As one of the leading Burbank Accounting Firms, we’re glad to provide useful information that may help you in establishing your business.

You have made the big leap for various reasons to open your own business. The thought of being without a safety net can be daunting and there are so many things that you don’t know combined with great uncertainty, the whole thing can feel overwhelming. The good news is you’re joining a large group of individuals. There are over 28 million small businesses which is 99% of all firms and the vast majority have less then 20 employees with 40% grossing less then 100,000 dollars. Besides the independence and capability to make ultimate decisions, a reliable source to wealth and financial independence has been found consistently with small business ownership.

Your first choice is what type of entity do you want to create? If you are the only owner then this avails many opportunities, without getting too specific, most entities will be sole proprietorships, partnerships, or corporations. There are entities that have functions of a partnership but are corporations such as LLCs and S Corporations.

The general reason to create an entity such as a corporation is to separate yourself for legal protections and to “wall off” your personal and business interests. A corporation also survives indefinitely and will not be dependent on the life of the founder. The negative of a traditional corporation called a C Corporation is primarily double taxation as you will be taxed at the corporate level and for any income that you take out from the entity. This is why an S Corporation is popular as it allows for the protection of a corporation but flows all its net profits to ownership at the personal level. You do need to be careful about states as they don’t always follow the same rules as federal and there may be taxation or franchise fees at the corporate level.
LLC is popular because you can have it be a corporation, S Corporation, or partnership and it has great protection for assets so is popular for real estate interests. The primary negative is it is treated similar to a partnership in that you can’t take out salaries and instead draws are the typical manner of taking money out of the entity and owners would be taxed at the individual level based on your proportional profits of the company.

What is clear all entities have positives and negatives. The main thing is to understand what your business is trying to accomplish and try to set up entities that will accentuate those needs. If you’re hoping for investors and plan to issue stock, a C Corporation will be attractive. If you have minimal amounts of money and can’t afford annual and franchise fees then starting off as a sole proprietorship may be the right choice. If you’re starting with multiple partners then a partnership would be a good option.

A conversation with your CPA is invaluable to getting clarification so that from a long term perspective you have the right entity moving forward to reflect the direction your business will be headed for on its way to success.

We’re glad to help you determine your entity type, feel free to contact us anytime!

As one of the leading LA Accounting Firms, from time to time we’ll provide valuable information to help you accomplish your financial goals.

As we continue to struggle with the consequences of the global pandemic of the novel coronavirus, there are many lessons that can be learnt from how we reacted and how ready we were to deal with this unique challenge. Most people regardless of current situation would say significant room for improvement regarding response and preparedness is warranted. There will be books written about this event and lengthy analysis of where things were done right and wrong. A first-time mistake in cases as life and death as this one is not easily forgiven. Fortunately, this is a financial blog and the worst thing we deal with are losses of a replaceable asset.

As we reach unemployment that is close to Great Depression numbers, many people look to the government for support. The CARES Act has given individuals and businesses some opportunities to be able to get by. Unemployment has offered additional payments to try and replace lost wages. However, we don’t know how long this will last or how long stimulus will be available.

Many workers live paycheck to paycheck, so it becomes difficult for them to try and build a reserve to cover situations where government assistance is not sufficient. This also becomes a difficult conversation to quite often have with people as the definition of necessity is very different for different people. Was is necessary to go out to eat or to have that vacation? As we see with the isolation, mental health quite often comes into the equation.

I feel one of the realities of every one of us is that there is some dollar amount that can be put away. If you look at putting away a dollar amount every paycheck as a necessity just like buying food, then it will happen. This then becomes more a matter of resolve and mind set then can it be done. Are the sacrifices easy, for many it is gut wrenching and hard choices need to be made. There is an immediate need versus putting away money that will sit in potential, what is the right choice?

Probabilities speak to this as most of us will have a point where we will be unemployed and most probably it will happen multiple times. If this is the case, then we can look at a rainy-day fund as not a potential situation but a circumstance that will happen to all of us. If this is so, we understand that we must do what we can to create some buffer for these situations. The preferred is six months cash reserve but two months or even one month is better than nothing.

We want to control out destinies and financial independence or at least some flexibility allows this to happen. I hope that this provides some insight and incentive to try and create a cash liquid fund that will be readily available in case some unforeseen setback occurs whether it is a layoff or a pandemic that we are going through now.