Legal and Tax Issues: March 2007 Archives

If you're like the majority of new small businesses, you're operating on a financial shoestring. And although you may be tempted to skip hiring professionals such as a lawyer and an accountant, that's not the place to skimp. I'll tell you why.

Hiring good professional advice from the outset is never a waste of money. In fact, no matter how tight your budget, getting professional legal and financial advice will usually result in saving you money in the long run.

Financial recordkeeping for small business

Unless you have both the time and the expertise to maintain a complete set of financial records for your business, you should not hesitate to hire an accountant. Most new small business owners discover too late that maintaining current financial records can either make or break their venture. Most of the time, this message does not register until tax season or when they attempt to get financing from a lending institute.

Choosing the form of small business you operate under requires some planning and foresight. Variables such as administrative costs, tax planning and control need to be considered. There are several options available and none are "the best". It all depends on your needs. Here's an overview of the various types of business structure.

1) Sole Proprietorship

• By far the simplest method, sole proprietorship is most common for small business ownership. A sole proprietorship operates either under your own name, or under any name you choose (DBA – Doing Business As), provided you do not add any of the legal designations of other forms of business such as Ltd. or Inc.

• As a Sole Proprietor, it is not really necessary for your business to be registered (although sometimes this is a good idea, especially if your product or service is popular – by registering your business name, you will have a modicum of copyright protection).

• A sole proprietorship is basically an extension of your personal identity and as such, you can include business transactions as part of your personal income. This eliminates the obligation to file taxes separately.

• The advantages of setting your business up as a sole proprietorship are ease of setup and administration. You alone control both sales and costs, allowing more comprehensive operational leverage.