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What is Sole Proprietorship?
A sole proprietorship is a business entity, owned by an individual, where there is no legal distinction between the owner and the business. This means that the income and assets of the business belong to the business owner, who is in turn responsible for the expenses and debts of the business.
The sole proprietorship is the simplest and least expensive form of doing business. If the owner uses his legal name there is no need to register the business with Department of state. Most sole proprietors will, however, use a business name which is called a fictitious name or D/B/A and this name has to be registered with the state of Florida. The intention to register a fictitious name must be advertised at least once in a newspaper in the county where the business has its principal location. Registering a fictitious name is, however, a simple and inexpensive process.
Whether or not the business owner uses his legal name or a business name tax preparation is also very simple. The owner includes the business results with his individual tax return, and avoids the cost of preparing and filing a separate business return.
The primary disadvantage of a sole proprietorship is that the owner has no protection for personal assets. If the business fails, the owner can be called upon to use personal assets to settle business debts. Registering a single member limited liability corporation (LLC) will remove this disadvantage. A second disadvantage is related to taxation as the tax code does not differentiate between wages and profits for the sole proprietor. All of a sole proprietor’s income is treated as self-employment income and therefore subject to 15.3% self-employment tax. Filing form 8832 to classify the LLC as a corporation for tax purposes removes the second disadvantage.
No protection from legal liability: consider a single member LLC to obtain protection from legal liability.
1. Do you enjoy the main activity involved in this business?
If you like what you are doing, you look forward to going to work every day and the hours go by very quickly. Many business owners find that they worker more hours than when employed by some one else. You want those hours to be as enjoyable as possible.
2. Have you worked in this type of business before and were you good at it?
No matter the business there is always a learning curve. Many things are learnt by trial and error and the overheads have to be paid while you learn the business. If you know something about the business you shorten that curve and increase your chance of success.
3. Do you know how much capital your business will need, and can you acquire the amount?
Capital is the amount needed to purchase necessary equipment, initial supplies, and inventories as well as paying all other expenses until the business starts to earn and collect income. If this is a business that requires you to give credit, that will increase your capital needs. Also bear in mind that new businesses find it difficult to obtain credit. You could find that you have to pay for everything cash, but based on the business you are in, you may need to give credit in order to get business. Being short of capital can make it really difficult if not impossible to succeed..
4. Do you have a suitable location for your business?
For some businesses location is everything. Some other business can be operated almost anywhere. Is a suitable location critical for your business?
5. Is there a real need for the service or product you plan to provide?
You should know who is in the market for the product or service you plan to sell, what they are willing to pay, and who else is providing those products or services
6. Does your product or service have some unique quality that will set it apart from others?
What will make a customer choose your product or service over those of your competitors? You should have a plan to differentiate your product or service form those of your competitors.
7. Are you good at dealing with people?
Business owners need to be able to deal with a wide variety of personalities; customers, suppliers, bankers, employees, outside professionals, government agents. How well these relationships work can affect the success of your business
8. Are you able to perform record keeping, accounting, human resource functions, and marketing or pay for those services?
All business have boring hum drum functions. You may love the primary aspect of your business, but to be a success you need to deal with record keeping and accounting, hiring staff, marketing. You may be able to pay specialist to carry out those functions, otherwise it is up to you.
9. Do you know the compliance requirements of your county and state as well as the federal government?
Businesses have been known to fail to get started because they could not obtain the licenses or permits required by their county or state. Others, having started, fail to comply with state and federal filing requirements, thus incurring huge penalties. These penalties can put a real dent in your capital, making it difficult if not impossible to succeed.
10. Do you have the energy determination and skills to deal with the challenges that will come your way?
The buck stops with you. You will have to make decisions, negotiate with customers and suppliers, plan your time, prioritize your tasks, manage the finances, find solutions for unexpected problems, and develop new projects when needed.
Fewer than eight yes answers suggest that you need to gather more information and reassess your situation before making thecommitment. Let us help you with a business plan