How Much Money Do You Need To Start A Business?

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Business Line Of Credit Requirements You Should Know Before Applying

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What Is Square And How Does It Work?

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Top Credit Cards With Airport Lounge Access

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Cloudways Hosting Review: Pros, Cons, and Alternatives

Cloudways Hosting Review_ Pros, Cons, and Alternatives

So you’re looking into using Cloudways as your hosting provider, and you’re wondering how they stack up against the competition.

But hold on one second.

I tested out Cloudways for a client project because they have gotten really good press for creating a truly unique product in a pretty staid industry.

As with any unique product, they’ll need a bit of background on the web hosting spectrum.

Let’s talk about the difference between cloud hosting and traditional shared hosting.

Usually your website files live on a part of a server that you rent from a hosting company (hence “shared” hosting). A cloud is an entire network of data centers that host website files in a distributed & decentralized fashion. Your files are deployed “everywhere” in a way of speaking. You just rent the resources on the network needed to host & deliver your files.

Imagine real-world housing for a second. Traditional hosting is like buying a house, townhouse or condominium. You buy it and you can do whatever you want. It’s cheap and predictable. But if your entire extended family shows up one day – you might have some issues hosting everyone. Cloud hosting is like having access to any house anywhere in the world whenever and wherever – you just have to pay per night for whatever house you use. It’s more expensive day to day, but when your entire extended family shows up one day – it’s a pretty simple, quick fix. You just get the 12 bedroom house for the night and no one is the wiser.

The actual cloud is built by the biggest tech companies in the world. There are not that many. Amazon is the biggest. They are closely followed by Google, Microsoft, Oracle, and IBM along with a few smaller ones like Digital Ocean.

With cloud hosting, you have more access to guaranteed resources than on shared hosting.

On shared hosting, you have a set amount of resources on a specific server that also has a set amount of resources. For example, you might have 1GB of Memory dedicated to you on a server that has 10GB of memory in total.

But suppose there are 10 customers on that shared server, each with 1GB of memory. 9 of those customers start using a full 1GB of their allocation – sometimes a little bit over. Well, now, you can’t actually use your 1GB of memory without bringing the server done. In that case, you might get throttled or one customer’s site might get taken down. Now, a good shared hosting will have network engineers who have built out ways of balancing, but it’s the core tradeoff with the setup.

On cloud hosting, you pay per use of resources on a distributed network of servers that has basically infinite resources. Your data doesn’t live on a single server. Instead, it’s copied on a whole network all around the world. If a single server gets overloaded, another server starts returning the the data.

This is the reason why NetFlix runs on Amazon’s cloud and why Twitter runs on Google’s Cloud. Those are extreme but illustrative examples. They see huge spikes at random times during the day that only a cloud can handle.

This makes cloud hosting a great option for websites that have spiky traffic (like viral news sites or a site that goes through regular launches) and doesn’t want to commit to a set amount of resources that may or may not be guaranteed.

But cloud hosting is traditionally expensive and very technical to set up, which can make it not make sense for a lot of DIYers and small businesses. The time & money to get it configured *just* right is out of reach for most businesses.

And that’s where Cloudways comes in.

What is Cloudways?

Cloudways is what’s known as a “managed cloud hosting company” headquartered in Malta. They offer hosting via the big cloud companies, but they manage the process by providing custom setup software, support, and some price smoothing to make cloud hosting more accessible to small businesses and DIYers.

See Cloudways Current Plans & Pricing.

Cloudways competes directly with other hosting companies with managed cloud-based products, like HostGator Cloud, WP Engine, and SiteGround Cloud.

However, they also compete indirectly with the cloud companies themselves like Google, Amazon, Microsoft, Digital Ocean, and Linode since anyone can buy directly from them.

But Cloudways also compete with traditional shared hosting companies like Bluehost, SiteGround, Hostwinds, Hostinger, Dreamhost, InMotion, etc. because of their pricing model & price point.

Confused yet? Yeah – me too, and I’m the one trying to write this review and explain it to my clients.

In some ways, this point is a pro for Cloudways. They are trying to do something truly unique in the hosting industry. Anything truly novel is hard to figure out. That doesn’t come along often, and it’s worth pointing that out.

Essentially Cloudways provides the guaranteed resources of cloud hosting with the guaranteed pricing of shared hosting. For a lot of businesses, this deal does not make sense — but if you know you’ll have really high highs and really low lows in your website traffic and don’t want to commit to (or deal with the technicalities of) direct cloud hosting with Google, Amazon, etc., it’s a fairly interesting set-up.

So with that said, let’s look at the Pros and Cons of Cloudways hosting.

Pros of Cloudways

There are a lot of Cloudways reviews online – usually with user-generated reviews based on anecdotes and personal experience. That’s fine but I take a different approach. As I’ve said in other hosting reviews, there is no such thing as a “best” web host. The “best” is the right fit for your project based on your goals, budget, experience & expertise. Here are the pros (advantages) for considering Cloudways.

Simplified Pricing

One of the biggest advantages of using Cloudways as your cloud hosting provider is their simplified pricing packages. Traditionally, cloud hosting pricing is pretty complex. Because you pay for what you use, it can be difficult to figure out exactly what you’re going to end up owing. Just look at Google Cloud’s pricing calculator:

Google Cloud Pricing Calculator

Cloudways has simple, monthly pay-as-you-go plans. There’s no calculating, no guessing — just straightforward monthly rates that you can choose based on your needs.

Cloudways monthly pricing

They also have a chat bot that will recommend a specific plan for you based on the number of websites you have, your traffic volume, and the purpose of your site (i.e. blog, digital agency, etc.).

Cloudways Pricing Suggestions

All in all, the pricing structure is straightforward and pretty hassle-free, which is a huge competitive advantage when comparing Cloudways to other cloud hosting providers.

Cloud Host Variety

Another interesting advantage of Cloudways is the ability to choose your Cloud Host. Cloudways offers hosting with several big cloud hosts, from DigitalOcean to Amazon to Google.

Cloudways Hosting Variety

Again, this makes Cloudways the middle man of sorts. You’re not actually hosting on their platform — they serve as the intermediary between you and the cloud hosting platforms.

Having the choice of cloud hosts in a more simplified pricing structure is definitely a pro… but again, it really only makes sense if you know you’ll have highs and lows in your website traffic and don’t want to commit to (or deal with the technicalities of) direct cloud hosting with Google, Amazon, etc.

Performance

In addition to hosting your website files, a good hosting server will also deliver those files as quickly as possible every time a visitor goes to your domain name address.

There are a lot of variables that go into how fast your website is. You can have the fastest server in the world and still have an incredibly slow website due to issues on your end. But either way, you want to have a hosting server that is fast so that you can work on your side of the equation.

One of the best measurements for approximating performance is TTFB or Time to First Byte. Again, I know that network engineers throw a lot of asterisks here and if you know *exactly* what type of website you are running – you can absolutely ask for detailed allocated specs. My goal with my hosting reviews is to provide a narrative of tradeoffs so that you can make the call for your website.

But here’s how DigitalOcean performed via Cloudways with my website when I first set it up on a clean WordPress install –

speed test for website on Cloudways

.0127s for TTFB is pretty speedy, especially when you compare it to the performance of budget shared hosts like Web Hosting Hub, Hostinger, iPage, or even GoDaddy. Actually, it’s really fast no matter who you compare it to.

Again, there are tradeoffs here. The more your use on Cloudways, the more you’re going to pay. But if you’re looking for a hosting platform that can handle spikes of traffic without throttling your performance, Cloudways gives you some great options.

Cons of Cloudways

Like any web host, Cloudways has disadvantages. There are plenty of Cloudways complaints to be found online. Plenty are valid, and some are simply anecdotal. Here are the cons that I found while using Cloudways for hosting.

Complex Set Up

Perhaps the biggest con of Cloudways is how complex it can be to get up and running.

As much as Cloudways positions themselves as the ones who take care of the complexities of cloud hosting, making it easy for business owners to get set up and focus on their actual business… the set up of hosting with Cloudways is far more complex than traditional hosting.

For starters, aside from a video on how to migrate your WordPress website and some articles, there isn’t much in the way of onboarding (AKA guiding you through getting set up on their platform). We did get a few emails from customer support, but if you wanted to dive in and get started yourself, it’s a bit like navigating a maze.

cloudways migration instructions

We also had some trouble getting our account up and running. The sign up process isn’t as simple as entering your information and diving in. Cloudways has to confirm your details, and it took a few different conversations with support to get access to our account.

Lastly, after the three day trial (more on that in a minute), we had to remigrate our account. Now – this could have been user error, but it was so complicated – even for someone who has written a ton of reviews of hosting companies. I couldn’t even tell if it had worked the first time.

Limited Trial Period

Despite their simplified pricing structure, Cloudways does have one main con in the pricing area… and that’s their limited trial period.

Usually hosting platforms will come with some sort of guarantee or trial period, so you can test them out before you commit. Cloudways offers three days — and if you’re having difficulty figuring out the migration and set up, those three days go pretty fast.

Again, if you’re committed to cloud hosting, this probably doesn’t matter to you. But if you’re testing it out, it’s a short period.

Custom Backend

At most hosting companies, you have an account area where you access to billing, account information, bonuses (ie, Google Ads credits), etc – it will also have links to your actual server backend/dashboard.

Most hosting companies use cPanel as the server backend/dashboard. cPanel is where you go to do anything with your hosting server – install any applications (ie, WordPress), set up email addresses, get your FTP information to upload files, etc. It’s simple, straightforward, and since most hosting companies use it, it’s sort of an industry standard that you can get help with anywhere online.

Cloudways does not use that setup. They use a proprietary backend for both your account administration and your server administration. It’s seamless for what they do…but it’s not really something you can Google or DIY troubleshoot.

Cloudways Database

On one hand, it is simplified and allows Cloudways to provide a truly customized experience. On the other hand, the set up is confusing and feels limiting. It’s difficult to sort through where things are, and everything feels overly technical (which really doesn’t help me “focus” on what I do best, AKA run my business).

It adds to the complexity of the platform, rather than making it more streamlined and simple.

Conclusion & Next Steps

Overall, I found Cloudways to be a unique solution for those who need the benefits of cloud hosting without the complete complexity of it. While Cloudways still isn’t as straightforward as traditional hosting companies, it does streamline the process of getting set up with a cloud host.

See Cloudways Current Plans & Pricing.

If you’re looking for the benefits of cloud hosting, but don’t want to deal with the overly technical set up, fluctuating payments, etc., go ahead and sign up for Cloudways here.

However, if you just need a solid hosting company that’s straight forward, easy to use, and can handle steady website traffic, you’re better of with a traditional hosting platform like InMotion Hosting. I’ve used them for years – and they fit most small business sites’ need for a balance between price, performance & support.

If you are more confused than ever – then take my Web Hosting Quiz here or use my website setup guide here!

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Credit Card Consolidation: How to Consolidate Credit Card Debt

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How To Start A Pet Sitting Business: The Complete Guide

Have you always had an affinity for furry (or scaly) things? Have you ever needed money? If you answered yes to both these questions, you may want to consider starting a pet-sitting business.

But before you pick up the leashes and pooper-scoopers, it’s a good idea to sit down and plan out the trajectory of your business. If that sounds overwhelming, don’t fret. Below, we’ll lay out the steps you can take to start a pet-sitting business.

Decide On A Location

Since you’re going to be dealing with people’s pets, you’ll need to take into account your proximity to your clients. If they’re dropping their pets off with you, you’ll want to be located somewhere easily accessible to most of your customers, and one that can accommodate animals. Depending on where you live, this can be tricky as the space necessary to accommodate animals will usually be cheaper in less centralized locations.

On the other hand, if you’re going to your customers, you’ll need to take into account the amount of time you need to spend with each client’s pets, the costs of commuting to the job, and how animal-friendly/animal-hostile the infrastructure in your service area is (dog parks, etc.).

Register Your Business

Why should you register your business? Depending on your local laws, you may actually be required to register your business in order to legally pet-sit. But even in jurisdictions where it isn’t compulsory, there are some advantages to doing so.

The first is that you can do business under a name other than your own. So instead of Martha Swearingen, LLC, you can do business as Baron Bark’s Pet Pampering Service (you can have that one for free).

The default configuration for businesses is a sole proprietorship (or a partnership, if you’re starting it with someone else). This essentially means that you’ve started a business with your own name or, if you file a DBA (Doing Business As), a name of your choice.

Sole proprietorships have the advantage of being cheap and easy to start. Your taxes will also be easier to file (and lower) than they would generally be with other forms of incorporation. Keep in mind, however, that for liability purposes, sole proprietorships and the individuals behind them are essentially one and the same.

Other forms of incorporation will require a bit more work and come with their own advantages and disadvantages. Most pet-sitting companies aren’t going to be interested in forming C-suites for governance, so you can probably ignore S-Corps and C-Corps for now. You may, however, want to consider forming an LLC to provide some separation between your personal finances and liabilities and your business ones.

Here are the most popular ways to incorporate:

  • Limited Liability Corporations (LLCs): If you’ve seen LLC after a corporation’s name, you’re dealing with this type of company. LLCs offer limited liability protection for their owners without the full complexity of a corporation. Each state has its own rules for how to start and maintain an LLC, and you don’t necessarily have to register your LLC in the state where you’re doing business (although you’ll generally want to). LLC owners report their business earnings and losses on their personal taxes.
  • C-Corp: This is the “basic,” default form of incorporation. Shareholders are considered the owner(s) of the company and receive limited liability protection; however, the business decisions are made by corporate officers who may or may not be shareholders. The corporation is taxed separately and shareholders pay income tax on dividends. To form a C-corp, you’ll file articles of incorporation with your state.
  • S-Corp: S-corps are similar to C-corps in most ways, but come with a few additional restrictions: you have to have fewer than 100 shareholders and they have to all be U.S. citizens or residents. Unlike C-corps, profits and losses are reported on personal taxes, not unlike an LLC. In addition to filing articles of incorporation, you’ll also need to file IRS Form 2553.

Get Business Insurance

As a pet-sitter, you’re not just dealing with property, you’re dealing with animals whose owners often view them as part of their family. In other words, if something goes wrong, things could get ugly.

Depending on your local laws, you may be required to carry certain types of insurance.

The type of insurance that will probably be of most interest to you is general liability insurance. This protects you in the event of a lawsuit or accident, whether it’s an accidental injury to the animal or if you accidentally damage property within a client’s home. It doesn’t only protect you, however; it also makes you look like a safer option than a business that isn’t covered.

There are other, more specialized types of insurance that are worth taking a look at depending on the specifics of your business. These include:

  • Property Insurance: Protects the property needed to run your business (as opposed to damages you cause to clients’ property).
  • Business Interruption: Covers costs related to unforeseen events that make your business unable to function.
  • Professional Liability (Error and Omissions): Covers the costs of defending your company in lawsuits in cases where your business caused a financial loss.

If you aren’t sure where to look, we can help you.

Invest In Business Software

While not absolutely necessary, you can save yourself and your customers some hassle with strategically chosen business software. For pet sitting, there are probably three types most worthy of consideration.

Payment Processing

Doing business with cash can be convenient when you’re first starting out, but as you grow, you’ll probably be missing out on clients if you can’t accommodate other forms of payment.

Recommended Option: Square

Best Overall Mobile POS


Review Visit Site

Highlights

  • No contract or monthly fee
  • Instant account setup
  • Retail upgrade available
  • Restaurant upgrade available
  • For iOS and Android mobile devices
  • 2.75% per in-person card swipe

Retail POS: Free trial ($60/mo value)

 

Restaurant POS: Free trial ($60/mo value)

 

Square POS: Always free

If you have an iOS or Android device, Square offers an extremely convenient way to accept mobile payments while on the go via a small add-on you plug into your device. It’s also a very scalable service; if you’re running a retail location, there are even more features and service options you can take advantage of.

Best of all, there aren’t any monthly fees to worry about. Square charges between 2.75  – 3.5 percent per transaction (depending on whether you swipe or key in the info), so you’ll want to factor those costs into your expenses.

Scheduling Software

As you add clients, it will get harder to remember their particular preferences, not to mention more difficult to fit them all into your schedule. With booking or scheduling software, you can track your time, note customer needs, and efficiently plan your days’ work. Many of these offer their basic features free of charge.

Accounting Software

Most businesses can benefit from accounting software. What you don’t want is to spend money unnecessarily on one. Wave offers most of the features you need at no cost.

With no monthly fee, you’ll get invoicing, estimates, contact management, expense tracking, accounts payable, and inventory tracking.

Seek Funding

Pet-sitting, especially, if you’re going to your clients, doesn’t have a lot of overhead when you’re first starting out. In the event that you do need to scare up some money to cover starting expenses or equipment, there are a number of options available to you.

Personal Savings

If you can avoid taking on debt, it’s usually a good idea. It may hurt to part with some of your rainy day funds, but you won’t be accumulating expensive interest and fees.

Tap Your Support Network

If you do need money from an outside source, you can often get a better deal from your support system than you can from a private lender.

Keep in mind that this comes with its own risks. You may stress your relationships, especially if you aren’t able to pay back these so-called friendly loans quickly. One way to avoid this is to formalize any agreements you make with friends and family so that everyone fully understands what they’re getting into and what the expectations are. You may even want to draw up a formal contract that outlines any expected payments and return on investment.

Credit Cards

For the relatively low expenses you will encounter when you start a pet-sitting business, credit cards can probably suffice for most of your needs.

The general rules of thumb when it comes to using credit cards effectively are these:

  1. Use credit cards for expenses that you can pay off within their interest-free grace period.
  2. Pick a card with a reward program that matches your spending habits and needs.
  3. Do not take out cash advances on your credit card.

If you follow these rules, you can actually save money by using your credit card to make purchases.

Recommended Option: American Express SimplyCash Plus

SimplyCash Plus Business Credit Card from American Express



Compare

Annual Fee:


$0

 

Purchase APR:


14.49% – 21.49%, Variable

Amex’s SimplyCash Plus offers one of the best cash back programs available without an annual fee. You’ll get 1 percent back on generic purchases, 5 percent back on wireless telephone purchases and office supply stores in the U.S. But it’s the middle tier that’s most interesting. You can select a category of your choosing (airfare, hotel rooms, car rentals, gas stations, restaurants, advertising, shipping, or computer hardware) to get 3 percent back.

It also carries an introductory 0% APR for the first nine months, which can be helpful if you’re just starting out.

Recommended Option: Amazon Business Prime American Express Card

Amazon Business Prime American Express Card


Compare

Annual Fee:


$0

 

Purchase APR:


16.24% – 24.24%, Variable

This one’s a little more niche. But if you find yourself buying supplies and random pet-related doodads on Amazon frequently, you can get a lot of value out of the Amazon Business Prime American Express Card.

If you have a Prime membership, you’ll earn a whopping 5 percent back on purchases made at Amazon.com, Amazon Business, AWS, and Whole Foods Market — or an extra 90 days interest-free grace period for purchases made at those places. Even if you’re not a Prime member, you’ll get 3 percent or 60 days, respectively. You’ll need to spend around $6,000 to recoup the cost of a $119 Prime membership with points alone, but that’s without factoring in money saved through Prime’s programs (shipping, deals, etc).

Personal Loans

If you need more money than you can safely put on a credit card, or need longer to pay it off, you should consider getting a personal loan that can cover business expenses.

There are some disadvantages to taking this route, namely that you’re on the hook rather than your business, but if your credit is good, it’s not the worst option out there.

Recommended Option: Lending Club Personal Loans

lending club logo

Review

Check Rate

Lending Club is a good option for individuals who may not have the strongest credit, but have a good debt-to-income ratio. The borrowing range is fairly narrow at $1k to $40k, but when you’re just starting out, you don’t want to go too deeply into debt anyway. You’ll have three-to-five years to pay it off, which makes it fairly manageable.

Recommended Option: Lendio

Review

Visit Site

If you’re just entering the alternative loan market for the first time, it can be pretty overwhelming. Lendio takes some of that burden off of you by allowing you to effectively apply to their whole network of lenders with one application.

Need more options? Check out our feature on startup loans.

Create Contracts

If you’ve just been watching your friends’ pets, you’ve probably had an informal agreement about the services you’d provide and the expectations of safety and liability involved. And that was probably enough.

When you’re dealing with strangers in a professional capacity, however, it’s smart to formalize these elements in a contract. This can save you a lot of headaches, if not legal troubles, down the road. You’ll want to include critical information about the pet (when and what they eat, how they are with strangers, pertinent medical history, etc.), what’s included in your services, and the client’s expectations for how their home will be treated under your care (if applicable). You’ll also want to include your fees and rates.

If you can, have a lawyer look it over to make sure it checks out legally.

Market Your Business

Getting the word out is always one of the most challenging parts of getting a business off the ground. The easiest place to start is through word of mouth. Are you already looking after the pets of a family or two? Let them know you’re looking to take on more clients, along with your friends, family, and social contacts.

At some point, you’ll probably want to expand outside the reach of your current contacts, which means advertising. It doesn’t have to be fancy. You can post flyers on bulletin boards and leave business cards in places trafficked by pet owners. Online classified sites like Craigslist can also cover a large audience in your area.

Bolster Your Web Presence

When it comes to promoting small business, the internet is one of those things that’s easy to both over- and underestimate. On the one hand, simply buying an ad and hoping for the best likely won’t yield amazing results. On the other, you do need an internet strategy to grow your business.

It doesn’t have to be fancy, but you’ll probably want a website that details your basic services and contact information. Don’t overthink it. There are a lot of great tools available that can help you build a website.

Remember, too, that social media isn’t just for sharing pictures of your dinner with your friends. You can use to communicate with customers, make engaging content that makes them keep your brand in mind, and announce special deals and service changes.

Final Thoughts

Hopefully, everything we covered doesn’t look too intimidating. If you’re good with animals and don’t mind turning that love into a source of revenue, you can get a pet-sitting business up and running in no time!

Having second thoughts about pet-sitting but are still looking to open a business? Check out our other beginners’ guides.

The post How To Start A Pet Sitting Business: The Complete Guide appeared first on Merchant Maverick.

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How To Start And Fund A Consulting Business: The Step-By-Step Guide

Do you have a tendency to share your knowledge and experience with others? Do you enjoy giving advice that helps others better their businesses … or their lives? Did you know that you could get paid just for sharing your expertise?

While it may sound too good to be true, that’s exactly what a consultant does. A consultant is an expert that provides knowledge, expertise, and training to others for a fee. Consultants advise their clients on a variety of topics, from how to implement the latest technology to how to create a successful marketing campaign.

Becoming a consultant does not require special training, credentials, or education. You simply need to be an expert in your field. You also need to have passion — not just for your industry but for helping others truly find the right solutions for their problems.

Consultants are organized, know how to network, and are always willing to learn more about their field to provide the best services to their clients.

If this sounds like you, becoming a consultant may be your new career path. The great thing about consulting is that anyone with knowledge and expertise can do it. Starting your own consulting business has low overhead costs and doesn’t require a lot of capital from the get-go. In fact, you can even start your own business from your home office.

But maybe your goals are much bigger. Maybe you want to have the top consulting firm in your area. It doesn’t matter if you want to simply be your own boss and make a decent income or if you want to grow your business to epic proportions — this guide is for you.

We’ll explore the steps you need to take to get your business off the ground. From finding your niche to funding expenses and spreading the word about your business, this guide explores what it takes to open and operate a successful consulting business. Let’s jump in and get started!

Pick Your Niche

business loan reasons

We’ve all heard the saying, “Jack of all trades, master of none.” When clients are seeking a consultant, they don’t want someone that knows a little bit about everything. Instead, they want to work with a consultant that knows everything about one thing. This is why it’s so important to pick your niche.

To get started, consider your skills and knowledge. What industry are you familiar with? Clients are looking for an expert in their field, so identifying the industries you already know is important when selecting your niche.

Next, you need to consider what problems and pain points your chosen industry is facing. You can do online research to find out what challenges are common in this industry. Check out blogs and industry forums to get an idea of common complaints and problems. You can even talk directly with people in the industry to find out what obstacles and setbacks they face.

Once armed with this information, you need to identify your own skills and knowledge that could be applied to this field. For example, let’s say you’re knowledgeable about the construction industry. One of the common pain points in this industry is a lack of communications. Are you familiar with mobile and cloud-based software? Great! You could use this knowledge to help businesses streamline communications and improve efficiency.

When you start your consulting business, your goal shouldn’t just be something generic like, “I want to help other business owners.” Instead, you should have a more specific purpose in mind. “I help businesses in this industry find and implement the newest and best software solutions to grow their business in just 3 months.” This also serves as your value proposition. In other words, this is the value you offer; something that sets you apart from other consultants. Remember to effectively communicate to your clients what you can do for them.

Still unsure of where to get started? Consider one of these niches for your consulting businesses:

  • Biotech
  • Cannabis Business
  • College
  • Construction
  • Customer Service
  • Dental
  • Financial
  • Food Safety
  • Grant Writing
  • Human Resources (HR)
  • Information Technology
  • Leadership
  • Management
  • Marketing
  • Medical
  • Nutrition
  • Project Management
  • Real Estate
  • Safety
  • Sales
  • Security
  • SEO
  • Social Media
  • Supply Chain
  • Technology

After you’ve selected your niche, do your research to find out what certifications and licenses you need to legally operate your business. In most instances, you’ll find that a business license in your state of operations is all that you need to open your consulting business.

One last thing to remember is that even if you’re knowledgeable about your niche right now, industry trends and changes can occur in an instant. Make sure you stay up-to-date on what’s happening in the industry to ensure you’re always qualified to assist your clients.

Make Your Business Plan

Even if your consulting business seems pretty straightforward, it’s still necessary to have a business plan. There are a few reasons you need a business plan. The first is that your plan maps out your goals and how you plan to reach those goals. A business plan is also necessary when you seek funding through banks or other lenders.

Because every business has a different vision, no two business plans are exactly alike. However, there are a few common components that should be included in all business plans. Those components are:

  • Executive Summary: Highlights what will be discussed in your plan and summarizes what your business hopes to accomplish
  • Company Description: Includes key information about your business and the customers that you will serve
  • Competitive Analysis: Who are your competitors, and what are their strengths and weaknesses?
  • Organization & Management: An outline of the setup of your organization and names and summaries of the job responsibilities of your management team
  • Market Analysis: An analysis of your industry now and in the future
  • Marketing Plan: An outline of the marketing strategies you will use to draw clients to your business
  • Financial Projections: Your expectations for future revenue based on market research

Register Your Business

Before you launch your business, you have to register with federal, state, and local agencies. You will need to register your business name with the state in which you operate. In addition, you must register with the Internal Revenue Service to get an Employer Identification Number (EIN) if you ever plan to hire employees. It’s imperative to obtain licenses and permits to operate your business based on state and local regulations. You must register your business if you plan to seek business funding now or in the future — or if want to open a business bank account. Establishing a business is legally required, but it also makes you look more professional and legitimate to your clients.

One important step to take when registering your business is choosing your business structure. Your business structure will be important in determining what you’ll pay in taxes. Your business structure may also offer protection from personal liability for the debts and obligations of your business. The different types of business entities include:

Sole Proprietorships

This structure is the easiest to form and does not require filing with the state. With a sole proprietorship, profits and losses from the business are reported on the business owner’s personal tax return. The major drawback of this business structure is that the business owner – you – are held personally liable for the debts and obligations of the business.

Partnerships

A partnership is established by businesses with two or more owners. There are three common types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

  • General Partnership (GP): This type of partnership has the fewest ongoing requirements. These are also the easiest to form and don’t require state filing. The drawback is that partners in a GP are personally liable for the debts and obligations of the business.
  • Limited Partnership (LP): In a limited partnership, only the general partner(s) has unlimited liability. The other partners — known as limited partners – have limited liability. This simply means that personal assets can’t be used to cover the debts and liabilities of the business.
  • Limited Liability Partnership (LLP): In a limited liability partnership, all partners have limited liability. However, partners may be held liable for their personal actions. This structure is reserved for professional service businesses.

Limited Liability Companies

A limited liability company, or LLC, is independent of its owners. The personal assets of the owners are kept separate from business debts. An LLC is taxed similarly to sole proprietorships and partnerships.

Corporations

If a corporation is the right structure for your business, there are two options to consider: C corporations and S corporations.

  • C-Corporations: C-corporations are independent of their owners. There is no limit on the number of shareholders in a C-corporation. C-corporations are taxed on shareholder dividends and corporate profits.
  • S-Corporations: An S-corporation is also independent of its owners. Owners report their share of the profits and losses on their own personal income tax returns. There are limitations to the number of shareholders with this structure.

When choosing your business structure, you need to keep a few considerations in mind. If you have multiple owners, a partnership is a good route to take. If you want to protect your personal assets but don’t want a higher tax rate, consider establishing an LLC. If you plan to raise large amounts of capital in the future, a corporation might work best for you. You can learn more about what business structure best fits your needs by consulting with an attorney or accountant.

Get Business Insurance

Do I need business interruption insurance

Business insurance is critical for the protection of your business. From property insurance that protects your office building to liability insurance that safeguards you from lawsuits, there are a few different types of business insurance to consider for your consulting business.

General Liability Insurance

If you operate a brick-and-mortar business, you need general liability insurance. This protects your business in the event that something happens to a client on your property. For example, if a client slips and falls in your office, they could file a lawsuit against you. With general liability insurance, you won’t have to pay all associated costs out-of-pocket.

Professional Liability Insurance

Professional liability insurance is also known as errors and omissions (E&O) insurance. This type of insurance protects you from lawsuits that may be filed by clients. Let’s say that you consult with a client on a project, and the project ultimately ends up failing. The client believes that the failure of the project was your fault and files a lawsuit. If you have E&O insurance, attorney’s fees, settlement expenses, and court costs will be covered up to the full amount of your policy.

Worker’s Compensation

If you have employees, worker’s compensation is another type of insurance your business needs. Worker’s compensation covers the medical expenses, wages, and legal fees of an employee that is injured on the job or suffers a work-related ailment. Most states require all W2 employees to be covered under worker’s compensation insurance, but laws vary by state.

Commercial Property Insurance

If you have a commercial property for your consulting business, consider getting commercial property insurance to protect your assets. This type of insurance protects you from losses that may occur from burglary, fire, or natural disasters.

Separate Personal & Business Expenses

It may be tempting to simply use your own personal bank account and credit cards for your business. Since the business is yours, there’s no harm in mixing your business and personal finances, right?

Actually, the wisest move is to keep your business and personal finances separate. One of the most important reasons for doing this is because it will make filing your taxes much easier. Imagine that the deadline is ticking to file your return with the IRS, and you (or your accountant) are stuck spending hours separating business and personal records. If you’re audited after filing, having separate records for business and personal income/expenses will make the process go much more smoothly.

Keeping your business and personal finances separate is also helpful in limiting your liabilities from creditors. If there is no clear separation between you and the business, creditors could potentially use your personal assets for unpaid debts and obligations, even if your business is structured as a corporation or LLC.

Separation of personal and business expenses is also important for building your business credit. If you’re using your own personal credit cards, you may increase your personal credit score. However, this won’t affect your business credit history. If you plan on applying for business loans in the future, boosting your business credit profile is critical to qualifying for higher loan amounts and the best rates and terms.

The first step to separating your business and personal finances is to open a business checking account. This bank account can be used for depositing money, writing checks to vendors, making online payments, and keeping an eye on the expenses and income of your business. To open an account, you will need your EIN, Social Security Number, business address, and business license. You may also need other documentation, such as a copy of the articles of incorporation on file with your state.

Even though you can keep an eye on your finances through your business bank account, it’s also important to set up a dedicated accounting system for your business. This will allow you to closely keep track of the money coming in and going out of your business. You may opt to hire a bookkeeper for this task, or you can use accounting software to track everything yourself. We’ll go into more details on this type of software a little later.

Finally, you can apply for a business credit card to cover recurring expenses for your business, such as your lease or utility payments. Using and paying off your business credit card responsibly will help strengthen your business credit profile.

Unsure of which card is right for you? Start with these recommendations.

Chase Ink Business Cash

Chase Ink Business Cash



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Annual Fee:


$0

 

Purchase APR:


15.49% – 21.49%, Variable

The Chase Ink Business Cash card rewards you just for using your card on business expenses. You can receive 5% cash back on internet, cable, phone services, and purchases from office supply stores. However, this is capped at the first $25,000 spent each anniversary year.

You can also earn 2% back on purchases at gas stations and restaurants. This is also capped at the first $25,000 spent per anniversary year.

For the rest of your purchases, you can take advantage of unlimited 1% cash back rewards. As a new cardholder, you can receive a bonus of $500 cash back if you spend $3,000 within 3 months of opening your account.

This credit card has a 0% introductory APR for the first 12 months. After the introductory period, interest rates are 15.49% to 21.49% based on creditworthiness. There is no annual fee associated with this card.

Additional benefits for Chase Ink Business Cash cardholders include free employee cards, purchase protection, and extended warranty protection. You must have excellent credit to qualify for this credit card.

Spark Cash Select For Business

Spark Cash Select From Capital One


capital one spark cash select
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Annual Fee:


$0

 

Purchase APR:


15.24% – 23.24%, Variable

Capital One’s Spark Cash Select for Business is designed for borrowers with excellent credit scores. One of the standout features of this card is the unlimited 1.5% cash back you receive just by using your card. You can cash out your rewards at any time.

If you become a new cardmember and spend $3,0000 within the first 3 months of opening your account, you’ll receive a $200 cash bonus.

You’ll also be able to enjoy a 0% introductory APR for the first 9 months. After the introductory period, your APR will be from 15.24% to 23.24% based on creditworthiness. This card does not have an annual fee, and you can receive employee cards at no cost.

Seek Business Funding

One of the best things about setting up your consulting business is that you may be able to get started with very little capital. Ultimately, though, this depends on the goals of your business. For example, if you plan to only consult with clients online, you can work right out of your home office. This eliminates the need for a dedicated commercial office, which comes with expenses such as monthly rent and utility payments.

On the other hand, you might want to open a brick-and-mortar business immediately. This would require more capital from the start. Even if you start small, you may later expand your business by purchasing or leasing a larger building and hiring employees.

Whether you start off big or you plan to grow in the future, you’ll need capital. In some cases, you may be able to use your revenue to fund your expenses and growth. In other instances, you’ll need a financial boost from a business lender.

Fortunately, there are many financing options out there if you know where to look. Let’s explore the types of funding available to you, along with our lender recommendations.

Personal Savings

If you would prefer to not work with a lender, using personal savings is an option available to you. If you use your own money, you don’t have to worry about making payments to a lender. You’ll also save money because you won’t pay interest or fees that are charged by a lender. On the downside, if your business isn’t successful, you risk losing your savings.

Friends & Family

Have a friend or family member with cash to invest? Pitch them your business idea and let them know why investing in you is a great idea. Have your business plan in hand and present your ideas to them just as you would any other lender. If they decide you’re worth the investment, make sure to get everything in writing to protect all parties.

There are two ways to get loans from someone you know. You can choose debt financing, which means that you’ll make payments toward your principal balance plus interest on a regularly scheduled basis, just like a traditional loan. Or you can receive money in exchange for ownership in your business – also known as equity financing. While you won’t have to repay immediately, your friend or family member will collect a share of the profits over time. Depending on your agreement, they may also have some level of control in the decision-making process of your business.

Unsure of which route to take? Learn more about debt vs. equity financing to determine which option is best for your business.

Rollovers As Business Startups (ROBS)

What if there was a way to get the capital you need to start or grow your business without taking on debt? Sounds too good to be true, doesn’t it? But with a rollovers as business startups (ROBS) plan, you can do just that. The only catch? You have to have a qualifying retirement plan.

Early withdrawal of your retirement funds results in penalties. However, a ROBS plan allows you to leverage your funds without having to pay these penalties.

With a ROBS plan, you set up a new C-corporation. Then, you create a retirement plan for your newly created corporation. Next, you roll over funds from your existing retirement plan. These funds can be used to purchase stock in your new business, providing you with the capital you need to start or expand your business.

The best part of a ROBS plan is that you’re using your own funds. This means no debt, no interest or fees, and no repayments to a lender. However, you are putting your retirement funds at risk if your business fails.

Recommended Option: Guidant Financial

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Pre-qualify

Many small business owners that get capital through a ROBS plan hire a ROBS provider to do the heavy lifting. Guidant Financial is a ROBS provider that can help you get started.

To set up a ROBS plan with Guidant Financial, you need to have a retirement plan or pension account with at least $50,000. Most plans qualify, including:

  • 401(k)
  • 403(b)
  • Traditional IRA
  • Keogh
  • TSP
  • SEP

Guidant Financial can help you roll over up to 100% of your account balance. In addition to having a qualifying plan, you must also meet these requirements:

  • Must be an employee of the business
  • Must have a business to fund

You can use your funds for any business purpose, whether you’re buying an existing business, funding startup costs, or paying expenses related to expansion.

To get started, you must pay a $4,995 startup fee. Since this isn’t a loan, you won’t have to make debt repayments. However, you will have to pay a monthly administration fee.

If you don’t qualify for a ROBS plan or you’re seeking other types of funding, Guidant Financial offers other options including Small Business Administration (SBA) loans, unsecured business loans, and equipment leases.

Lines Of Credit

A line of credit is one of the most flexible forms of financing. This is a type of revolving credit (similar to a credit card) that allows you to make multiple draws. As you repay your principal balance (plus fees and interest), funds will become available to use again. Fees and interest are only charged on the borrowed portion of funds.

With your line of credit, you can initiate draws as needed. Once you draw funds, they’ll be transferred to your bank account and are available to use in 1 to 3 business days in most cases.

You can spend up to and including the credit limit set by your lender. Most lines of credit can be used for any business purpose but are particularly useful for unexpected expenses, filling revenue gaps, or covering extra expenses due to a seasonal increase in business.

Recommended Option: Fundbox

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Fundbox is a lender that has lines of credit up to $100,000 for qualified small business owners. The lender charges set draw fees starting at 4.66% of the borrowing amount. You can choose to repay Fundbox over terms of 12 or 24 weeks, and payments are automatically deducted from your linked business checking account.

You can be approved instantly and put your line of credit to work for you immediately. Once you initiate a draw from your account, funds will hit your bank account within 1 to 3 business days.

Qualifying for a Fundbox line of credit is easy. The minimum requirements are:

  • Must have a business checking account
  • Must have a U.S.-based business
  • At least 2 months of activity in accounting software or at least 3 months of transactions in your business bank account
  • At least $50,000 in annual revenue

Your credit limit will be based on the performance of your business.

Equipment Loans

Whether your consulting business is home-based or you operate out of a commercial property, you will need some equipment to get started. Some equipment you may need for your business includes a computer, printer, office furniture, and computer software. If you don’t have the funds available in your bank account, consider applying for equipment financing.

Equipment financing is a type of funding used to purchase equipment, furniture, and fixtures for your business. Equipment loans can also be used to purchase a commercial vehicle if one is needed to drive to meet your clients if you don’t want to take out an auto loan. There are two types of equipment financing available: equipment loans and equipment leases.

With an equipment loan, you’ll make regularly scheduled payments to a lender over a set period of time, such as five years. Each payment will be applied to the principal – the amount you borrowed – as well as fees and interest charged by the lender. Once you’ve made all payments as scheduled, the equipment belongs to you. You can continue to put the equipment into use or sell it.

With equipment leases, you also make scheduled payments to a lender. However, your lease terms are typically a few years shorter. Once you’ve made all scheduled payments, you return the equipment and sign a new lease for new equipment. You never truly own the equipment, but this is a good option for anyone that wants to update their equipment every few years.

Recommended Option: Lendio

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Lendio isn’t a direct lender. Instead, it’s a loan aggregator that can connect you with its financing partners to help you get the best financing offer for your situation.

One of the financial products offered through Lendio is equipment financing. You may qualify for funding of $5,000 to $5 million for the purchase of your equipment. Loan terms are 1 to 5 years with interest rates starting at 7.5%.

Your funds can be used for almost any equipment purchase, including software, furniture and fixtures, and even appliances and HVAC units for your office.

To qualify, you must meet these minimum requirements:

  • Time in business of at least 12 months
  • At least $50,000 in annual revenue
  • Personal credit score of 650 or above

If you don’t meet these requirements, Lendio may still have an option for you. Just fill out a quick application to find out what you can qualify to receive. Lendio also offers additional financial solutions, including SBA loans, lines of credit, term loans, and startup loans.

Personal Loans For Business

If you’re a brand-new business, you may not qualify for other financing options. This is because lenders look at annual revenue, business credit profile, and your time in business to determine if you’re a risky borrower. If you don’t meet these qualifications, you won’t be able to get affordable small business funding.

However, there is an alternative solution. You can apply for a personal loan to use for business purposes. With this type of financing, a lender considers your personal credit history and income to determine if you qualify.

In most cases, you can use a personal loan for business for any purpose, from purchasing needed equipment to hiring new employees, using as working capital, or paying startup costs.

Recommended Option: Upstart

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Upstart personal loans are available in amounts from $1,000 to $50,000. APRs range from 7.54% to 35.99%. Repayment terms are 3 or 5 years.

Upstart’s lending partners consider more than just your credit score when determining whether to approve your loan. Your years of credit, education, area of study, and job history are also considered during the application process.

To qualify for an Upstart personal loan, you must have:

  • Personal credit score of 620 or above
  • Solid debt-to-income ratio
  • No bankruptcies or public records
  • No delinquent accounts or accounts in collections
  • Less than 6 inquiries in the last 6 months

Business Credit Cards

We’ve already discussed business credit cards earlier as part of keeping your business and personal accounts separate. Business credit cards are great to have on-hand for unexpected expenses or recurring expenses for your business.

You can even score rewards just for using your credit card. Look for a rewards card that offers cash back or points to use toward perks like travel to get the most out of your card.

Recommended Option: Spark Classic

Spark Classic From Capital One


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Annual Fee:


$0

 

Purchase APR:


25.24%, Variable

Capital One’s Spark Classic for Business card is available to business owners with average credit. This card offers a 25.24% variable APR and no annual fee. Using your card responsibly helps build your business credit profile so you can qualify for other cards and financing offers in the future.

You can earn unlimited 1% cash back on all purchases with no minimum required to redeem. Other benefits include fraud coverage and alerts and employee cards at no additional cost.

Choose Business Software

card-not-present online shopping

Choosing the right business software can help you run your consulting business more efficiently. The first type of software you should invest in is accounting software or an online bookkeeping system. This allows you to keep track of your income and expenses, run financial reports, send invoices, and access your financials for tax purposes. As your business grows, you may opt to hire a bookkeeper or accountant, but in the beginning, you may be able to tackle this task yourself using the right accounting software.

New to accounting? Download our free ebook, The Beginner’s Guide to Accounting, to get a handle on the basics.

You’ll also need software that’s used for managing clients — from keeping updated contact information all in one place to setting and tracking appointments. There are programs designed specifically for consultants that offer client management, project management, tasks, and other features.

To accept payments other than cash, you’ll also need payment processing software. This software communicates between your bank and the bank of your client, allowing you to accept debit cards, credit cards, and other forms of payment. If your business is going to be based solely online, you can sign up for an online payment solution.

Finally, if you plan to do online consulting, you must invest in video conferencing software. There are multiple options available — some at no cost and others that charge a monthly fee.

Set Your Rates

In order for your business to be successful, you have to have revenue. Without revenue, you won’t be able to pay your expenses or the salaries of yourself or your employees. Without revenue, you also won’t be able to grow your business.

To make sure your business is successful and profitable, you need to set your rates. This can be a balancing act for most consultants. If you set your rates too high, it may scare away potential clients. If you shortchange yourself and set your rates too low, clients may not take you seriously or you might not bring in enough revenue to cover your expenses.

To set your rates, first decide how your pay structure will look. You have three options: per project, hourly rates, and retainers.

If you charge per project, you will need to figure out how long the project will be, what expenses may be incurred, and other factors. You may choose to bill for the entire project or break it down into monthly payments.

You can also charge an hourly rate. Take a look at your expenses and determine how much you would need to charge to be profitable. Also, be aware that the higher your rate is, the more your clients will expect from you. If you have the credentials, training, and education to justify charging $500 per hour, your clients will have high expectations of what you’ll provide.

Finally, you can also work on a retainer basis. With a retainer, you will work a specific number of hours for one set monthly fee.

When calculating your rates, make sure to list all of the expenses of your business. You will need to make at least enough revenue to cover these costs.

You also need to find out what your competitors are charging for their services. You can do this by going online to their websites, checking out their brochures, or making a quick phone call. Unless you have an obvious advantage over other consultants in your area, you want to make sure that your fees are competitive.

Bolster Your Web Presence

webbased

Prospective clients are going to have a difficult time finding you if you don’t have a web presence. This doesn’t mean that you have to invest thousands of dollars in setting up a fancy new website. However, you do need to have at least a basic website and social media profiles to provide clients with critical information about your business.

You can get started by setting up free social media pages on sites including Facebook and Twitter. Your pages should include your contact information, the services you offer, and office hours. As your business grows, you can post news and updates, videos, photos, and other media to draw in clients.

You also need to set up a company website. You could pay a web designer, but at this stage, you can certainly tackle the task yourself. Easy website builders make it simple to set up your website in just minutes, even if you’ve never created a website before. Make sure that you include your contact information, areas served, and the services you offer. If you have any credentials or training, add that information to your website, as well.

Later, you can add additional features to your website, such as videos, online appointment scheduling, and client testimonials.

If you want to learn more tips and tricks, check out our article on creating and maintaining your online presence.

Market Your Business

business loans for HVAC

Building your web presence is one way to get your name out to the public, but you should also implement a marketing and advertising campaign to further boost your business. The strategy you choose is based on a number of factors, including your marketing budget and your goals for the campaign.

One great way to market your business is through Facebook ads. You can easily set your budget and select your target audience. It only takes a few minutes to get your Facebook ads up and running. Learn more about social media marketing for your business.

Another advertising method you can use is a newsletter. Your newsletter doesn’t need an over-the-top design. Instead, a simple newsletter with important information is most effective. Use your newsletter to discuss current industry trends, current news about your business, and other relevant information. You can send a physical newsletter by mail, but this comes with costs including paper and envelopes, printing, and postage. A more affordable option is to offer an email newsletter. Make sure to include a sign-up option on your website and social media pages.

Another idea is to print up brochures for your business. Your brochure should include your services, your value proposition, the industries you serve, and biographical information, such as your credentials or training.

You can also take your knowledge and leverage it as a guest speaker at an event. You can speak at dinners, luncheons, and other functions for industry events or service organizations. If you don’t want to be a public speaker, you can attend industry events and network with potential clients. Networking is key to running a successful consulting business.

Cold-calling is also a way to attract new clients. Prepare your script before calling local businesses that could use your services. The goal of cold-calling is to get a meeting with the decisionmaker to sell yourself and your services to gain a new client.

Finally, word-of-mouth advertising is one of the easiest ways to bring in business. Satisfied clients that tell their friends, family, and colleagues about you or who take the time to write a referral or testimonial that you can use on your website can help drive more clients to your business.

Final Thoughts

Sharing your knowledge and expertise with others can be extremely lucrative if you know how to set up your consulting business. With careful planning — selecting your niche, setting your fees, and effectively marketing your business — you’ll have a better chance of reaching new clients and meeting your financial goals. Good luck!

The post How To Start And Fund A Consulting Business: The Step-By-Step Guide appeared first on Merchant Maverick.

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How To Start And Fund An Amazon Business

Have you been thinking about starting an Amazon business? If you said “yes,” and you’re not thinking about a rainforest logging company, you’re probably interested in plugging into the world’s largest e-commerce platform.

As of 2018, Amazon accounted for nearly 50 percent of eCommerce transactions (eCommerce accounts for somewhere north of 10 percent of overall retail sales). If you’re not sure how to tap into that action, you’re not alone. Below, we’ll look at both the necessary and optional steps it takes to get an Amazon business up and running.

Learn How To Sell On Amazon

When people talk about “Amazon businesses,” they’re usually talking about the Fulfillment by Amazon (FBA) business model. Under an FBA arrangement, Amazon will warehouse and ship your business’s products from their own fulfillment centers. This allows you to take advantage of Amazon’s well-developed storage and shipping infrastructure and processes. It also grants you access to Amazon’s Prime customer-base, most of whom will be looking to buy products that qualify for 2-day shipping. Be aware, however, that FBA comes with both storage and fulfillment fees (which, notoriously, can change at any time), so you’ll need to do some math to figure out if you’re saving money with the service.

Already have a lot of space and want to handle the shipping costs yourself? Or are you trying a dropshipping model? You can still sell on Amazon without taking the FBA route. You can even still tap into the Prime market via Amazon’s Seller Fulfilled Prime (SFP) program. In order to qualify, your business has to:

  • Offer premium shipping options
  • Ship 99% of your orders on time
  • Have an order cancellation rate of less than 0.5%
  • Use Amazon Buy Shipping Services for at least 98.5% of orders
  • Deliver orders with Amazon-supported SFP carriers
  • Agree to Amazon’s Returns Policy
  • Allow Amazon to deal with all customer service inquiries
  • Pass a trial period to demonstrate compliance with the above, during which the Prime badge will not be displayed on your items

At the time of writing, there was a waitlist for the SFP program, so bear in mind that you may not be able to jump into it immediately.

Finally, you can simply ignore all this Prime business (and customers, potentially) and just sell products on Amazon.

Decide What You’re Going To Sell & Where You’ll Get It

This is arguably the hardest part of starting an Amazon business. There are countless products you could deal in, but far fewer you should deal in.

Your starting budget can help narrow things down a bit. You want to be able to stock enough inventory to build a brand, not just sell a couple of items and then disappear. Once you have some items in mind, you’ll need to do some research to get a sense of costs and selling prices and see if there’s a niche for that product that you could occupy.

There are numerous ways to go about this, from brute-forcing your way through Amazon’s categories and making a spreadsheet to using popular tools like JungleScout to help find and rate opportunities. Be sure to check out other sales platforms to see the price point at which they’re selling the product. If you’re in the FBA program, you can also use Amazon’s FBA calculator to help sift through data.

Figuring out where to source a product is another part of the puzzle. Do you have a hot connection that can get you products at cost? (Alibaba is a popular tool for finding suppliers, for example.) Are you going to buy popular brands when they’re on sale at retail and then sell them at a higher price point? Are making a product yourself that will compete with similar products on Amazon? Do you need to make dropshipping arrangements with a third party? Remember to think about how sustainable your sourcing method is when creating your strategy.

Finally, also consider the nature of the item you’re sending. Will it sell year-round? Can it be shipped safely without breaking? Is it efficient to ship? Are there state-specific restrictions to consider? The fewer variables you have to worry about, the better.

Determine How Much Money You’ll Need

Once you know how much money you’ll need to launch your business, you can figure out the rest of your costs.

Selling on Amazon, as you can imagine, isn’t free — but it doesn’t have to be expensive. If you’re commitment-shy and don’t have a ton of product to move, you can get by on as little as $0.99 per sale. If you’re moving more product, you’ll want to budget $39.99/mo for a Professional account (more on that later).

If you’re going the FBA route, you’ll need to account for Amazon’s fulfillment and monthly inventory fees. The former vary by the weight of the item and, at time of writing, start at $2.41. The latter vary by time of year and the size of the items, ranging from $0.48 to $2.40 per cubic foot.

You’ll probably want to also invest some money in presentation and branding to help your business stand out among competitors. How much this costs can vary depending on who you hire (unless you’re a competent graphic designer yourself), but budget between $200-$300 to get something you’ll be proud of.

Finally, if you’re doing your own fulfillment, make sure you can cover shipping costs.

Determine How You’ll Get Funding

It’s not necessarily that expensive to start an Amazon business, but what do you do if you don’t have the funds to cover your starting expenses? Here are some options:

Personal Savings

The first place you should probably look for spare cash is your own savings. You saved up for a reason, right? Investing in your new business is as good a reason as any.

The nice thing about using your savings is that you don’t have to worry about debt or accumulated interest.

The downside? If your business is a bust, you’ve lost your savings.

Tap Your Support Network

Another option, especially if you don’t have much in personal savings, is to ask friends and family for a loan. Unlike a private lender, your support system probably isn’t trying to make a profit off of you.

Keep in mind that this comes with its own risks. You may stress your relationships, especially if you aren’t able to pay back these so-called friendly loans quickly. One way to avoid this is to formalize any agreements you make with friends and family so that everyone fully understands what they’re getting into and what the expectations are. You may even want to draw up a formal contract that outlines any expected payments and return on investment.

Credit Cards

You’ve probably been warned about leaning too heavily on credit cards, and it’s generally not bad advice. The interest rates can be murder if you carry a balance on your card. However, for purchases that you can pay off quickly, credit cards are actually one of the best ways to buy, especially if you have a card with a reward program that matches your purchasing needs.

Just remember to pay off your credit cards every month, within the interest-free grace period. If your purchase is too large for you to be able to comfortably do that, you’ll probably want to consider another option.

Note: Avoid taking out cash advances on your cards unless absolutely necessary. They come at a very high cost.

Recommended Option: Amazon Business Prime American Express Card

Amazon Business Prime American Express Card


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Annual Fee:


$0

 

Purchase APR:


16.24% – 24.24%, Variable

You’re going to be spending a lot of time on Amazon, and possibly buying through it, so the Amazon Business Prime American Express Card may give you the most bang for your buck.

If you have a Prime membership, you’ll earn a whopping 5 percent back on purchases made at Amazon.com, Amazon Business, AWS, and Whole Foods Market — or an extra 90 days interest-free grace period for purchases made at those places. Even if you’re not a Prime member, you’ll get 3 percent or 60 days, respectively. You’ll need to spend around $6,000 to recoup the cost of a Prime membership with points alone, but that’s without factoring in money saved through Prime’s programs (shipping, deals, etc).

Personal Loans

Business loans can be hard to come by for new businesses, but you — the human being who owns the business — have presumably been around long enough to acquire a credit history. You can use that to your advantage by getting a personal loan for business purposes.

There are some disadvantages to taking this route, namely that you’re on the hook rather than your business, but if your credit is good, it’s not the worst option out there.

Recommended Option: Lending Club Personal Loans

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Lending Club is a good option for individuals who may not have the strongest credit, but have a good debt-to-income ratio. The borrowing range is fairly narrow at $1k to $40k, but when you’re just starting out, you don’t want to go too deeply into debt anyway. You’ll have three-to-five years to pay it off, which makes it fairly manageable.

Recommended Option: Lendio

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If you’re just entering the alternative loan market for the first time, it can be pretty overwhelming. Lendio takes some of that burden off of you by allowing you to effectively apply to their whole network of lenders with one application.

Need more options? Check out our feature on startup loans.

Lines Of Credit

If you anticipate needing to make a lot of smaller purchases over a long period of time, or even just want some “insurance” to fall back, you may want to consider a line of credit.

A line of credit works a bit like a credit card in that you can tap it whenever you want, in whatever amount you want, so long as your purchase doesn’t exceed your credit limit. Most lines of credit are revolving, which means that, as you pay them off, that credit becomes available for you to use again.

In contrast to credit cards, lines of credit usually have lower interest rates, making them better for the times you have to carry a balance. However, many do have annual fees and some charge a fee whenever you tap them, and they can take up to 24 hours to process your request. You also generally (there are exceptions) won’t find the generous rewards programs you’ll find with credit cards.

Recommended Option: Fundbox

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Fundbox provides lines of credit up to $100,000 to U.S. businesses. There’s no minimum credit score, you just have to have annual revenue of at least $50,000.

Fundbox charges based on the amount you draw, but fees start at 4.66%. Repayments are made weekly over 12 or 24 weeks.

Vendor Financing

Vendor financing is a very specialized form of business loan where a company will lend a buyer a sum of money, which the buyer then uses to buy inventory from the vendor.

Recommended Option: Amazon Lending

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Did you know Amazon offers loans to sellers on its platform? If you didn’t, you’re not alone. Amazon doesn’t really advertise the service much, and you can only access it by invitation. Knowing that it is an option, however, may be useful should it arise.

Amazon loans range between $1,000 and $750,000, and must be used to purchase inventory to sell on Amazon. Rather than being based on your credit score, Amazon loans are based on your performance on the site.

Purchase Order Financing

Another highly specialized type of financing that sellers can tap into is purchase order financing (sometimes just “purchase financing”). Basically, purchase financing is used to fill large orders that may exceed your current inventory or your ability to restock with cash on hand. A purchase financer will generally require confirmation of the order and proof that your company has experience handling orders of this size.

Recommended Option: Behalf

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Behalf can offer businesses between $300 – $50,000 in purchase financing for most types of inventory. Term lengths are pretty short (1 – 6 months), and you’ll be charged 1 – 3 percent interest every month. Payments are made weekly or monthly, with weekly payers receiving a 10 percent reduction in their borrowing fees.

ROBS

If you haven’t heard of Rollovers as Business Startups (ROBS), don’t feel bad. They’re extremely niche products for entrepreneurs with retirement accounts like 401(k)s.

For a fee, a ROBS provider allows you to use money from your retirement account to pay for startup costs without incurring the tax penalty you normally would by tapping those funds early.

As is the case with personal savings, you are risking your own money.

ROBS will be overkill for most new businesses, but if your startup costs look like they’re going to pile up, keep them in mind.

Recommended Option: Guidant Financial

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If you’re in the market for a ROBS, it’s worth checking out Guidant Financial. If your retirement account has at least $40k in it, you can roll over up to 100 percent of your funds.

Need more options? Check out our feature on startup loans.

Register Your Business

If you don’t want to be selling products under your birth name, you’ll probably want to register your business.

This part is technically optional, but if you’re planning to build your business into more than an occasional source of freelance income, you should probably register your business.

If you do nothing at all, your business will default to a sole proprietorship (or a partnership, if you’re starting it with someone else). This essentially means that you’ve started a business with your own name. If you want to change it to something else, you can file a DBA (Doing Business As), which will protect your new business name and allow you to–you guessed it–do business under that name.

Sole proprietorships have the advantage of being cheap and easy to start. Your taxes will also be easier to file (and lower) than they would generally be with other forms of incorporation. Keep in mind, however, that for liability purposes, sole proprietorships and the individuals behind them are essentially one and the same.

Other forms of incorporation will require a bit more work and come with their own advantages and disadvantages.

Here are the most popular ways to incorporate:

  • Limited Liability Corporations (LLCs): If you’ve seen LLC after a corporation’s name, you’re dealing with this type of company. LLCs offer limited liability protection for their owners without the full complexity of a corporation. Each state has its own rules for how to start and maintain an LLC, and you don’t necessarily have to register your LLC in the state where you’re doing business (although you’ll generally want to). LLC owners report their business earnings and losses on their personal taxes.
  • C-Corp: This is the “basic,” default form of incorporation. Shareholders are considered the owner(s) of the company and receive limited liability protection; however, the business decisions are made by corporate officers who may or may not be shareholders. The corporation is taxed separately and shareholders pay income tax on dividends. To form a C-corp, you’ll file articles of incorporation with your state.
  • S-Corp: S-corps are similar to C-corps in most ways, but come with a few additional restrictions: you have to have fewer than 100 shareholders and they have to all be U.S. citizens or residents. Unlike C-corps, profits and losses are reported on personal taxes, not unlike an LLC. In addition to filing articles of incorporation, you’ll also need to file IRS Form 2553.

Get Business Insurance

Depending on where you incorporate, business insurance may be optional or mandatory, but since you’re going to be dealing with a lot of tangible goods shipped through the postal service to remote customers, you’ll probably want to consider it.

General liability insurance can protect you in the case of lawsuits or accidents, including property damage and personal injury claims against your business. It can also make your business seem more professional to prospective clients.

There are other, more specialized types of insurance you may want to consider depending on what you’re selling and to whom. These include:

  • Property Insurance: Protects the property needed to run your business.
  • Business Interruption: Covers costs related to unforeseen events that make your business unable to function.
  • Professional Liability (Error and Omissions): Covers the costs of defending your company in lawsuits in cases where your business caused a financial loss.

Create An Amazon Seller Account

Access to the platform is pretty straightforward and involves creating an Amazon account if you don’t already have one. You’ll be asked for information about your business, tax information, product information, billing and deposit accounts, and compliance with the Amazon Services Business Solutions Agreement.

Amazon offers two plans:

  • Professional: $39.99/month, grants access to order reports and order-related fees, selling in multiple categories, and the ability to customize shipping rates
  • Individual: $0.99 per sale closing fee on each item you sell on Amazon.

If you plan on doing more than just the occasional sale, you’ll probably want to choose Professional.

List Your Inventory

Now that you’re ready to go, you just need your potential customers to be able to see your product.

From your Amazons Seller account, under the inventory tab, you can add a product. You can then either search Amazon’s catalog to see if that product is already listed or create a new listing. If your product category is restricted, it will need to be approved before you can get beyond this stage, so if possible, try to find a rationale to categorize it into an unrestricted one.

At this point, you can either make your product go live (if you have the inventory ready to be shipped) or simply list it if you need to send your inventory to Amazon (in the case of FBAs). You can then fill in the information about your product. If you need a UPC code, you can buy one online.

There are a number of different strategies for getting your products to stand out on Amazon. Search engine optimization (SEO) strategies will serve you well here, so be sure to identify useful keywords that will help customers find your products. Another critical element is taking good pictures of your products so they’ll look appealing on the site. If you aren’t confident that you can take quality pictures yourself, you may want to spring for some professional ones.

A lot of other things can also affect your ranking, from conversion rates to customer reviews, pricing, time spent by customers on your page, bounce rate, and more, but the guiding rule is this: Amazon likes sellers who make them money, and will promote the ones they feel most reliably turn queries into sales and create satisfied and returning customers.

Final Thoughts

Amazon has changed the way many people shop, but it has also has provided sellers with a potentially low-cost way to get tangible products to customers. Competition is intense on the platform, but shrewd salespersons can still take advantage of its unparalleled convenience.

The post How To Start And Fund An Amazon Business appeared first on Merchant Maverick.

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Types Of Business Structures: The Complete Guide

If you’re starting your own business, one of the first steps is choosing a business structure. The legal structure of your business determines how much you pay in taxes, paperwork requirements for your business, your ability to raise money, and your personal liability for the debts and obligations of your business.

Every business is different, so the legal structure you choose should be based on the specific needs and goals of your business. The best option for one business may not be best for you, even if you’re in the same industry.

Before you make your choice, the first thing on your to-do list should be to have an understanding of the characteristics of each business structure. In this article, we’ll break down different business structures and the benefits and drawbacks of each to help you make the most informed decision for your business.

Sole Proprietorship

A sole proprietorship is the most basic business structure. A sole proprietorship is an unincorporated business that is owned and operated by one person. If you engage in business activities, you are legally considered a sole proprietor. There is no need to formally register your business. However, depending on the type of business you own, you may still be required to get the state and local licenses and permits needed to legally operate your business.

Under a sole proprietorship, you may operate under your own name or a fictitious name — also known as a trade name. This trade name does not create a legal entity separate from the owner.

The owner of the sole proprietorship records the income and losses of the business on their personal tax return by filing a Schedule C form. Sole proprietors also file a Schedule SE for paying self-employment tax. These forms are filed with the standard Form 1040.

Many small business owners choose to operate as sole proprietors because of how quick, easy, and inexpensive it is to get started. However, this type of legal structure isn’t without its drawbacks.

One of the biggest downsides is that a sole proprietorship is not a separate legal entity. In fact, it is indistinguishable from its owner. This means that the business owner can be held personally liable for the debts and obligations of the business. If your business is sued for negligence, for example, your personal assets — such as your bank account and personal real estate — could be at risk. If you default on a business loan, your personal assets could be seized to repay the debt.

Sole proprietorships are best for low-risk businesses. Some entrepreneurs start off as a sole proprietorship when testing out a business idea before reorganizing under another business structure. Most commonly, sole proprietorships are selected by service professionals, freelancers, and consultants.

Pros & Cons Of Sole Proprietorships

Is a sole proprietorship right for your business? Consider these pros and cons before deciding.

Pros

  • Easy & Inexpensive: There are no costly fees associated with setting up a sole proprietorship. In fact, you don’t even have to register at all. Simply buying and selling goods or performing other business activities classifies your business as a sole proprietorship.
  • No Ongoing Requirements: Unlike other business structures, a sole proprietorship does not have requirements such as meetings or voting.
  • Simplified Taxes: You do not have to file a separate tax return for your sole proprietorship. Instead, you simply attach your Schedule C and Schedule SE to your personal income tax return. You will also have your earnings taxed just once, and you can write off your business losses on your personal return.

Cons

  • Unlimited Personal Liability: As a sole proprietor, you would be responsible for the debts, obligations, and liabilities of your business. Your personal assets could be put at risk, and lawsuits can be filed against you.
  • Financing Difficulties: Getting extra capital when you need it can be difficult as a sole proprietor. Banks, credit unions, and even some alternative lenders are hesitant to loan money to sole proprietors. You also will be unable to sell stock to raise money.

Partnership

Businesses that have two or more owners may consider forming a partnership because it is quick, easy, and inexpensive. A partnership is the simplest business structure for businesses that have multiple owners. Like a sole proprietorship, you are not required to register your partnership. Simply coming to an agreement with other owners and engaging in business activities is enough to establish a partnership. However, you may still be required to obtain the appropriate licenses and permits required to legally operate your business. You may also be required to register your partnership with your state depending on the type of partnership you form.

When it’s tax time, a Form 1065 is filed with the IRS to report income, losses, gains, deductions, and credits. The partnership does not directly pay income taxes, but instead, “passes through” profits and losses to each partner, who report this information on their personal tax returns. Profits or losses are recorded on a Schedule K-1, which is filed with personal tax returns. All partners are also required to pay self-employment tax based on their share of the company’s profits.

Before establishing a partnership, it’s always important to ensure the right partners are selected. Disagreements between partners can hinder business growth and even be the downfall of a business.

While any business with two or more owners can form a partnership, this business structure is best for low-risk businesses and professional groups. Like sole proprietorships, this structure is also a good way to test out a new business idea. If the business is successful, owners may take the next step to growth by reorganizing as a corporation.

Types Of Partnerships

We’ve established the basic definition of a partnership. However, there are three different kinds of partnership to consider. The primary difference between the three lies in the personal liability of each partner.

General Partnership

In a general partnership (GP), all owners are considered general partners. Each partner manages the business and is an active participant in day-to-day operations. Each partner is also personally liable for the debts, obligations, and liabilities of the partnership.

Limited Partnership

With a limited partnership (LP), there is one general partner that is responsible for managing the business and overseeing day-to-day operations. The remaining partners are limited partners that do not participate in managing the business and have limited control. These partners are investors only and are commonly known as “silent partners.” In this type of partnership, only the general partner can be held personally liable for the debts, obligations, and liabilities of the business.

Limited Liability Partnership

A limited liability partnership (LLP) is made up of limited partners. Partners are not personally liable for the debts, obligations, and liabilities of the business. Partners will also not be held personally responsible for the actions of another partner.

Pros & Cons Of Business Partnerships

With the right people, a partnership can be very successful. There are several benefits to forming a partnership. Before you get started, though, it’s also important to understand the risks and drawbacks associated with this business entity.

Pros

  • Minimum Requirements For GPs: General partnerships have minimum requirements and do not require filing with the state. Partnerships are also not subject to the same requirements as corporations, such as holding meetings, recording meeting minutes, and establishing bylaws.
  • Tax Requirements: Partnerships are not required to pay taxes on income, and partners can report their share of profits or losses on their personal income tax returns. Business losses can also be deducted on personal tax returns.
  • Raising Capital For LPs & LLPs: Businesses that choose to form an LP or LLP may be able to raise capital from their investors.

Cons

  • Personal Liability: General partners are personally liable for the debts, obligations, and liabilities of the business. Each partner may also be held accountable for the actions of other partners.
  • Financing Challenges For GPs: General partnerships may have difficulties getting loans or other types of business financing if the business is not a registered entity.
  • Costs: While forming a general partnership is easy and inexpensive, forming a limited partnership or limited liability partnership may be more expensive and requires filing with the state.

Corporation

A corporation is the most expensive and complicated business structure. If you plan to raise capital through the sale of common or preferred stock, your business will need to be set up as a corporation.

There are no limitations on how long a corporation can exist. If an owner dies or retires, the corporation does not have to be dissolved.

Corporations are independent legal entities and are separate from their owners. The good news is that this provides the owners with the best liability protection. The bad news is that there are more regulations and tax requirements for this type of legal structure. Most corporations hire an attorney to ensure the corporation is set up and maintained according to state regulations.

Depending on the type of corporation, double taxation may also be a concern. This means that corporations pay federal and state corporate income tax, while shareholders also report dividends on their personal tax returns. Many corporations enlist an accountant and/or tax preparer to ensure returns are filed correctly, which adds an additional business expense.

Types Of Corporations

If you plan to grow your business in the future and want to raise large amounts of capital to fund that growth, a corporation could be the best legal structure for your business. Before you make that decision, though, there are a few different types of corporations. Let’s explore the differences between each type.

C-corporation

A C-corporation, or C-corp, is your basic corporation. This business entity is completely independent of its owners. With a C-corp, owners have the best protection from personal liability. C-corps can raise capital through the sale of stock and make profits, but double taxation, higher costs associated with formation, and more legal requirements are drawbacks of this business structure.

S-corporation

An S-corporation, or S-corp, is different from a C-corp because it is used to avoid double taxation. Profits and losses of the business can be passed through to the personal tax returns of the owners without being subject to corporate tax rates. To form an S-corp, a filing with the IRS is required.

Another way that an S-corp differs from a C-corp is that there is a limit on the number of shareholders. An S-corp may only have up to 100 shareholders, which could limit the amount of capital raised by the business.

B-corporation

A B-corporation, or B-corp, is similar to a C-corp in how it is taxed. However, a B-corp must offer a benefit to the public in addition to making a profit. In some states, an annual report must be filed to prove that the company is providing a benefit to the public.

Close Corporation

A close corporation is similar to a B-corp but is a structure typically used by smaller businesses. Close corporations are generally prohibited from public trading. Shareholders run this type of corporation, and a board of directors is not required.

Pros & Cons Of Corporations

There are big benefits that come along with forming a corporation, but like other entities, there are also negative aspects to consider before choosing a corporation as your business structure.

Pros

  • Ability To Raise Capital: Corporations give you the biggest opportunities for raising large amounts of capital through the sale of stock.
  • Limited Personal Liability: Corporations offer the most protection against personal liability for shareholders.
  • Some Tax Benefits: C-corporations offer more tax deductions than other business entities, as well as lower self-employment taxes. S-corporations also offer the additional benefit of no corporate tax rates or double taxation.

Cons

  • Higher Cost To Form: It is more expensive to form a corporation than any other business structure.
  • More Requirements: Corporations have more ongoing requirements, including holding meetings, recording meeting minutes, and establishing bylaws.
  • Shareholder Restrictions: The number of shareholders is restricted to 100 or less if you create an S-corp.
  • Higher Taxes: C-corps face double taxation. Business losses also can’t be deducted on personal income tax returns.

Limited Liability Company (LLC)

Business owners that want the best of both worlds may consider forming a limited liability company, also known as an LLC. An LLC combines the benefits of other business entities to keep taxes and business requirements lower than corporations while also offering personal liability protection for its owners. All members of the LLC can fully participate in the operations of the business.

LLCs must be registered with the secretary of state in the state where the business will operate. In some states, an operating agreement will also need to be filed.

In an LLC, owners have limited liability, in most cases protecting their personal assets from being taken to pay off business debts and obligations, just like a corporation. Personal assets will also be protected in the event that the business files for bankruptcy.

Owners can select how an LLC is taxed by the Internal Revenue Service. LLCs can be taxed like a corporation, or the profits and losses can be passed through to the LLC members and filed on personal tax returns. Members must file a Form SE to pay self-employment taxes.

An LLC is best for any business that wants to protect the personal assets of its members. It’s also a good choice for businesses that want the benefits of a corporation without paying corporate tax rates.

Pros & Cons Of LLCs

Will forming an LLC best meet the needs of your business? Only you can answer this question, but make sure to fully evaluate the pros and cons of forming an LLC before making your decision.

Pros

  • Limited Liability: One of the biggest benefits of an LLC is that all members have limited liability, meaning personal assets aren’t at risk in most cases.
  • Tax Benefits: With an LLC, you have the option to choose how your business is taxed.
  • Fewer Requirements: There is less paperwork and fewer ongoing requirements for an LLC when compared to a corporation.
  • No Shareholder Limits: An LLC has no limits to its number of shareholders.

Cons

  • Expensive & Time-Consuming To Set Up: Because you will have to register with the state where you conduct operations, setting up an LLC is more expensive and time-consuming than forming an entity like a general partnership or sole proprietorship. You may also need to hire an accountant to help ensure you’re complying with the rules and regulations of your state — adding an additional expense to your list.
  • Limited Life: If a member quits, dies, or retires, the LLC may be dissolved. Some states even have laws in place that require an LLC to dissolve after a set number of years.

Nonprofit

Most businesses have one primary goal: to make a profit. One business structure is the exception: nonprofits. A nonprofit — or 501(c)(3) — is a business that is beneficial to the public.

Nonprofit corporations follow a set of rules and regulations similar to other types of corporations. However, nonprofits also have additional rules governing how profits are used. For example, profits can’t be distributed to members of the corporation.

Another difference between nonprofits and other corporations is that this type of business entity may be exempt from state and federal income taxes. However, nonprofits must register with the IRS to receive this exemption, in addition to registering with the state.

Religious, educational, literary, and scientific organizations may be eligible for nonprofit status. Charities are also businesses that are formed as nonprofits.

Pros & Cons Of Nonprofits

If the goal of your business is to benefit the public, a nonprofit structure may be the right choice for you. However, if your goal is to make a profit, consider choosing another business structure. Before you make your decision, weigh out these pros and cons:

Pros

  • Tax Exemption: Qualifying organizations may be exempt from paying corporate income tax, as well as state and local taxes.
  • Tax Deductions: Charitable contributions by a nonprofit may be tax-deductible.
  • Limited Liability: All founders, directors, employees, and members of the nonprofit are not liable for the debts and obligations of the nonprofits … in most cases. There are, however, some exceptions, such as when the organization is engaged in illegal activity.
  • Grant Opportunities: Nonprofits may be eligible for public and private grants not available to for-profit businesses.

Cons

  • Paperwork Requirements: Nonprofits must submit annual reports to state agencies and the IRS in order to maintain tax-exempt status.
  • Costs: Starting a nonprofit can be expensive in terms of time and money. Nonprofits must pay fees, and most organizations opt to hire attorneys, accountants, and/or consultants to make sure records are kept up-to-date and all regulations are followed.
  • Stricter Policies: In addition to following state laws and regulations, nonprofits are also required to follow their own bylaws and articles of incorporation.

Cooperative

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A cooperative, or co-op, is a type of business that operates for the benefit of its members. Members of a co-op are known as user-owners and have the right to vote on important decisions surrounding the growth and direction of the business. Officers and a board of directors are responsible for running the co-op.

Any type of business can become a cooperative if the goal of the business is to benefit the user-owners. Businesses that aim to sell their products or services to consumers for a profit would be better suited to form another type of business entity.

Pros & Cons Of Cooperatives

If you’ve thought about your goals and you think a cooperative may work for your business, read through these pros and cons before you make your final decision.

Pros

  • Everyone Has A Voice: Member-owners get to weigh in on key issues and decisions of the business. Regardless of how many shares a member-owner holds, all votes are weighed equally.
  • Member Investments: Member-owners buy into a cooperative, providing a source of capital that can be used for operational expenses or expanding the business.

Cons

  • Funding Challenges: Finding startup loans and other types of funding through traditional lenders may be difficult. Cooperatives have to get creative with other funding sources, such as launching a crowdfunding campaign or applying for small business grants.
  • Slow Decision-Making: Voting and making decisions can be a lengthy process. This can put the cooperative at a disadvantage if a critical decision must be made immediately.

Final Thoughts

Ultimately, the type of business structure you select is based on the current and future goals of your business. You should consider the long term plan before choosing your business structure. While you can always reorganize if needed, this process can be lengthy and expensive. If you’re still having difficulties choosing the right business structure, consider consulting with an accountant, business consultant, and/or attorney to weigh out the pros and cons of each and make the decision that’s best for your business. Once you’re ready to your business off the ground, check out our beginner guides for business to get started on the right track.

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