Many entrepreneurs jump into their ventures without a true understanding of how running a business works. It is not easy starting your own small business especially if this is your first time doing so. There are many things that one needs to consider when they start up such as what type of entity do they want their company set up as? What kind of legal assistance do they need? Who should be on their board of directors or advisors? Solopreneur Grind will discuss some of the common pitfalls new business owners make and how you can avoid them.
Top 3 Mistakes Made by New Business Owners
Many business owners jump into their ventures without a deep understanding of how running a company works. While there are many things to consider when starting up, here are some common pitfalls that new business owners make and ways you can avoid them.
#1 – Choosing the Wrong Type of Business Entity
The first thing a small business owner needs to consider is which type of entity they want to set up. For example, if you are a single-member LLC, then you will be taxed as a sole proprietor while a corporation can choose to be taxed as either an S Corporation or C Corporation. When selecting what type of business structure you want there are many things that need to be considered such as: what are your financial goals? Do you want to have limited liability? What will be the tax implications of choosing this structure? Also, it may be important to seek legal assistance before deciding which type of entity you would like.
#2 – Not Getting Legal Assistance
Another common mistake made by new business owners is not seeking legal advice when they need it. This can be especially difficult if you are setting up your business on your own and do not have an in-house legal department to go to for advice. Some of the most common reasons for not getting proper legal assistance is because people: 1) don’t think they will get sued, 2) believe that they cannot afford it or 3) think that they can figure it out themselves. However, not seeking legal assistance when you need it can lead to disastrous consequences for your company and yourself personally as well.
#3 – Not Understanding the Relationship Between Company and Personal Finances
Another mistake made by business owners is not understanding how running a company works including its financial structure. For example, many business owners assume that the money made in their business goes directly into their pocket. However, this is not true because the income they make in their business first gets taxed as corporate income. Then, if the owner chooses to take out those funds, they will be taxed again as personal income. This is what is referred to as double taxation which can significantly reduce the money made from running a business.
Avoiding These Mistakes
As you can see these are just some of the mistakes that new small business owners make and how to avoid them. To avoid common pitfalls, and to pave the way for future success, it can help to return to school for an advanced degree. For example, a degree in business will help you learn management, leadership, and other skills that can help you avoid mistakes in your business. Plus, online degree programs make it easy to run your business while going to school at the same time. Hopefully, this article helps you avoid these common business mistakes that so many new entrepreneurs make.
This was a guest post kindly written by Julie Morris, life and career coach, from http://juliemorris.org/