Starting a new business can be a very complicated process. Even those who have experience running or developing companies may need help. They have to research the industry in which they intend to operate to develop a viable business plan. They need to acquire resources, lock in vendor agreements, pick a space in which to operate and secure investment capital.
Before they address the finer aspects of business development, they have to choose what type of business to form and file the appropriate paperwork with the state. There are numerous different types of businesses that people can establish.
Each business structure or entity type has various benefits and unique challenges to consider. What do aspiring entrepreneurs need to consider when choosing what type of business to start?
1. The scope of business operations
One of the first considerations is the overall scale of the company. Some people want to start a business that may grow into an international powerhouse. The bigger the plans are for the business, the more valuable it may be to consider a more formal business structure. That way, taking on investors is a simpler process.
On the other hand, a small company formed to monetize the skills of a recently-graduated new accountant may remain relatively small. A limited liability company (LLC) or partnership could be the best option in such cases.
2. The likelihood of liability
Another key consideration that influences the best business structure is the degree of liability associated with the proposed business plan. The greater the risk of injuries or professional omissions, the more important the protection of a legally distinct business entity may become.
Those providing services that affect the value of real property or that influence people’s health may want protection from liability. The same is true of those manufacturing products that could prove defective and result in injury-related liability.
3. The timeline for the startup
Some people start a company in response to a surprise business opportunity. They may want to move as quickly as possible rather than spending months developing an S corporation.
Other times, there is a buffer between when the business planning begins and when the company can start doing business. The need for expediency can limit the options available to the entrepreneur starting the business.
Other factors, including sources of funding and tax considerations, can also affect the best type of business to develop.
Those trying to start a new company often feel very overwhelmed. They might make mistakes or overlook key considerations that could affect the success and profitability of the company in the future. Securing the right support early in the business formation process can help set entrepreneurs up for success and protect them from some of the risks inherent to starting a new company.