Are you setting up a new business? You’re probably feeling excited about the launch, but you don’t want your new venture to become nothing but a lemonade stand. This term refers to any business that goes down the drain at the slightest hint of a legal challenge.
Surely, you want to build a solid business that earns you money several years down the road. To achieve this goal, you should learn how to structure your business right from the get go.
1. Explore other options other than sole proprietorship
Most aspiring entrepreneurs think that being a sole proprietor makes the most sense especially when building a small business. It’s the easiest way to start a business, but using your personal name comes with plenty of disadvantages you should be familiar with.
It’s a good idea to work with a CPA or a legal professional who can help you establish an operating entity. Two options you might want to explore are a corporation or LLC. Cloud Peak Law, a Wyoming-based law firm specializing in corporate structuring, explains that operating as a sole proprietor usually means you get the worst tax rates. It also doesn’t help if you have plans of selling your business at some point.
2. Create a trust for your operating entity
Ever heard of stories about business owners struggling with their personal or family life after their business has failed? Without question, you don’t want to experience the same thing.
Any wise entrepreneur creates a buffer between his or her business and personal life. This buffer can come in the form of a trust, which helps immensely with risk management. It gives you better control over an asset such as your business while keeping risks to a minimum.
3. Identify and protect your intellectual property
A lot of business makes the mistake of thinking that they don’t have any intellectual property. You should know that your telephone number and web address are considered intellectual property, and you need to separate them from your business. An easy workaround for this is to establish a trust that owns the intellectual property of your business. The next step is to license these assets to your business, thereby separating them in case you face legal action in the future.
4. Set up a solo 401(k)
There’s a retirement savings account particularly designed for small business owners called solo 401(k). Its primary advantage over other savings accounts is its higher contribution limit, allowing you to contribute upwards of $50,000 a year. You also benefit from huge tax deductions. Other than the significant tax savings, another compelling reason to establish a solo 401(k) is because it’s extremely secure. Not even lawsuits and bankruptcy can touch the money in your account.
Many people start a business with lots of passion, but failing to structure it correctly from day one can lead to its quick downfall. Use these structuring tips to ensure that your new business is built on a firm foundation. Going through these extra steps can be just what you need to distinguish yourself from the lemonade stands in your industry.