There is a dizzying array of choices when starting a business. The types of business organizations includes; Sole proprietorship, Partnership, Not-for-profit corporation, Limited partnership, Limited liability partnership, Unlimited company, Limited company and Corporation.
In general terms, most businesses start on the small side and grow up. You might think a person would start as a sole owner from the list of types of business organizations above, but that is not always the best thing to do. In being the sole proprietor you and you alone are responsible for all of the business activities. While insurance can help, you still own it and you could lose everything if things go badly. I'm not just talking about bad debt; think of legal issues. If a person in your employ harms someone, will you lose your house. Not if you've chosen Limited company organization. For this reason many people incorporate their business to limit liability and taxes.
Types of business organizations also impact other areas. The selection will determine your ability to obtain corporate credit. Credit is a huge issue. I have a friend who runs a string of gyms for women. When she started she had her car towed. She wasn't in the handicap parking; she had missed her payments. She started her business with savings and ran it on cash flow. One good line of credit would have really helped her. As a sole proprietor her credit was limited. A partnership would have helped her gain more credit. Of course choosing the right partner would also have helped.
Another friend started a limited corporation planning on taking it public. This was a bio med company. His business went through several steps, an evolution of types of business organizations if you will. He started as a limited partnership and worked on getting a few cell lines going. A clever trick that made common bacteria look like anthrax allowed them to take advantage of a huge demand from testing companies right after the anthrax attacks in the US. I mean do you want a vial of real anthrax on your mad scientist desk or a vial of E. coli with a modified surface that looks like anthrax to antibodies?
With that cash flow they attracted investment groups. They added money, but changed the organization too. After that there was the IPO, which changed it again. My friend found himself choosing what position he wanted: Chief Executive Officer, President, or Chief Operational Officer. The last time I talked to him, he was looking for the door. He likes to build companies, not run them. This is another consideration with the type of organization; changing it can be expensive. You should consider the scalability of the structure as you start. Also build in an exit strategy. If you are like my friend, your business could outgrow you. There is nothing wrong with this, but know when to leave and plan a way out that ensures you are compensated.
My wife and I ran a preschool out of our home. No fancy limited partnership or incorporation. We looked at it, but a call to our insurance carrier and a modification to our home policy mitigated risk. My wife loves kids, so three days a week we had eight 3-5 year olds in our home. It met our goals; we paid some bills and my wife had a great time with it. She learned a lot about child development and was wildly successful. We only advertized the first year. After that word of mouth sold the slots. Unfortunately, you can't scale up a business like this. We would need a dedicated space for more children and would need to hire an assistant for more than eight. That would require all kinds of things; background checks, time and labor rules, emergency planning. Our exit strategy was a big yard sale, not a franchised business.
Corporate Credit Concepts specializes in "KEY PHRASE". For more information about "KEY PHRASE" and how it might benefit your business, please CLICK HERE for a free phone consultation.