Starting a Colorado business is an exciting prospect, but it also brings many decisions
Doug Griess //November 22, 2021//
Starting a Colorado business is an exciting prospect, but it also brings many decisions
Doug Griess //November 22, 2021//
Starting a Colorado business is an exciting prospect, but it also brings many decisions.
Whether it’s the fulfillment of a lifelong dream or a recent opportunity that suddenly presented itself, you’ll want to ensure that you are setting yourself and your business up for success.
Choosing your company’s structure or type of business entity is one of the biggest and most important decisions you will make.
It’s crucial to consider more than just the short-term picture—think about your long-term business plan and what financial implications it might have for you personally and for your business.
Here are some costly mistakes all entrepreneurs should avoid when deciding on a company structure.
Keeping Business Too Casual
Maybe you’re going into business with your childhood friend, a best friend, or a close family member. No matter how close and casual your relationship with them might be, don’t make your business agreements relaxed. Keeping things too casual with other owners or partners can, among other things, ultimately cause the demise of your business.
Instead, formally document any agreements so everyone is on the same page and there are no questions down the line about what was agreed upon. Whatever business structure you agree to and any other agreements you reach, be sure to have them review by a skilled attorney and put on paper.
Failing to Form a Legal Entity
You can start a business without forming a legal entity. However, doing so could significantly affect your business’s financial future. It’s common for sole proprietors to start a business without filing a structure, but it’s something that should be considered. Forming a legal business entity offers entrepreneurs many advantages, while forgoing a legal structure comes with many risks, including:
Putting personal assets on the line: A legal business entity protects your assets that would otherwise be jeopardized in the case of a business financial hardship or litigation. You can protect your assets and keep things simple with a limited liability company (LLC).
Decreased business credibility: Consumers, vendors, and investors all usually prefer to do business with reputable, established companies. However, it’s hard to prove if you haven’t set up a legal business entity. Setting up a business as an LLC or corporation makes it easier to obtain a business bank account, business credit, EIN, and more to establish that your company is trustworthy.
Failing to Consider Tax Implications
Business taxes can vary widely depending on the business structure. Carefully weigh your options. Understanding precisely what you will be required to pay before determining what type of entity you want to form can help you avoid negative tax implications. Failing to plan and research tax consequences for a business entity can be a costly error. Consider the following:
Circumventing Future Growth
You might be on your own now, but do you expect or want your business to grow, possibly taking on partners or shareholders later? If you hope to find investors to back your business goals in the future, the entity you choose could have a substantial role in the future growth of your business. It could also impact your bottom line. It’s essential to understand the following about business structure and development:
Not Enlisting the Help of a Business Attorney
The best step a budding business owner can take is to enlist the help of an experienced business attorney. A well-versed attorney can help them understand each business structure option as well as the pros, cons, and potential long-term costs of each.