Starting a business is no easy feat. But it’s something that millions of people have done – and done successfully – for many years.
So what’s the secret to making sure your business will be profitable and sustainable?
Well, there are a ton of factors that come into play. But one of the most important ways you can ensure that your business thrives is to get is off to a solid start.
Whether you own a company, run an e-commerce biz, invest in real estate or stocks, or are self-employed in any way, we all have similar strategies for our businesses, which include:
- How to set up a business correctly (entity structuring and LLC formation)
- How to fund a business (corporate credit)
- How to keep as much of our businesses profits that we can, by understanding the tax code
- How to go about estate planning, to ensure that our businesses are left in the right hands
To gather more insight on the financial and legal aspects of starting up your business, I talked with my friend Tommy Thornburgh of Prime Corporate Services.
Prime Corporate Services offers a variety of financial and legal services to help entrepreneurs with business formation, developing business credit, tax planning, and estate planning. So Tommy offered some awesome advice on how to make sure you’re setting your business up for success.
So let’s dive in…
Step 1: Entity structuring
Getting your business off the ground is one of the most exciting feelings an entrepreneur can ever experience. But, at the end of the day, you also want to retain as much money as possible, which you can reinvest into your business.
So, structuring your business correctly is an important first step toward retaining money.
For most business owners who are just getting started, Tommy’s first recommendation is to set up an LLC, because you can amend and change the LLC as you experience growth.
An LLC keeps things simple, and you can still get your personal deduction. It also allows you to take additional itemized deductions, but they will still flow through to one return.
Consulting with financial and legal experts will be your best bet for deciding if an LLC is right for you, as guidelines and regulations vary from state to state.
Step 2: Funding (corporate credit)
Once you’ve determined how to structure your business, it’s time to secure the funding you’ll need to get it up and running.
About half of all small businesses fail within the first five years of operation, according to the U.S. Small Business Administration’s Office of Advocacy. This happens for a variety of reasons, but one of the primary ones is that these businesses don’t have enough capital to operate long-term.
The solution? Well, one option is corporate funding (also known as corporate credit). This can be an excellent tool to build and expand your business.
Even if you have some personal capital to invest in your start-up (or financing from family members or friends), your business probably won’t grow without corporate credit, bank financing, or private investors.
Consulting with a credit advisor is a great way to get started down the corporate credit path. When I talked with Tommy about this part of building a business, he mentioned that there are two important components of corporate credit:
- Separating your business credit profile from your personal credit profile – this protects your personal credit profile and can be very financially beneficial for your business as well.
- Understanding how to locate reliable sources of funds (with good interest rates) – a credit advisor can also help you understand which types of banks or investors are best aligned with your financial goals.
Never underestimate the power of a skilled credit advisor – especially if you’re brand new to the world of entrepreneurship. When you’re ready to finance your business, it’s best to consult with a pro.
Step 3: Tax planning
Taxes are constantly evolving and changing. As a business owner, it can be really difficult for you to keep tax codes straight – especially when your primary focus is growing your company.
Luckily, with a trusted CPA on your side, this part of your business should be easy to handle.
When I talked with Tommy, he mentioned that one of the most common questions his team of CPAs encountered last year was, “How does the new standard deduction impact me and my business?”
So, just in case you’re not familiar, the standard deduction is what everyone gets no matter what. But your itemized deductions are based on a list of all your business expenses. And, when President Trump raised the standard deduction last year, there was some fear from business owners that they wouldn’t be able to itemize their expenses and deduct those.
But, in reality, if your business is set up properly, you can take both the standard deduction and the itemized deduction… which means you get more deductions, in general, and you're able to pay fewer taxes. The way that last year’s tax changes are structured is actually super beneficial to entrepreneurs and business owners – so be sure to take advantage of this.
Another important part of tax planning is to hire an expert to do your taxes. Yes, it will cost a little more money upfront. But every time I’ve invested in a professional accountant to help me understand what I’m doing with my taxes, I always get a larger deduction – because they help me find tax breaks, real estate breaks, depreciation breaks, interest breaks, itemized breaks, and more.
In other words? You get what you pay for. There are more than 72,000 pages of tax code. Hire an experienced CPA or accountant to help you navigate that.
Step 4: Estate planning
As a business owner, protecting your legacy should be a huge priority. For real estate investors, in particular, Tommy recommends reviewing and updating your estate plan every 3-5 years (or even more frequently if you’re a highly active investor).
Most estate plans include 4 parts:
- Living Will
- Power of attorney
I won’t dive into too much detail on each of these – just because they vary from state to state. But it’s important to have an attorney who can guide you in these 4 areas of the estate plan. However, Tommy did mention that the trust will be the most important component of your plan, simply because it will help your loved ones and heirs avoid probate court after you’re gone.
While it’s not always fun to think about these things, these are important decisions that every responsible business owner needs to address sooner rather than later. As a pancreatic cancer survivor, I had to make many of these decisions at a younger age than I had anticipated. But it’s crucial because I want to build a long-term legacy for my loved ones.
We all know “that family” (and it might even be our own) who had explosive fights over a deceased loved one’s money or assets because there was no estate plan or trust in place. Don’t let that happen to your family after you’re gone. It’s not worth the relationships that are broken.
By having a carefully designed estate plan, you can potentially eliminate all the emotional stress for your family, in terms of dealing with your assets after you’re gone.
Consult with a good attorney who can help you organize your money and assets, so your heirs won’t have any issues receiving what you intended for them to receive.
During my chat with Tommy, one of the best pieces of advice he offered was this: if you treat your business like a hobby, it will cost you like a hobby; if you treat it like a business, you will reap the rewards of a business.
The bottom line is this: it will always be in your best interests to consult with a professional as you’re launching and growing a business. Whether you go to a full-service firm such as Prime Corporate Services, or you work with individual tax experts, accountants, and attorneys, it’s imperative to seek professional insight.
This will give you the peace of mind that is necessary to build a successful business because you’ll know that you’re doing things the right way.