Bankrupt Proof Your Business: 3 Simple Steps
As a Small Business Owner, your top priority is to ensure that your business doesn’t go bankrupt. Small Business Owners should not just be concerned about getting and retaining customers. You should also be concerned about the bottom line when it comes to the business finances. Small Business Owners must have a clear understanding of how to cover their assets while in business. Also, what does it take to have a sustainable business that will survive the “what ifs” of business like pandemics or shifts in business trends.
A Small Business Owner can “bankrupt proof” their business by doing these 3 simple steps:
Step 1: Write out a business plan. The Business Plan is the road map for operating one’s business. The business plan is made up of a set of objectives and goals to implement so that you can start and operate a business. The Business Plan can be used as a management tool to measure your progress once the business is started.
The main components of the Business Plan are:
Description of your business.
The Marketing Plan.
The Management Plan.
The Financial Plan.
The Business Plan is used as a way for one to get financing for the development and growth of their business. The Business Plan is used to obtain the proper permits, licenses, and certifications to conduct business in a certain state per their laws. The Business Plan is the essential document one needs to assist with thinking through all the aspects of the business and to help you properly plan for the business sustainability.
Step 2: One’s business should be incorporated as a legal entity. During the COVID-19 pandemic, many small businesses missed out on the special grants and loans offered by local, state, and federal governments. The main reason was because many small businesses did not have their paperwork in order.
When starting a small business, you must determine what legal entity works best for your business to protect the business assets and personal assets. By incorporating your business with the proper governmental agency, this ensures that the business is protected. Incorporating one’s business as a legal entity, provides the small business with a “blanket” of security. Also, it is good to have the proper business licenses needed to conduct business in certain states.
As a small business owner, it is best to consult with a lawyer and accountant to determine which legal business entity is the best fit for your type of business. Here are the top five legal business entities:
Sole proprietorship: simplest business form and not a legal entity. The business is not legally separate from the owner. The owner’s personal assets and obligations of the business are not distinguished.
Limited Liability Company (LLC): It is an unincorporated business that can be formed by one or more individuals with no personal liability for debts of the LLC. An LLC is unique because for statutory purposes it is treated like a corporation regarding limited liability of partners and partnership status for tax purposes.
Corporation: Corporation is an independent entity. The corporation is separate from the owners of the business because it can contract in the corporate name, sue and be sued as the corporation, and buy, sell, and own property in the corporate name. There is no personal liability for owners of the business because the corporation is responsible for its own debts and liabilities. The business entity outlasts the death or disability of all stockholders.
S-Corp and C-Corp: Have the general guidelines as a corporation. Must be registered with the governmental agency similar to a corporation. There is no difference between S-Corp and C-Corp for purposes of Corporate Law. S-Corp does not have double taxation like a C-Corp. C-Corp has double taxation because it is treated as a separate taxable entity and distributions to stockholders are generally treated as dividends. S-Corp is the best avenue over C-Corp because it provides liability protection of a corporation while allowing tax treatment similar to a partnership.
Limited Liability Partnership (LLP): This business entity is a hybrid and similar to a Limited Liability Company (LLC). All partners in the business handle the daily operation and management of the business. Unlike the Limited Partnership, Limited Liability Partnerships ensure that all partners’ personal assets cannot be used to satisfy the business debts and liabilities like an LLC. LLP partners are ensured that they will not be held accountable for the acts of other partners (have personal liability protection).
Step 3: Before starting your business, it is advisable to consult with an Attorney and Accountant. An Accountant and Attorney are essential members on your “Business Dream Team”. Small Business Owners should have an Attorney and Accountant on retainer at all times.
An attorney is an essential key player in any business because of the legal implications in operating a business. An attorney’s role can be best described as “protector of your business” from legal implications or legal issues that may come up unexpectedly. An attorney’s duties can include: 1. Review and draft of business contracts; 2. Ensure your business is properly set-up as a legal business entity (LLC, Inc., Corp, etc.); 3. Represent the business in legal matters; and 4. Ensures that everyone is abiding by all the local rules, laws, and regulations in the operation of the business.
An accountant is essential to the daily operation of your business because the accountant deals with the finances of the business. An accountant ensures that your finances are in order and ensures that your taxes are in order to avoid tax trouble. An accountant ensures that the business is not audited by the IRS. An accountant ensures that you properly record your profits, losses, and expenses for your business. But, one important thing to remember, do not rely on your accountant alone to handle your finances and taxes for your business. Ensure that you continue to have first-hand knowledge of how your accountant is handling your finances. An accountant normally deals with your money transactions that occurred throughout your business fiscal year. Good way to have first-hand knowledge of how your accountant is handling your finances is by setting up a system that enables you to organize and record your business financials on a daily basis.
If you follow these three simple steps when starting your small business, your business will be “bankrupt proof”. You will have your assets covered while in business. Your small business will be sustainable for years to come.
Donya Zimmerman’s alter ego is the Powerful Biz Woman. The Powerful Biz Woman mission is to encourage and educate women 35 years old and older to become the CEO of their own lifestyle through business ownership. She is a business educator, author, show host, and public speaker. Donya has created the Powerful Biz Chat Live Show that airs on Facebook Live. Donya discusses everything Business Startup and Entrepreneurial Mindset. Powerful Biz Chat Live airs three times a week at 800 pm. Donya has started a movement, along with her business partner, Alina Lopez Thomas, the Ultimate Biz Conference. The mission of the Conference is to educate aspiring entrepreneurs and small businesses on how to cover their a$$ets while in business. For more information on The Ultimate Biz Conference, subscribe to www.ultimatebizconference.com to stay up to date on UBC events.
If you are looking for a speaker for your next event, then contact the Powerful Biz Woman (Donya Zimmerman) at dzimmerman36@gmail.com; 443-635-4557; or Https://www.facebook.com/PowerfulBizWoman. The Powerful Biz Woman will be a great asset to your next event.