We have just started a new year, 2010.  We cannot help but be thankful that we have survived all the years past that we have been on the planet and we can only hope that we can find the courage to persevere and to have a future that gives us all the desires of our hearts.   Those desires are not possible if we cannot make right decisions –but we must be righteous in our thinking and in our acting.  Remember all things are possible, but we have to believe.   Many of us are willing to make decisions without first understanding the need to have information that can help us prevent costly mistakes.

Making a decision – big or small – is important.  Once made, we have to stand by that decision – right or wrong – and bear the consequences.  Blaming someone or something for the outcome of a decision is a sign of weakness.  It is so important to get necessary information, study the risks involved, and look at all possible outcomes before making any decision.  Sometimes, we have a lot of time and sometimes it can come down to a split second.  As entrepreneurs, we have to train ourselves to make decisions that we can be proud of.  This means we must be constantly seeking the information that will help us take our businesses and ourselves to higher levels.  We must surround ourselves with wisdom and understanding so we can have the information we need, we must acknowledge that when we are ignorant of anything we must humble ourselves, be teachable and/or be willing to learn.  We have to know that because we don’t have the knowledge about something doesn’t mean that it doesn’t exist or is not true.  Knowledge is endless and we can never learn everything that there is to learn; we can only be open to learning every day.  The more we learn is the more we grow.  Sometimes we will suffer through our learning; we refer to those times as mistakes – but we have to overcome and go on to higher heights.

Most entrepreneurs fail in the first year of doing business.  There are so many reasons for this, but mostly because people are not willing to admit they are ignorant of the knowledge they need and sometimes when they do realize this ignorance, they are not willing to get the best help.  It is almost like people suffering with high blood pressure and self-medicating.  The stress levels do not change, the diet does not change; but they self-medicate and think they can successfully overcome the disease without professional help.

A business owner who is focused on having a successful enterprise that can help mankind – by offering great products or services and by giving jobs to people – is remiss if he or she does not do everything possible to make this success happen.  Sometimes, sacrifices are in order.   Sometimes we have to give up something we like that may be a big part of our lives (but insignificant in the long run) in order for us to grab hold to success.  Many of us are like an embryo in the womb that develops and should be birthed but refuse to come forth because we are not willing to stand our own, we refuse to let go of the “cord” that binds us to the “zone” we operate in.  We want to operate like someone birthed (learning everyday to grow strong, falling down but always getting up) but we are still holding on to the “cord”.  We operate in fear and live a lie, but we lie to ourselves.  Anyone who operates in fear cannot make right decisions.

How can growth, or change or living occur when we cannot make the right decisions that will take us to a level of success where we can achieve the desires of our hearts?  Righteousness will give us the desires of our hearts.

Please let 2010 be the year that you can let go of all fear and be willing and able to push yourself to the pinnacle of what you now see.  Believe me, when you get to that pinnacle, you will see how much further you can go.  You cannot have that view when you stay at the bottom of the mountain, be willing to climb, be willing to be inconvenienced on that journey, be willing to let go of some loads you are carrying.   You will soon get to the top and you will see what else you can conquer – if you can make the right decisions.

You have a great idea, a wonderful vision, a fantastic dream – and you are trying to figure out how to bring it to fruition.  This could just be legacy you will leave for your children.  You have found the path you must travel to gain the ultimate freedom.  You must now avoid the mistake many others have made – deciding on how to operate without first understanding what the operation is going to be.

Many entrepreneurs are fully cognizant of the fact that they know what they want to do but don’t fully understand how to do it.  They go to professionals they trust for advice and, unless those professionals understand the dimensions of a successful business, they are often misled.  You will be misled if you do not know which questions to ask.  It is a good idea that you be fully acquainted with your needs before you seek advice.

Those professionals that give advice about the right entity for an entrepreneur to choose must know, at the very least, the average annual taxes that the business is projecting to pay over the next few years and how much growth is anticipated for the future.

The usual entities that entrepreneurs choose are (1) Entrepreneurship (2) General Partnership (3) Limited Liability Company (4) S Corporation and (5) C Corporation.  These entities differ in various ways including the deductions that are allowed and how taxes are paid.  For the first four entities, taxes are paid through their owners and are like payroll taxes.  The C Corporation pays its taxes separate from its owners.  For payroll taxes, the more income a person declares to the government is the higher the tax bracket that person is aligned to.

The owners of some of the first four entities end of paying close to 50% of the taxable profit while some C corporations with the same taxable profit pay 35% in taxes.  Get the information you need before you make a decision and get it from a professional who understands all the dimensions of a successful business.  It is sad, but true, that many of those professionals that give this type of advice to entrepreneurs do not know how to successfully develop their own companies – yet they are giving advice.

It follows then, that unless you know your numbers, you cannot decide which entity you will be choosing to operate under.  This means you should have a well-written business plan.  If you are under the impression that a business plan is only written when someone is looking for loan or equity financing, you should readjust your thinking.  You need a business plan for your own use as a roadmap to guide the development of your business.  You will be proactive rather than reactive when situations occur that ordinarily could be detrimental; and you will be more likely able to overcome them instead of giving up in frustration and desperation.

Of course, deciding on the entity will take several factors into consideration including

·         How much profit the business will declare for tax purposes

·         How many partners, shareholders or members will be liable for the taxes

·         How many expenses the entity will have to deduct

These are examples of some of what the business owner has to be aware of.  As a responsible business owner, you will seek advice from the best sources.  You will be willing to give up time and money to get whatever you need to make the best decisions to grow your business.  A business that is not growing is dying.  After first determining if there is a need for your product or service; after developing and writing your business plan, you will then determine the best entity to operate under.  There are no shortcuts to this determination.  Doing it backwards can cost you thousands of dollars in taxes.  If you decide on the entity before you understand your numbers can put you in a hole that may take precious time and money from you as you struggle to get out.

Deciding how to operate will take research on your part, since there are different entities of operation under the law.  How much taxes you pay will be determined by the business entity you operate under.  You have to understand your business plan and therefore know which entity best serves your business goals.  In order to legally operate your business, you must, at the very least, complete a d/b/a (doing business as) form, which you file with the County Clerk at the Court House in the county in which you live.  This allows you to operate as a Sole Proprietor or if you have a partner as a General Partnership.  You can then apply for a Federal Employer Identification Number (FEIN), and open a bank account in your business’ name.

With respect to taxes for the Sole Proprietorship or General Partnership, you simply attach a Schedule C to your 1040 Federal Tax Form and outline your income and allowable expenses, the balance can either increase or decrease your taxable income.  There is no difference between you and your company and therefore, no protection from liability.  This is why you are a d/b/a; for example, Susan Smith (your name) d/b/a Bright Stars Company (your business name).

You can also incorporate your business as a “C” corporation and file a Certificate of Incorporation with the Department of State.  A corporation is a legal entity separate and distinct from the individual(s) who compose the business. It has rights and abilities similar to those of a natural person.  Principal features are perpetual duration, limited liability and easy transferability of interests.  Your business can then carry the suffix “inc.” which shows that it is an incorporated entity.  You can also incorporate as “pc” (professional corporation) if you are in the profession of law, medicine or education (check Title VIII of the Education Law).  Before filing taxes as a “C” corporation, you can complete Form 2553 and instruct the IRS to tax you as an “S” corporation.  “S” corporations not treated differently from “C” corporations by New York State except in the way they are taxed.

With respect to taxes for the “C” corporation, this entity pays its own taxes separate from the shareholders or owners of the corporation.  Funds must be kept separate – no co-mingling.  Any money the shareholder or owners take from the corporation is always liable for income tax even after the corporation has paid its taxes; hence the term “double taxation”.  If you choose this entity, it is prudent that you pay yourself and leave the corporation’s money intact as retained earnings to be used for growing the company.

You may also want to operate as a Limited Liability Company or a Professional Service Limited Liability Company (if your business meets the requirements) and file Articles of Organization with the Department of State.  Owners are members; not shareholders.  Within 120 days of the effectiveness of these articles of organization, you have to publish a notice of formation in two newspapers designated by the County Clerk in the county in which the office of the LLC is located.

You may also want to operate as a Limited Partnership by filing a Certificate of Limited Partnership with the Secretary of State.  If you are an attorney, counselor-at-law, licensed physician or an educator under Title VIII of the Education Law, you may want to operate as a Limited Liability Partnership.

The forms for incorporating under any of the entities mentioned above (except sole proprietorship) can be downloaded from the NYS Secretary of State website, www.dos.state.ny.us.  All information with respect to forms, filing instructions, responsibilities, and fees are also available at this site.

Except for the “C” corporation, all entities (including the sole proprietorship) pay taxes through their owners.  After filing appropriate tax forms to outline income and expenses, any profits of the entities increase the taxable income of their owners and any losses reduce the taxable income of their owners.  Note that tax rates are normally higher for the “C” corporation (around 35%) than for the other entities, unless your taxable income from your income and the entity you form put you in a higher tax bracket.  You pay income taxes once per year, unless your accountant recommends you pay them quarterly.  If you have employees, you pay your payroll taxes quarterly.  If you are a retail establishment or collect taxes from your customers for services, you pay these taxes quarterly.

You should get as much information as possible to be sure you are making the best tax decisions for your business.  You should always start with a complete business plan as your guide.