One of biggest problems new small businesses face is collecting bills. You should be aware that some clients may not pay their invoices on time. So plan to spend some time collecting what is owed to you -- you might need to re-bill clients or to contact them personally when they are late in paying you. (For more advice on getting paid, read Nolo's article Business Debt Collection.)
There may be times when your business runs low on cash, either because business is slow or because your clients or customers are late in paying you. You should either apply for a credit line with a bank or develop some other emergency plan for how you are going to pay your bills when you don't have enough cash to do so.
You don't want your business debts to endanger your personal assets, such as your home or your savings account. Some options for protecting your personal assets include purchasing liability insurance for your business, and structuring your business as a corporation or an LLC. (To learn how to protect your personal assets from business debt, read Nolo's article When You Can't Pay Your Business Debts: Personal Liability and Bankruptcy Options.)
Choosing an ownership structure is one of the most important decisions you'll make for your new business.
Consider your specific needs. The following factors can help in making your decision:
(For an in-depth discussion of these factors, read Nolo's article Choosing the Best Ownership Structure for Your Business.)
Consider your potential liability. Here is a summary of the amount of liability you may face depending on how you structure your business:
Consider what most people do. For most people starting a one-person business, operating as a sole proprietor at the outset makes sense. But, if your business is especially likely to be sued, is funded by outside investors, or might be profitable right from the start, consider forming an LLC instead.
For most people starting a business with more than one owner, an LLC is preferable to a partnership -- you get limited liability but need to do less record-keeping than a corporation, and the same taxation as a partnership.
To steer clear of mistakes that can sink your business, get The Small Business Start-Up Kit: A Step-by-Step Legal Guide, by Peri H. Pakroo (Nolo).
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