make the transition, including preparing yourself and doing a lot of business paperwork. Here are a few steps to take if you want to turn a hobby into a full-time business.
Understand the Differences
Before you get started, make sure you are aware of how your decisions today affect your business long-term. If your business is registered as an S-Corp, you’re personally protected in the event of a lawsuit. You can also raise funds through offering stocks, while investments and loans are your only options as a partnership. Still, you may like the direct control a partnership gives you, as well as not having to meet the requirements of keeping financial records or having annual meetings.
Plan the Transition
Once you’ve decided this move is right for you, you’ll need to plan for the transition. If possible, consult an attorney to make sure you don’t miss any important steps along the way. During this phase, you should gather all the paperwork you need and take the preliminary steps to plan out your short and long-term goals, standard operating procedures, and marketing strategy for your new business.
Do Your Research
What is it that makes one business succeed while another fails? Not every endeavor that has an ambitious person behind it succeeds. Researching your competition to validate what you anticipate will succeed is an important step. Generally speaking, if you have a hunch that your business idea is good, if others also thought so and have made a business of doing the same, you’re on the right track! What you see online though is just the façade. The hard work is done behind the scenes.
Need advice on what type of business structure is the best setup for you? Startup coaching can help you decide. On Track Coaching works with businesses at all stages to help them achieve success. Get in touch with us to schedule a free consult.