Starting a Business

Every stage of life has its own financial needs and concerns. The life events on this page can help you target the key financial strategies and issues that are likely to be most important to you in this stage of your life.

Advantages and Disadvantages of Self-EmploymentAdvantages and Disadvantages of Self-Employment

You’ve grown tired of commuting to a job where you sit in a cubicle and do someone else’s bidding. You’ve got a better idea, you can build a better mousetrap, you know you have the knack for being in the right place at the right time, and so you’re thinking of self-employment. But how do you determine if this is a pipe dream or an idea worth pursuing?

Can you handle it?

Whether you’re running your own business or working as an independent contractor, you’ll soon realize that working for yourself isn’t just another job, it’s a way of life.

Are you someone who likes a nine-to-five routine and collecting a regular paycheck? When you’re self-employed, you must be willing to make sacrifices for the sake of the job. You’re going to work long hours, which means that you won’t have as much time as you used to for family or leisure activities. And if the cash flow becomes a trickle, you’re going to be the last one to get paid.

Can you get along well with all types of people? Being self-employed is all about managing relationships–with your clients or customers, your suppliers, perhaps with your employees, certainly with your family, and probably with your banker, lawyer, and accountant, too. If you’re the type who wants to be alone to do the few things that you’re good at, then you should do that–for someone else.

Are you a disciplined self-starter? Being self-employed means that you’re your own boss. There may be days when you’ll have to make yourself sit at your desk instead of going for a long lunch, or (especially if you work out of your home) place those business calls instead of reading the newspaper.

Finally, do you enjoy wearing many hats? Depending on your line of work, you may be involved in handling marketing and sales duties, financial planning and accounting responsibilities, administrative and personnel management chores–or all of the above.

Your dream come true

Think about how great it will feel to get paid to do what you’d love to do anyway. If you’re working for yourself, chances are you’ll be doing work that you enjoy. You’ll get to pick who you’ll work for or with, and in most cases you’ll work with your customers or clients directly–no go-betweens muddying the waters. As a result, you may have days when it hardly feels as if you’re working at all. Such harmony between your working life and the rest of your life is what attracted you to self-employment in the first place.

Being your own boss means that you’ll be in control of all of the decisions affecting your working life. You’ll decide on your business plan, your quality assurance procedures, your pricing and marketing strategies–everything. You’ll have job security; you can’t be fired for doing things your way. As you perform a variety of tasks related to your work, you’ll learn new skills and broaden your abilities.

You’ll even have the flexibility to decide your own hours of operation, working conditions, and business location. If you’re working out of your home, your start-up costs may be reduced. You’ll also experience lower operating costs; after all, you’ll be paying for the rent and utilities anyway. If the location of your work isn’t important (perhaps you’re a freelance writer or a consultant), you can live wherever you want. At any rate, if you work at home, you’ll greatly reduce your daily commuting time and expense.

If all goes well and you’re making money, chances are you can make more than you did working for someone else. And since you’re working for yourself, you may not have to share the proceeds with anyone else. The fruits of your labor will be all yours, because you own the vineyard.

On the other hand . . .

When you’re self-employed, particularly if you’re starting your own business, you may have to take on a substantial financial risk. If you need to raise additional money to get started, you may need a cosigner or collateral (such as your home) for a loan. Depending on how much or little work you can line up, you may find that your cash flow varies from a flood to a trickle. You’ll need a cash backup so you can pay your bills while you’re waiting for business to come in or waiting to be paid for completed work. Since you’ll have to pay your own creditors first, this means that sometimes you may eat cereal instead of steak.

Remember that you’re not making any money if you’re not working. You don’t have any employer benefit package, which means that it’s going to be hard for you to go on vacation, take a day off, or even stay home sick without losing income. It also means that you’ll have to provide your own health insurance and retirement plan. Remember, too, that you can choose your clients or customers, but you can’t control their expectations or actions. If you don’t come through for them, or if you do something that offends them, you might not get paid for your work.

Because you’re working for yourself, you’re going to have to take care of everything yourself, from figuring your taxes to watering the office plants. You’ll probably need some new skills, such as bookkeeping and filing quarterly taxes. You can learn to do these things yourself–many software programs are designed just for this market–or you can hire others (e.g., an accountant) to take care of them for you. If you’re not careful, however, you may find that you’re spending more time on the business of being in business for yourself than you are on the work that attracted you to self-employment in the first place.

The bottom line

If you can work long and hard, tolerate risk and stress, cope well with potential disaster and failure, and work well alone and with others, then perhaps self-employment is right for you. If not, then perhaps you should keep that job in the cubicle.

Starting or Buying a Business

Starting or Buying a Business

So, you’re thinking of going into business for yourself. You have several options available, and all involve some degree of risk. Do you want to create a start-up operation? Perhaps you are planning on buying an existing business. Or, you may be considering the purchase of a franchise operation. Each option involves some element of risk and reward. Whichever option you choose, however, owning your own business offers a chance at more freedom and greater financial rewards.


If you are planning on building your business from the ground up, you are taking a bigger risk than if you were buying an existing business or a franchise. Existing businesses and franchises have some operating history that you can use to gauge the likelihood of the success of the business. By comparison, with a start-up business, you naturally think that you will succeed, but there are fewer guarantees.

Most successful start-ups don’t actually begin with a new, innovative product. Instead, they begin with a proven product or service (start-up owners often open competing businesses in areas in which they are familiar) and become innovative after the new venture has generated some level of profit and success.

Because your start-up has no previous track record (even if you have had success in your field), you will first need to raise enough financing to make a go of it. Banks or investors will want to see a plan of attack before they will approve a loan for your start-up. Therefore, your first step should be to create a strong business plan.

The business plan

A well-developed business plan serves several useful purposes. It helps to organize thoughts and ideas about how the business should be developed. It also creates a plan of attack that will help you stay focused. And, it will assist you in getting financing. There are several important elements to a well-prepared plan:

  • Strong introduction: The cover page, executive summary (essentially an overview of the plan), and table of contents will be the first elements that potential financiers or investors will see. If these aren’t strong, potential financiers may not take you seriously enough to get to the heart of your plan.
  • Business description: Whether you are using the business plan to get financing or create a focus of how your business should be run, you need to present a clear vision of what your business will be. The description should include how you want your business to be positioned in your industry, what will make your business unique, the products or services that you will provide, and how you plan on pricing within the industry. Do you want to be the low-cost provider, or the high-end specialist?
  • Market positioning: If you want to attract investors to your business, you need to convince them that a need in the marketplace exists for what you are proposing. This section needs to include details on the size of the potential market for your business, how your business can benefit through sales inside the market, and how you plan on succeeding against your competitors.
  • Financial objectives: This is perhaps the most important part of your business plan. Here, you need to convince your potential backers or lenders that your business will make a sound investment. You’ll want to show that you have evaluated the attendant risks and rewards of your proposed business. You’ll also need to project cash needs and expected income, and present a cash flow statement.
  • Other areas: A good business plan will also cover in some detail your marketing plan, a discussion of how you plan on developing products to bring to market (if the business is a manufacturing concern), and so on.

Buying an existing business

The obvious advantage to buying an existing business is that it has a proven track record of success. But that doesn’t mean that there are no possible pitfalls that you should avoid.

Perhaps the greatest problem in buying an existing business is that you might not acquire the expertise and services of the existing owners, who have often accumulated goodwill with their customers or clients. However, when a business is bought, it is not unusual for the previous owners to stay on for a period of time to assist with the transition and to make introductions to clients in an attempt to transfer some of that goodwill.

Consult qualified professionals to properly evaluate the information that the owners of the existing business may provide you. Also, make sure that the reasons why the business is on the market are true. Is the owner really planning on retiring to Florida, or is he or she just trying to escape the crushing debt that the business has accumulated over the last few years?

Also, keep in mind that you may be taking on a heavy load of debt in acquiring the business. A business that is marginally profitable may not be able to both pay off the debt service on the loan and pay you a living wage.


When you buy a franchise, you also buy marketing support, business strategy, name recognition, and assistance with site location (if it’s a retail operation), among other things.

However, you also give up some things. You will never have the final say in all decisions, because franchisors typically retain rights to ensure that your business is run their way. Also, you won’t be entitled to all of the profits of your business, because franchisors typically take a percentage as part of their fees. Finally, you may be limited in your decision-making processes (e.g., some franchisors require you to buy materials from their suppliers).

If you are thinking of purchasing a franchise, it is very important to thoroughly investigate the company. Remember, you are doing more than just purchasing a name–the franchisor is going to be your business partner. Make sure that he or she doesn’t want only your money and then move on to the next potential buyer.

Franchisors are required to disclose lots of information to potential franchisees. Do your homework. Talk not only to successful franchisees but also to ones who have failed. If several former franchisees tell you that the company didn’t fulfill the promises of the franchise agreement, beware.

Make sure every representation is made to you in writing before you purchase. Take notes of everything said to you, and have the franchisor sign off on them. That way, you will have a record of what was represented to you if things go wrong.

Business start-up costs and organizational expenses

Generally, costs that you incur prior to the time that you actually begin operating a business are treated as capital expenditures, which are part of your basis in the business. However, certain start-up expenditures may be deducted, either in the first year of business or over time (amortized).

Such start-up costs must be incurred before the business begins operation and be ones that otherwise would be deductible as a normal business expense. Certain syndication costs of marketing or selling interests in a new business cannot be deducted, and must be capitalized.

You may elect to deduct your business start-up costs. If you make the election, you may deduct up to $5,000 of start-up costs in the taxable year in which you actively start the business. The $5,000 amount is reduced (but not below zero) to the extent that start-up costs for the business exceed $50,000. Thus, no first-year deduction is available if start-up costs exceed $55,000. The remainder of the start-up costs are amortized over a period of 180 months. If you do not elect to deduct your start-up costs, you must capitalize them.

You deduct amortized start-up costs in equal amounts over a period of 180 months. You take the total start-up costs, reduced by the amount you deduct in the year you start the business, and divide that amount by the 180 months in the amortization period. This figure is the amount deductible each month. If the business is terminated before the end of the 180-month amortization period, you may be able to deduct as a business loss any remaining start-up costs that have not been previously deducted.

For example, say you incur $52,000 of costs starting up your business before it begins operation and elect to deduct start-up costs. In the year your business actively starts, you can deduct $3,000 of start-up costs [$5,000 – ($52,000 – $50,000)]. You can also deduct the remaining $49,000 ratably over 180 months, or $272.22 a month for 180 months; your deduction for a year with 12 months of amortization would be $3,266.67.

Note: You are deemed to have elected to deduct eligible start-up expenses unless you affirmatively elect to capitalize the expenses on a timely filed federal income tax return.

Similarly, you may also elect to deduct up to $5,000 of organizational expenditures for a corporation or a partnership in the taxable year the entity begins business. The $5,000 amount is reduced to the extent that organizational expenditures exceed $50,000 (so no deduction is permitted if organizational expenditures equal or exceed $55,000). The remainder of the organizational expenditures are amortized over 180 months. If you do not elect to deduct your organizational expenditures, you must capitalize them.

For more information, see IRS Publications 535 and 583.

Tax breaks for small businesses

Other potential tax breaks include:

  • Individuals are generally able to exclude 100% of any capital gain from the sale or exchange of qualified small business stock acquired at original issue, provided that certain requirements, including a five-year holding period, are met. The exclusion applies for purposes of the alternative minimum tax calculation as well as for the regular income tax calculation.
  • Small businesses can write-off a portion of the cost of new equipment in the year it was purchased and put into use rather than depreciating the cost over time. This provides an immediate tax benefit. In 2018, the maximum amount that can be deducted is $1,000,000, with a phase-out that starts when purchases for the year exceed $2,500,000 (in 2017, amounts were $510,000 and $2,030,000, respectively). Amounts are indexed for inflation each year.
  • A business’s unused general business credit can be carried back to offset taxes paid the previous year and carried forward 20 years to offset future taxes.
  • If you offer employees health coverage through the federal Small Business Health Options Program (or “SHOP”), have fewer than 25 employees, pay at least 50% of your full-time employees’ coverage, and have an average employee salary of less than $53,200 in 2018 (indexed for inflation each year), you may qualify for a tax credit worth up to 50% of your premium costs (35% for tax-exempt employers).
  • If you are a self-employed individual, you may be able to deduct the amount you paid for health insurance for yourself, your spouse, your dependents, and children under age 27 (even if they were not dependents). However, the deduction isn’t available for any month in which you or any of those individuals are eligible to participate in a health plan subsidized by an employer.

Choosing an Entity for Your Business

Choosing an Entity for Your Business

Now that you’ve decided to start a new business or buy an existing one, you need to consider the form of business entity that’s right for you. Basically, three separate categories of entities exist: partnerships, corporations, and limited liability companies. Each category has its own advantages, disadvantages, and special rules. It’s also possible to operate your business as a sole proprietorship without organizing as a separate business entity.

Sole proprietorshipA sole proprietorship is the most straightforward way to structure your business entity. Sole proprietorships are easy to set up — no separate entity must be formed. A sole proprietor’s business is simply an extension of the sole proprietor.

Sole proprietors are liable for all business debts and other obligations the business might incur. This means that your personal assets (e.g., your family’s home) can be subject to the claims of your business’s creditors.

For federal income tax purposes, all business income, gains, deductions, or losses are reported on Schedule C of your Form 1040. A sole proprietorship is not subject to corporate income tax. However, some expenses that might be deductible by a corporate business may not be deductible by a business structured as a sole proprietorship.

PartnershipsIf two or more people are the owners of a business, then a partnership is a viable option to consider. Partnerships are organized in accordance with state statutes. However, certain arrangements, like joint ventures, may be treated as partnerships for federal income tax purposes, even if they do not comply with state law requirements for a partnership.

A partnership may not be the best choice of entity for a business that anticipates an initial public offering (IPO) in the near future. Although there are publicly traded partnerships, most IPO candidates are organized as corporations.

In a partnership, two or more people form a business for mutual profit. In a general partnership, all partners have the capacity to act on behalf of one another in furtherance of business objectives. This also means that each partner is personally liable for any acts of the others, and all partners are personally responsible for the debts and liabilities of the business.

It is not necessary that each partner contribute equally or that all partners share equally. The partnership agreement controls how profits are to be divided. It is not uncommon for one partner to contribute a majority of the capital while another contributes the business acumen or contacts, and the two share the profits equally.

Partnerships are a recognized entity in the sense that the entity can obtain credit, file for bankruptcy, transfer property, and so on. However, the partnership itself is generally not subject to federal income taxes (it does, however, file a federal income tax return). Instead, the income, gains, deductions, and losses of the partnership are generally reported on the partners’ individual federal income tax returns. The allocation of these items among the partners is governed by the partnership agreement, subject to certain limitations.

Limited partnershipsA limited partnership differs from a general partnership in that a limited partnership has more than one class of partners. A limited partnership must have at least one general partner (who is usually the managing partner), but it also has one or more limited partner. The limited partner(s) does not participate in the day-to-day running of the business and has no personal liability beyond the amount of his or her agreed cash or other capital investment in the partnership.

Limited liability partnershipSome states have enacted statutes that provide for a limited liability partnership (LLP). An LLP is a general partnership that provides individual partners protection against personal liability for certain partnership obligations. Exactly what is shielded from personal liability depends on state law. Since state laws on LLPs vary, make sure you consult competent legal counsel to understand the ramifications in your jurisdiction.

CorporationsCorporations offer some advantages over sole proprietorships and partnerships, along with several important drawbacks. The two greatest advantages of incorporating are that corporations provide the greatest shield from individual liability and are the easiest type of entity to use to raise capital and to transfer (the majority stockholder can usually sell his or her stock without restrictions).

A corporation can be taxed as either a C corporation or an S corporation. Each has its own advantages and disadvantages.

C corporationsA corporation that has not elected to be treated as an S corporation for federal income tax purposes is typically known as a C corporation. Traditionally, most incorporated businesses have been C corporations. C corporations are not subject to the same qualification rules as S corporations and thus typically offer more flexibility in terms of stock ownership and equity structure. Another advantage that a C corporation has over an S corporation is that a C corporation can fully deduct most reasonable employee benefit costs, while an S corporation may not be able to deduct the full cost of certain benefits provided to 2% shareholders. Virtually all large corporations are C corporations.

However, C corporations are subject to income tax. So, the distributed earnings of your incorporated business may be subject to corporate income tax as well as individual income tax.

S corporationsA corporation must satisfy several requirements to be eligible for treatment as an S corporation for federal income tax purposes. However, qualification as an S corporation offers a potential tax benefit unavailable to a C corporation. If a qualifying corporation elects to be treated as an S corporation for federal income tax purposes, then the income, gains, deductions, and losses of the corporation are generally passed through to the shareholders. Thus, shareholders report the S corporation’s income, gains, deductions, and losses on their individual federal income tax returns, eliminating the potential for double taxation of corporate earnings in most circumstances.

However, many employee benefit deductions are not available for benefits provided to 2% shareholders of an S corporation. For example, an S corporation can provide a cafeteria plan to its employees, but the 2% shareholders cannot participate and receive the tax advantages that such a plan provides.

It is important to note that S corporation treatment is not available to all corporations. It is available only to qualifying corporations that file an election with the IRS. Qualifying corporations must satisfy several requirements, including limitations on the number and type of shareholders and on who can own stock in the corporation.

Limited liability companyA limited liability company (LLC) is a type of entity that provides limitation of liability for owners, like a corporation. However, state law generally provides much more flexibility in the structuring and governance of an LLC as opposed to a corporation. In addition, most LLCs are treated as partnerships for federal income tax purposes, thus providing LLC members with pass-through tax treatment. Moreover, LLCs are not subject to the same qualification requirements that apply to S corporations. However, it should be noted that a corporation may be a better choice of entity than an LLC if an IPO is anticipated.

Choosing the best form of ownershipThere is no single best form of ownership for a business. That’s partly because you can often compensate for the limitations of a particular form of ownership. For instance, a sole proprietor can often buy insurance coverage to reduce liability exposure, rather than form a limited liability entity.

Even after you have established your business as a particular entity, you may need to re-evaluate your choice of entity as the business evolves. An experienced attorney and tax advisor can help you decide which form of ownership is best for your business.

Funding a Business

Funding a Business

You’ve written your business plan, you’re excited about your business idea, and now it’s time to get started. One problem: You don’t have the financing to fully realize your dream. What are your options? Aside from using your own funds and borrowing from friends and family, there are numerous routes that you can take, and each has its advantages and disadvantages. Here are some of the major options available for funding your small business, and some of the pitfalls to avoid.

Bank loans

Getting a loan from a local bank is the first option that most people consider when funding a new business. But it’s often difficult to obtain a bank loan on the basis of a business plan alone. Banks can’t use your idea as collateral.

If you are thinking of getting a bank loan, you will likely need to secure the loan through other means, such as putting up your home as collateral. A bank loan may be more feasible, though, if you are purchasing an ongoing business outright. In that case, the assets or the business itself can be used to secure the loan.

In any case, the advantage of a bank loan is that you won’t have to give away any equity if your business succeeds. You will simply repay the loan and own your business outright. If your business fails, however, you may end up losing more than your business assets, depending on the terms of the loan.

Angel investors

Angel investors are private investors who contribute money to a business in exchange for an ownership interest. The obvious advantage of utilizing angel investors is that you don’t have to repay a loan. However, you may have to give up a significant amount of equity (and control, depending on the security issued) to the angel investors. Angel investors typically expect to receive preferred equity security in exchange for their investment.

Perhaps the greatest obstacle is finding the right angels. There are many people out there who want to invest in small businesses, but it’s not easy to find the right fit. If you opt for this route, make sure that all parties have the same expectations regarding the prospect of success. You need to agree on how long you expect it will take for the business to be profitable (be aware that most small business plans are overly optimistic as to profit expectations) and whether your angels will hang in there with you if it takes longer than expected.

Venture capital

Venture capital firms may be a viable financing source for your business but, then again, they may not. Like angel investors, venture capitalists typically take an equity stake in your company, and most expect to receive preferred equity security in exchange for their investment. Most venture capitalists specialize in certain industries, and many provide corporate direction as well as financing (some angel investors may provide such direction, as well).

It is this aspect of specialization that makes venture capital financing difficult for most new businesses to obtain. If your new business doesn’t fit into the right niche, your company might not be a candidate for funding.

What areas do venture capital firms focus on? Many firms specialize in high-tech, computer, and Internet services. Others specialize in scientific projects and inventions that require a lot of cash. In recent years, some organizations have emerged that focus on specific demographic groups, such as women entrepreneurs. The key is finding the right target before you make your pitch.

Selling stock

Selling stock in your company can take several different forms. We’ve all heard and read a lot about initial public offerings (IPOs). IPOs are stock sales in which previously private companies go public. An IPO is a possibility for an ongoing business, but it isn’t likely to be a viable alternative for your new company.

A private placement is less complex than an IPO and involves selling shares of stock to a select group of equity investors. The investors typically exercise control over the company in direct proportion to the number of shares that they own.

Selling stock or other securities in your business generally requires compliance with federal and state securities laws. Seek the advice of an attorney experienced in these laws before your business issues any stock or securities.


An alternative to the traditional method of issuing stock–which can be a complex and cost-prohibitive process for smaller organizations– is equity crowdfunding, or using the Internet to sell equity to small investors. On October 30, 2015, the Securities and Exchange Commission (SEC) released final rules on equity crowdfunding. While the forms that funding portals use to register with the SEC became effective early in 2016, the final regulations took effect on May 16, 2016.

“Regulation Crowdfunding” put the following rules in place:

  • A small company can raise up to $1 million over a 12-month period through crowdfunding. (Some exceptions apply.)
  • Individual investors can invest certain amounts over a 12-month period across all crowdfunding offerings based on their annual income and asset levels. Investors whose annual income or net worth is less than $100,000 can invest the greater of $2,000 or 5% of the lesser of their annual income or net worth. Investors whose annual income and net worth are both at least $100,000 may invest up to 10% of the lesser of their annual income or net worth.
  • No more than an aggregate of $100,000 in equity crowdfunding offerings may be sold to an investor in a 12-month period.
  • Securities generally cannot be resold for at least one year.

In addition, small businesses are required to provide certain information to the SEC, potential investors, and the crowdfunding platforms facilitating the transactions. Among other details, this information includes:

  • The price of the securities or the method of determining the price
  • The target offering amount, the fundraising deadline, and whether the company will accept investments exceeding the target amount
  • Financial statements that may need to be accompanied by the company’s tax returns and reviewed by an independent public accountant or audited by an independent auditor (Note: For companies offering securities for the first time, reviewed statements will meet the regulations)
  • A description of the business and how the crowdfunding proceeds will be used
  • Information about company officers, directors, and 20% or more owners

Moreover, crowdfunding companies will have to file an annual report with the SEC and provide it to investors.

Companies that will serve as funding portals have their own set of regulations to follow. Among them are the requirements to take certain measures to reduce fraud risk, to make crowdfunding company information available on their websites, and to provide communication channels that allow discussion about platform offerings.

Finally, before making any investment commitment, an investor must acknowledge that he or she has reviewed the funding portal’s educational materials, understands that the entire amount of his or her investment may be lost and is in a financial condition to bear the loss of the investment, and has completed a questionnaire demonstrating an understanding of the risks of any potential investment and other required statutory elements.


You’ve been in business for a while and you have customers, but your collections have been bad. You need cash now, but your lack of cash inflow is holding you back. What can you do?

A common solution to this problem is factoring. Basically, you secure a loan (usually at a high interest rate) against your accounts receivable. Factoring companies aren’t hard to find, and some offer better deals than others, but they are almost always going to charge you a much higher rate of interest than your bank. Thus, factoring is usually considered as an option only after all others have been exhausted.

Economic development programs

Many federal, state, and local government loan programs are available to small businesses. The Small Business Administration (SBA) is a good place to start.

The SBA offers a variety of loan programs for very specific purposes:

  • The 7(a) Loan Program is the SBA’s most popular loan program, and it includes financial help for businesses with special requirements. It helps start-ups find funding when they otherwise might not be eligible for traditional financing options. Eligible expenses include equipment, furniture, and supplies, as well as short- and long-term working capital. In addition, funds are available for loans to businesses that handle exports to foreign countries, businesses that operate in rural areas, and for other very specific purposes. The maximum loan amount is generally $5 million (certain exceptions apply).
  • The Microloan Program provides small, short-term loans to small business concerns and certain types of not-for-profit child-care centers. The SBA makes funds available to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries make loans to eligible borrowers. The maximum loan amount is $50,000.
  • The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. A Certified Development Company (CDC) is a private, nonprofit corporation which is set up to contribute to economic development within its community. CDCs work with SBA and private sector lenders to provide financing to small businesses, which accomplishes the goal of community economic development. The maximum loan amount is generally $5 million. In addition, certain requirements apply for creating jobs and/or retaining jobs. The job requirements may be waived if the business meets a community development or public policy goal.

In addition, don’t overlook your local government loan programs. Local governments may also offer incentives such as tax breaks or a discounted loan rate if you locate your business in their jurisdiction, often in an area zoned for economic redevelopment.

Customer/supplier financing

This is an option for a business that has a poor credit rating, and a realistic option that many small businesses overlook. In essence, your business bills for part of the services or products that it supplies up front. The rest of the fees are paid as the products are delivered or as the services are completed.

This strategy is aggressive, but many of your customers can appreciate the need that a small business has to keep cash flow current, and won’t object to your asking for partial payment up front.

Record Keeping for Your Own Business

Record Keeping for Your Own Business

Keeping good business records will not only help you stay in business but may also help you increase profits. Your business records let you analyze where your business is and where it’s going. They point out potential trouble spots and serve as a guide to where you want your business to be.

Your ideal office manager: criteria for record-keeping systems

Like a valued office manager, your record-keeping system should have good work habits. It should be easy to use. If it’s too complicated, it might be neglected, defeating its purpose. It should reflect information accurately, completely, and consistently throughout all of its applications, and it should do so in a timely fashion; you don’t want to base important business decisions on partial or outdated information. Finally, it should present results in an easily understandable manner. If you can’t comprehend the data that your record-keeping system provides, you might ignore their implications.

Some commercial record-keeping systems are generic in format and applicable to many types of business. Others are designed for specific types of business operations (e.g., retail sales and manufacturing). Most generally will offer the ability to summarize your business activity with appropriate periodic financial reports. Many websites allow you to see a demonstration version of the software before you purchase the software.

You can decide whether to keep your own books or hire someone to do it for you. Your decision depends in part on how much time and ability you have for the task. You can hire a company that specializes in payroll services to handle the paperwork and withholdings for your employees. Most small-business advisors suggest that you have an accountant prepare your tax returns and year-end statements. In many cases, an accountant can also offer advice on various aspects of financial management, such as cash flow analysis, borrowing for the business, tax considerations, and suggestions for which software to buy for record keeping. Whichever way you go, you should stay involved in the record-keeping process. After all, it’s your business, and ultimately you are responsible for its success or failure.

What your records should do for you

Like a medical diagnostic tool, your records help you assess the health of your business.

  • Bank statements measure cash on hand, and accounts receivable predict future income. Together, these records help determine cash flow requirements and may point to a need for short-term borrowing.
  • In addition to providing income tax information to your employees, payroll records help you determine the appropriateness of your pricing and customer billing policies.
  • If your business keeps merchandise on hand, your records help you manage the size of your inventory, thus avoiding the loss of profits from obsolescence, deterioration, or simply being out of stock.
  • Expense records help you plan to meet obligations in a timely fashion. They also help you assess whether the income generated supports the expense involved.
  • Statements of income, or profit and loss statements, help pinpoint unprofitable departments, products, or services, alerting you to make changes or eliminations if necessary.
  • The balance sheet captures the condition of your business at a given moment in time, allowing you to measure its reality against either your own budget projections or similar businesses.

Be prepared: the taxman cometh

One of the most important functions of business records is to prepare you (or your accountant) for filing tax returns for the business. Thus, you may want to set up a record-keeping system that captures information in a way that matches the demands of the IRS. If you are a sole proprietor, you’ll want to familiarize yourself with the requirements for completing Form 1040, Schedule C.

Here are some tax considerations to remember in relation to your record-keeping system design (for more information, see IRS Publication 334, “Tax Guide for Small Business”):

  • If your small business is one that carries no inventory, then you can generally use the cash method of accounting.
  • If you produce, purchase, or sell merchandise, you typically must keep an inventory and use the accrual method of accounting. However, there are exceptions to this rule if you are a “qualifying taxpayer” or a “qualifying small business taxpayer.” You are a qualifying taxpayer if your average annual gross receipts are $1 million or less and your business is not a tax shelter. You are a qualifying small business taxpayer if: your average annual gross receipts are less than $10 million; you are not prohibited from using the cash method as defined by Section 448 of the Internal Revenue Code; and your business is an eligible business as defined in IRS Publication 538.
  • The business-related portion of deductible car or truck expenses may be the actual expenses incurred (including gas, oil, tires, repairs, insurance, depreciation, and rent or lease payments), or you may elect to take the standard mileage rate (53.5 cents per mile for 2017, down from 54 cents per mile for 2016).
  • Depreciation may be taken on property that is used in the business or held to produce income, provided it has “substantial” and “determinable” useful life. This means that it has a life beyond the year in which it was purchased but will also become obsolete or wear out over time. Examples include business cars, computers, and office furniture.
  • Through 2017, an additional first-year “bonus” depreciation deduction is available, equal to 50% of the adjusted basis of qualified property placed in service during the year. The deduction amount decreases to 40% in 2018 and 30% in 2019. The basis of the property and the regular depreciation allowances in the year the property is placed in service and later years are adjusted accordingly. Alternatively, instead of claiming the bonus depreciation, companies may elect to accelerate alternative minimum tax credits.
  • Some businesses may elect under IRC Section 179 to expense the cost of qualifying property purchased and put into use during a designated year, rather than to recover such costs through depreciation deductions. The limit is $500,000, with a phase-out that starts when purchases exceed $2,000,000. (Note that since 2016, the dollar limit and phaseout threshold have been indexed for inflation. In 2017, the limit is $510,000 and the phaseout threshold rises to $2,030,000.)
  • You may deduct any contributions to employee benefit plans (such as health insurance plans and other fringe benefits) or contributions to pension or profit-sharing plans that are for the benefit of employees.
  • You may deduct real estate or personal property taxes on business assets, Social Security and Medicaid taxes paid to match required withholdings on employee wages, state disability and federal and state unemployment taxes paid. Sales tax should be treated as part of the cost of goods or merchandise purchased.
  • Depending on whether you use your home or other real estate for business purposes, you may deduct some or all of any mortgage interest paid, as well as some or all of the maintenance and repair expenses associated with the property.
  • You may deduct the cost of business supplies purchased during the tax year.
  • You may deduct the cost of utilities associated with business use.
  • Also, if you have a home office used exclusively for business purposes, you may be able to take advantage of a simplified way to calculate the home office deduction. Under this method, instead of determining and allocating actual expenses such as mortgage interest and utilities, you would simply multiply the square footage of the office by $5.00. The maximum allowed is $1,500 (or 300 square feet). For more information on this deduction, see IRS Publication 587, “Business Use of Your Home.”
  • You can deduct professional fees, such as those paid to your accountant.
  • You may deduct 50 percent of meal and entertainment expenses directly associated with the conduct of your business. You may be able to deduct the full amount of other travel-related expenses.

Remember to save any records and underlying documentation, such as invoices or receipts, relevant to your tax return for at least three years. Ask your accountant how long he or she suggests keeping the documentation.

Managing your business records

Records management is vital to any business. You should have a good system in place that will ensure that both your paper (physical) records and your electronic or digital records are retained as long as they need to be. Make sure your records are easily identifiable and accessible, and keep them well-organized. Shred (and recycle) paper records that you do not need or no longer need. Keep your electronic records safe and secure by adding a firewall to your computer and using software that provides adequate security. Back up your computer regularly using a CD, external hard drive, or an online remote back-up service (i.e., in the “cloud”), and be sure to use logins and passwords that are secure. Dispose of e-records carefully.

Properly Insuring Your Business

Properly Insuring Your Business

No matter how careful you are in running your business, accidents happen. And no matter how big or small your business, you’ll have to plan for these and other risks if you want your business to thrive. One way to do this is with insurance.

Imagine this: Your custom-made cabinetry business is thriving. You have a handful of talented employees and a stack of orders. Then, the unthinkable happens. You or one of your employees is severely injured using the equipment. Or a fire damages all of the cabinets you’ve spent the last few months building. Or a customer calls to tell you that the new cabinets you installed yesterday just fell and crashed onto her kitchen floor.

Protect your business from physical destruction

Your business is situated somewhere–an office park, a warehouse, a barn. And just like your home, this structure (and all of its contents) is susceptible to damage from many causes. Property and casualty insurance provides coverage for losses due to the physical damage or destruction of your business. With the right policy, neither fire nor exploded boiler can put you out of business. Everything from your office building to your cabinets to your water cooler can be covered.

You can buy various types of insurance protection separately, or you can purchase one package that covers many potential hazards. Among the forms of coverage you can purchase are:

  • Building and equipment insurance: This protects you if your facility or equipment is damaged or destroyed
  • Valuable papers insurance: This protects you if the documentation supporting your accounts receivable (or other valuable business records) is lost or destroyed
  • Crime insurance: This protects your business in case of theft
  • Business interruption insurance: This protects you by replacing some or all of your operating cash flow if your business is unable to maintain its normal operations for a period of time due to a covered event

Keep your business afloat if you or a key employee dies or becomes disabled

If you were to die prematurely or become permanently disabled and could no longer work, would your business survive financially? It’s easy to believe that such a tragedy won’t befall you. Consider, however, that accidents happen not only on the job but also at home, and illness can strike anyone. Though the death or disability of an owner may be a minor issue for large businesses, small businesses may find themselves in a bind. And if you’re a sole proprietor, you’re personally responsible for all of the debts of your business, so everything you own could be repossessed if you’re unable to pay your bills.

To survive a money crunch, your business can purchase life insurance and disability insurance to cover you, with the business named as the beneficiary. Upon a triggering event (death or disability), the policy will pay your business a certain amount of money, which it can use to cover its normal operating expenses like rent, utilities, employee salaries, advertising, and maintenance costs.

Your business can also purchase life insurance and disability insurance on a key employee–someone who is key to the success of your business (i.e., this employee brings in substantial accounts or has specialized knowledge or talent). Again, on the triggering event, your business would receive a sum of money to compensate for the lost income generated by the event, or for the cost of replacing the employee.

Note: These types of policies are different from workers’ compensation insurance, which nearly all states require businesses to have. Workers’ compensation insurance provides compensation to your employees if they’re injured at work or get sick from job-related causes. Once an employee opts to receive benefits under such a policy, he or she is usually prohibited from suing your business for the same injuries.

Protect your business assets if someone threatens or sues your business

If your cabinet installation goes awry and your best customer (or so you thought) calls screaming at you on the phone, what will you do? With a liability insurance policy, the insurance company will pay (up to policy limits) third parties who claim they were injured or their property damaged by your product or service. If a lawsuit is threatened or filed, the insurance company will hire and pay (again, up to policy limits) a lawyer to defend you.

You can purchase general business liability insurance separately or as part of a commercial package policy, which combines this coverage with other types of coverages, such as property and casualty insurance. Certain small businesses, including retail outfits, can buy a business owners policy, which includes a general liability insurance line. If your business needs broader coverage or higher liability limits than these policies offer, you can purchase supplemental liability insurance with a commercial umbrella policy.

An important point: If you provide professional services (e.g., doctor, lawyer, accountant), a general liability policy doesn’t cover you for losses incurred by third parties arising from your professional acts. In this case, you may need to buy professional liability insurance such as malpractice insurance, which protects you against liability for injury done to others due to your misconduct or lack of skill; or errors and omissions insurance, which protects you against liability for things that you did improperly or failed to do.

Attract and keep employees with insurance-related employee benefits

Nowadays, insurance is a crucial component of most employee benefit packages. In fact, the types of insurance that you offer (and pay for) might be a key factor in a person’s decision to accept a job with you or an employee’s desire to work for your business long term. Insurance helps employees feel secure, and this security can translate into loyalty and strong job performance. Here is a list of group plans that you might decide to offer as part of your employee benefits package:

  • Health insurance
  • Dental and vision insurance
  • Life insurance
  • Disability insurance
  • Long-term care insurance

In each case, the employee receives all of the benefits under the policy.

Insuring Your Home Business

Insuring Your Home Business

If you have recently started your own business and work out of your home, you’ll probably need to upgrade your insurance program. At-home business owners often make the mistake of assuming that their homeowners policy covers their business equipment. In fact, your homeowners policy may include little or no coverage for your business property and business liability exposure. You also should consider the need for business interruption insurance, workers’ compensation coverage, and business automobile coverage. Finally, you should examine your need for life, health, and disability insurance.

Homeowners policy

Homeowners policies generally cover business property on your premises only to a certain limit, usually about $2,500. Coverage for business property away from your premises is even more limited, with most policies having a $250 maximum. That is the extent of insurance coverage for your business in the typical homeowners policy. You are not covered for business liabilities, including such things as a deliveryperson or a client injuring themself while on your property.

For a higher premium, some insurance companies offer an endorsement that you can add to the standard homeowners policy. An endorsement allows you to increase the liability limit for business property and add a small amount of general liability coverage. The endorsement is designed for very small businesses. However, even with an endorsement, your business is left with uncovered exposures.

Home office policy

Many insurance companies now offer the home office policy, which is a combination of a homeowners policy and a business owners policy. This policy provides adequate business liability coverage, business interruption coverages, and increased limits for your business property, along with the traditional coverages found in a homeowners policy.

The business property limits typically begin at $10,000. Depending on the policy, the business liability limits may range from $300,000 to $1 million. The policy covers lost income and continuing expenses for up to one year in the event your home is damaged and you’re unable to work. The policy also covers loss of valuable papers and accounts receivable, while offering higher limits for equipment breakdown coverage and business property used off-premises.

Business owners policy

This type of commercial policy is designed specifically for small businesses. Traditional business owners policies (BOPs) are very comprehensive because they cover buildings, business property used on- and off-premises, and liability. Also covered are computers and other business equipment, software, data, loss of income, continuing expenses, and professional liability for certain occupations.

Some insurance companies have created a new kind of BOP designed specifically for the at-home business. This policy is less expensive, and it provides broad-enough coverage for a larger business without duplicating your coverage. For example, the new BOP would not cover your home structure, because it is already covered by your homeowners policy.

Umbrellas and professional liability

An umbrella policy provides increased liability limits beyond those in separate policies. For example, say you have a BOP with a general liability limit of $3 million. If you think you’ll need more than $3 million for your business, an umbrella policy will pick up where the BOP leaves off. If you purchase an umbrella policy with a $5 million limit, your total limit of liability would be $8 million.

For those in occupations that are particularly vulnerable to professional liability, a separate professional liability policy, usually called malpractice coverage or errors and omissions coverage, is a must. Examples of such professions include law, medicine, architecture, day care, and personal beauty.

Automobile insurance

If you use your personal automobile extensively for your own business, you’ll probably need to purchase a commercial automobile insurance policy. Examples of such small businesses are painters, caterers, and contractors. If you use your automobile as part of your business (e.g., a taxi service), you definitely need a commercial policy.

If you rent automobiles in the course of traveling for your own business, check your personal auto policy to see if it covers nonowned autos. Your auto insurance provider can help you determine the extent of your coverage and fill in any gaps.

Workers’ compensation

Even if you have only one employee, you need workers’ compensation insurance. Each state has its own minimum requirements for this type of coverage–contact your insurance agent or state insurance department for details.

Life insurance

Chances are, you already have a life insurance program in place. Though your individual life insurance needs may not change when you start an at-home business, the amount of insurance you have may change. For example, if you lost employer-sponsored coverage when you left your previous job, you may want to make up the difference so that you’re still adequately protected. You may also need more insurance to cover any debts or liabilities you took on to develop your business.

Key person life insurance

Key person life insurance covers financial loss to your business due to the death of your partner or a key employee. If the covered individual dies, your company receives a death benefit. There are several creative ways you can set up a key person life insurance plan. Contact your financial professional to set up the best arrangement for your business.

Disability insurance

This type of insurance is very important to consider when you have your own business. Ask yourself if you have enough resources to support your family if you became disabled and could not work. If you do have some savings, how long would they last? Would you be depleting savings that are earmarked for your retirement or your kids’ college education? Most people need disability insurance to protect against the loss of income that can result from disability. Your ability to produce an income is an asset that should be covered like your house and your car.

Health insurance

Health insurance for the self-employed can be expensive and difficult to find. One affordable alternative may be to join a professional association that offers group health insurance to its members. Chances are, your profession has its own specific association in your area or state. If not, there are associations for small-business owners in general. Finally, your local chamber of commerce may have a health insurance program for its members.

Individual health insurance is very expensive. What’s more, some states have made the laws so restrictive for individual health insurance that many insurance companies in those states no longer offer them. However, one way to buy yourself protection before finding a permanent health plan may be to purchase short-term health insurance, if these policies are allowed in your state. These policies run from one to six months and are relatively inexpensive. Contact your insurance professional to find out how you can get short-term medical coverage.

Meet with a trusted insurance advisor

With all you have to think about in starting and running your own business, reviewing and updating your insurance program can seem like an overwhelming task. Your first step should be to talk with an experienced and licensed insurance professional. He or she can identify your needs, familiarize you with the relevant state laws, and recommend a suitable insurance program to meet them.

Benefit Plans for Small Businesses

Benefit Plans for Small Businesses

If you own a small business, you may be finding it increasingly necessary to implement a benefit program to attract and retain employees. For small businesses, benefit plans generally consist of some of the major insurance benefits, discussed here, as well as employer-sponsored retirement plans.

Group health insurance

Health insurance is by far the most common benefit offered by employers, and the one most requested by employees. However, with the passage of the Affordable Care Act in 2010, offering a health insurance plan has taken on even more importance for small businesses. That’s because employers with 50 or more full-time employees are subject to financial penalties unless they offer “minimum” and “affordable” coverage to at least 95% of their full-time employees. Minimum means that the company’s share of total plan costs must equal at least 60%. Affordable means that an employee’s share of the premium must be less than 9.69% of his/her household income (in 2017). .

The 2010 health-reform legislation also created a tax credit for employers who have 25 or fewer employees, offer minimum and affordable coverage, and meet other specific requirements.

Health insurance comes in many forms and with widely varying levels of benefits.

Traditional health insurance plans

Under a traditional plan (also known as a fee-for-service or indemnity plan), you, as the employer, contract with an insurer to provide health insurance benefits for you and your employees (and often for your employees’ dependents as well). A typical plan will reimburse claims as a percentage of the normal and customary charge for a given procedure in a particular region. The plan typically pays either the medical provider directly, or reimburses the employee after he or she pays for the medical service.

A covered employee generally must pay a deductible before benefits become payable by the insurer. The higher the initial deductible, the lower the insurance premium. This is because the covered employees are taking on a larger portion of the insurance risk by paying the higher amount, and saving the insurance company the costs of processing smaller claims.


HDHPs are plans that require employees to cover a greater share of their service provider costs in return for lower premiums. HDHPs are often paired with a tax-advantaged savings option, such as a health savings account or health reimbursement account, to help employees manage the higher out-of-pocket costs.

Preferred provider organizations (PPOs)

A PPO is actually a network of doctors and/or hospitals that agree to provide medical services for specified fees. The PPO may be sponsored by a particular insurance company, by one or more employers, or by some other type of organization. PPO physicians provide medical services to the policyholders, employees, or members of the sponsor(s) at discounted rates. In return, the sponsor(s) attempts to increase patient volume by creating an incentive for employees or policyholders to use the physicians and facilities within the PPO network.

Point-of-service plans

A point-of-service plan combines elements of both a traditional plan and a PPO. The employee can choose whether to see an in- or out-of-network service provider; however, should he or she choose to go outside of the network, higher costs will typically apply.

Health maintenance organizations

HMOs generally will offer a lower-cost option for you, the employer, as well as for your employees. Costs are reduced because the HMO typically restricts the doctors a patient can see to those within its provider network. A primary care physician coordinates care for the patient among other participating providers. However, in limited circumstances–as set out by the HMO–participants can generally go out of the provider network, and the HMO may still pick up the cost.

HMO doctors are typically paid a set fee per patient. This fee is paid whether a patient actually seeks treatment or not. Doctors in the HMO network handle all procedures and tests. Thus, the HMO is able to control the entire spectrum of tasks necessary to keep a patient well. In theory, the HMO is also able to control costs by giving doctors incentives to keep costs low. A doctor has no financial incentive to conduct unnecessary tests (the doctor will receive the preset fee and no more), so it is up to the doctor to help control patient costs.

Dental insurance

This benefit has grown in popularity among small businesses. Dental insurance is really more of a co-payment plan than an actual insurance plan. This is because, typically, there are annual limits of a few thousand dollars on the amount of benefits an individual may receive under the plan (unlike health insurance, which may have a lifetime limit of several hundred thousand to millions of dollars for benefits paid).

Nonetheless, dental insurance is highly valued by employees, because dental procedures are often among the most expensive medical charges an individual will incur in a given year.

Paying insurance premiums

Whatever type of health plan(s) you select, it’s fairly typical for an employer to pay a portion (or all) of the employee cost of the plan. If an employee also wants to cover his or her family, the additional cost is often paid for entirely by the employee.

Group term life insurance

Group term life (GTL) insurance is another popular benefit offered by more and more small businesses.

Typical GTL plans offer employees insurance in either a set amount (e.g., all employees receive $10,000 of insurance, regardless of income level) or an amount based on their salary level (e.g., each employee receives insurance equal to two times current salary).

GTL benefits are tax free up to $50,000 of coverage (assuming that the benefits are provided under a policy that qualifies as GTL insurance for tax purposes). If you provide employees with more than that amount of coverage under a qualifying GTL policy, your employees must pay taxes on the amount of the premium attributable to insurance coverage in excess of $50,000. However, the amount of additional income recognized by employees as a result of employer-provided GTL coverage in excess of $50,000 is typically very small (especially for younger employees). Therefore, the additional taxable income should not, by itself, be a disincentive for providing higher amounts of GTL coverage for your employees if you’re so inclined.

Short-term and long-term group disability insurance

A disability plan is designed to provide an employee with an income stream should he or she become disabled.

Short-term disability plans provide benefits (usually a fixed percentage of the employee’s salary) for a set number of days (typically 180). After that period of time, assuming the employee is still disabled, long-term disability insurance (if available) kicks in, and the employee receives benefits under that program until he or she is no longer disabled.

Typically, under a group plan, these benefits are fixed and not adjusted for inflation (in contrast, individual policies often offer an inflation rider). And if an employer pays all or a portion of the premium for disability coverage, then the portion of the benefits paid to employees that is attributable to the employer’s contribution is considered taxable income.

Currently, you’re required to purchase disability insurance if your employees are located in California, Hawaii, New Jersey, New York, Puerto Rico, or Rhode Island (Source:

Cafeteria plans

Though not an insurance plan per se, a cafeteria plan can offer employees a way to pay their portion of insurance premiums with pretax dollars. If you implement a cafeteria plan as part of your business’s benefits program and the plan satisfies certain requirements, employees can elect to forgo a portion of their salary and have that money instead go to pay for their premium payments, without the amount being included in their taxable income.

Employees save money because their taxable income is reduced, yet benefits remain the same. The employer’s payroll taxes are reduced as well, because the employees are receiving lower salaries than they were before the cafeteria plan was implemented.

In order for a plan to qualify as a cafeteria plan under the Internal Revenue Code, it must satisfy certain requirements. In addition, an employer that has established a cafeteria plan is required to annually file a Form 5500 tax return for the plan.

Required employee benefits*

All employers must pay in whole or in part for certain legally-mandated benefits and insurance coverage including:

  • As an employer, you must pay Social Security taxes at the same rate paid by employees (the current rate for Social Security is 6.2% for employer and employee, plus an additional 1.45 percent each for Medicare). High-income employees (single filers who earn more than $200,000 and joint filers who earn more than $250,000 per year) have to pay an additional 0.9% Medicare tax. Unlike the regular Medicare tax, employers will not need to match this additional amount.
  • Employers generally must also pay unemployment tax to help fund the Federal-State Unemployment Insurance Program. This program provides unemployment insurance benefits to eligible employees who lose their job through no fault of their own. States administer their own laws to determine worker eligibility. Depending on your state regulations, you may owe just a federal unemployment tax, a state unemployment tax, or both. For more information, visit the Department of Labor Employment and Training Administration web site, That site also provides a list of links to state unemployment tax agencies.
  • Workers’ compensation insurance, which pays a benefit to employees who are injured at work or get sick from job-related causes, is governed by the individual states. For more information, visit your state’s Division of Workers’ Compensation. You can see a list of state divisions at the Department of Labor’s web site.
  • While regular vacation leave is not a required benefit, private employers with 50 or more employees and all public employers are required to provide leave under the Family and Medical Leave Act (FMLA). This provides 12 weeks of job-protected, unpaid leave during any 12-month period to eligible, covered employees for reasons including birth and childcare, immediate family care, or care for the employee’s own health condition.
  • Companies who had 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985). COBRA provides continuation of health coverage at group rates for former employees, retirees, spouses, former spouses, and dependent children.


Comparison of LLCs, LLPs, and Professional Corporations


Professional C corporation Professional S corporation Limited liability company (LLC) 1 Limited liability partnership (LLP)
Limited liability Yes 2 Yes Yes Yes
Pass-through tax treatment No Yes Yes Yes
Difficult to form/maintain Yes Yes Somewhat Somewhat
Continuity of life Yes Yes State law may limit LLC life to a set number of years 3 No
Centralized management Yes Yes Generally yes, since members can elect a committee of managers Generally no, but the partnership agreement can centralize somewhat
Interests freely sold/transferred Only within specified profession(s) or specialty(ies) Only within specified profession(s) or specialty(ies) and not to ineligible “S” shareholders Yes, but transferee often has more limited rights, unless all other members approve sale/transfer No
Available in all states Yes Yes Yes No
Minimum number of owners One One Generally two Two


1 Assumes that the LLC opts for tax treatment as a partnership.
2 Professionals remain liable for their own professional negligence.
3 Generally, termination dates for LLCs provided for under state law may be overridden in the LLC agreement.

How C Corporations, LLCs, and LLPs* Protect Personal Assets

How C Corporations, LLCs, and LLPs* Protect Personal Assets

* In many states, owners of an LLP have only a reduced form of limited liability from the claims of the business’s creditors.

Should I incorporate my business?

Operating as a sole proprietor is often the simplest and least expensive way to organize your business. Even so, many business owners choose to incorporate their businesses. But taking that step has both advantages and drawbacks.

A chief advantage of incorporation is that the business assets of the corporation can be separated from your personal finances. As a result, your personal assets generally can be shielded from creditors of the business if you incorporate your business.

To maintain this legal separation (known as the corporate veil), you must observe certain formalities. For instance, you must keep corporate assets separate from personal assets, hold periodic shareholder meetings, and file reports required by various government agencies, including a separate tax return. The costs of establishing and maintaining corporate formalities are a disadvantage of incorporation and must be factored into your decision.

Another possible disadvantage of incorporation is double taxation of income. Double taxation means that after the corporation pays tax on its earnings, you must pay tax on corporate earnings distributed to you as dividends by the corporation. In many instances, corporations with 100 or fewer shareholders can avoid double taxation by electing to be treated as S corporations.

Before deciding to incorporate, you should seek legal and tax advice on what type of ownership best suits your business. Other forms of ownership may offer your company the advantages of incorporation (such as limited liability), but also offer more management flexibility or tax advantages. You might also want to consider how big you expect the business to grow, and the sources of financing you expect to tap. An experienced attorney and tax advisor can help you decide which form of ownership is best for your business.

How can I raise capital for my business?

The two general categories of financing available for businesses are debt and equity. Debt requires repayment of a loan. Equity involves raising capital by selling parts of the business to investors.

How much money your business needs, how the financing will be used (start-up, expansion, new development), as well as how your business is organized, its size, and its stage in the business life cycle (start-up, growth, or mature phase) are just a few of the things that may influence your efforts to raise capital.

If yours is a new business without a track record, you may have difficulty raising capital from lenders or investors. A first place to look for capital might be your own assets. You may be able to raise money for the business from your savings or borrow against a retirement plan, life insurance policy, credit card, or the equity in your home.

If your business is more established, you may be able to borrow from a number of sources. You can apply to banks or credit unions for loans. You can contact the Small Business Administration for information on the programs it administers to help businesses obtain financing. Your local chamber of commerce may be able to put you in touch with state and local agencies that provide financial assistance to new businesses located within your geographic area. You need to have a detailed business plan to provide to potential lenders or investors.

Your options to raise equity may include wealthy private investors known as angels, venture capital firms, private placement of equity, and investment clubs. Small business investment companies may act as lenders or investors. For some corporations, an initial public offering is used to generate large sums of cash through the sale of company stock. A potential drawback of equity financing is that investors may expect to exercise some control in the running of the business.

Some creative entrepreneurs can now use the Internet to raise money. The Jumpstart Our Business Startups Act of 2012 directed the Securities and Exchange Commission (SEC) to create rules that would allow entrepreneurs to raise money through crowdfunding without running afoul of existing securities issuance laws. The final rules took effect on May 16, 2016.”Regulation Crowdfunding,” as it’s now known, puts the following rules in place:

  • A small company can raise up to $1 million over a 12-month period through crowdfunding. (Some exceptions apply.)
  • Individual investors can invest certain amounts over a 12-month period across all crowdfunding offerings based on their annual income and asset levels. Investors whose annual income or net worth is less than $100,000 can invest the greater of $2,000 or 5% of the lesser of their annual income or net worth. Investors whose annual income and net worth are both at least $100,000 may invest up to 10% of the lesser of their annual income or net worth.
  • No more than an aggregate of $100,000 in equity crowdfunding offerings may be sold to an investor in a 12-month period.
  • Securities generally cannot be resold for at least one year.

In addition, small businesses will be required to provide certain information to the SEC, potential investors, and the crowdfunding platforms facilitating the transactions. Among other details, this information includes:

  • The price of the securities or the method of determining the price
  • The target offering amount, the fundraising deadline, and whether the company will accept investments exceeding the target amount
  • Financial statements that may need to be accompanied by the company’s tax returns and reviewed by an independent public accountant or audited by an independent auditor (Note: For companies offering securities for the first time, reviewed statements will meet the regulations)
  • A description of the business and how the crowdfunding proceeds will be used
  • Information about company officers, directors, and 20% or more owners

Moreover, crowdfunding companies will have to file an annual report with the SEC and provide it to investors.

Companies that will serve as funding portals have their own set of regulations to follow. Among them are the requirements to take certain measures to reduce fraud risk, to make crowdfunding company information available on their websites, and to provide communication channels that allow discussion about platform offerings.

Finally, before making any investment commitment, an investor must acknowledge that he or she has reviewed the funding portal’s educational materials, understands that the entire amount of his or her investment may be lost and is in a financial condition to bear the loss of the investment, and has completed a questionnaire demonstrating an understanding of the risks of any potential investment and other required statutory elements.

There are also internal business sources for raising business capital. Consider offering incentives to your customers for early cash payment (such as a discount) to accelerate your collections and free up operating cash. You may choose to lease company assets rather than buy them. Finally, your company may be able to negotiate special delayed-payment terms with suppliers or factor accounts receivable, which entails getting an advance on money owed to you.

Can I deduct home office expenses?

If you use part of your home to conduct your trade or business, you might be able to deduct certain related expenses. To qualify for the home office deduction, you must pass certain tests.

You must use part of your home regularly and exclusively for your trade or business. Exclusive use means that this space is not used for any nonbusiness purpose, such as watching television, during the tax year of the deduction. If the space is used for business only sporadically or occasionally, you may not meet the regular use test.

Also, your home office must be used as either (1) your principal place of business or (2) a place where you meet customers, clients, or patients in the normal course of business. You may also be able to take a deduction if you use part of your home to perform administrative or management duties and you have no other location to do this work. If you are an employee and work from home, the business use of your home must be for the convenience of your employer in order to take the deduction. However, for 2018 to 2025, if you are an employee, you cannot deduct your unreimbursed home office expenses.

Certain expenses for a separate structure, such as a garage, may be deductible if the structure is used regularly and exclusively in connection with your business or trade. A separate structure that’s used in this way does not have to be your principal place of business, or a place where you meet customers, to qualify for the deduction.

If you qualify under these tests, you can deduct certain expenses related to the business use of your home, but your deduction is limited by the percentage used for business and the deduction limit. You can deduct both direct and indirect expenses that apply to the portion of your home that you use for business purposes. Direct expenses are costs expended solely on the part of your home that you use for business purposes, and these can be deducted in full (subject to the deduction limit). They include such expenses as painting, and installation of separate telephone jacks and wiring. Indirect expenses are costs that benefit your entire home, including the portion you use for business. Indirect expenses include mortgage interest, property taxes, insurance, and so on. You may deduct a percentage of these expenses. You may use a square footage calculation or any other reasonable method to compute the business portion of indirect expenses.

Also, you may be able to take advantage of a new, simplified way to calculate the home office deduction, which took effect in 2013. Under this method, instead of determining and allocating actual expenses such as mortgage interest and utilities, you would simply multiply the square footage of the office by $5.00. The maximum allowed is $1,500 (or 300 square feet). For more information on this deduction, see IRS Publication 587, “Business Use of Your Home.”

If you are self-employed and not a farmer, you must file IRS Form 8829 to take advantage of the home office deduction. IRS Publication 587 offers more information on taking this deduction.

What are the stages of business development?

What are the stages of business development?

Generally, businesses experience four stages: start-up, growth, maturity, and decline.

Start-ups are businesses that have recently come into existence. Before revenues are generated, businesses in the start-up stage generally require a large investment of time, effort, energy, and money to create a stable customer base, buy inventory, and engage in other business activities. The start-up stage is generally characterized by innovation, high risk, and low profit margins.

Businesses in the growth phase can often function using their own limited resources. Ideally, during this stage, consumer demand is established and increases. Additional help is often needed in production, manufacturing, general operations, or sales in order to continue growing. The company typically experiences increasing sales and profit margins as a market is established.

Mature firms have achieved a certain amount of name recognition. Contacts are well established, sales require less effort, the business produces a reliable stream of cash, and borrowing becomes easier. At this point, intensive marketing may be needed to increase or maintain market position, and little product innovation occurs. Profit margins tend to stabilize.

Businesses in the declining phase tend to experience a shrinking market. There is usually no product innovation, costs are cut to preserve profits, and the profits that remain are usually thin.

The time it takes to reach or to pass through each stage varies by business. It is important that you properly identify the life-cycle stage of your business so that you can plan appropriately and establish realistic goals for the future.

Is buying a franchise a good way to get into business?

Though far from simple, franchising can be a good way for you to own a business with both a proven method of operation and a familiar name and trademark. Before choosing a franchise, consider your interests, experience, knowledge, and personality. Though your franchisor will likely offer managerial support and training, you will be more successful if you have an interest in or experience with the business in which your chosen franchise operates. For example, a former restaurant manager might be more successful in acquiring a fast-food restaurant than a muffler shop.

Don’t forget the fees and restrictions that come with franchise ownership. Do you mind paying royalties or relinquishing some control to the franchisor? For example, the franchisor typically can dictate things such as the style of uniforms, the way the product is presented, and even where you buy your supplies. If such franchisor control will bother you, franchising may not be for you.

When you have chosen one or more franchises in which you are particularly interested, you’ll need to examine each very closely. Your examination should include a careful review of the franchisor’s Uniform Franchise Offering Circular (UFOC), a document containing information submitted to the FTC that the franchisor is required by law to provide you with before you sign a contract. In addition, you should investigate the franchisor’s credibility by contacting other franchisees and consumer agencies like the Better Business Bureau. It may be wise to contact some franchisees who have failed, so you can get a balanced view of the risks.

Last but not least, you should seek the advice of professionals who are familiar with franchising, such as a lawyer and an accountant. They can help you understand the franchise agreement, which is usually long and complicated, before you commit to it.

Should I buy an existing business or start from scratch?

Should I buy an existing business or start from scratch?

That will depend on the specific type of business you want to own and the area in which you choose to operate. An existing business may offer a familiar product or service with an established base of customers, suppliers, and employees. For some people, the simplicity of starting out in an established business outweighs the disadvantages, including a higher purchase price.

However, an existing business may not be for sale in the industry, field, or region you have chosen. Some businesses that are for sale may not be good buys. For example, the equipment may be outdated, or the business may not be highly regarded in the community. The business may already have a reputation and course of dealings that could be very difficult to change, and you may be buying the seller’s headache. In other words, the reason the business is for sale may be a good reason for you not to buy it.

If you have a brand-new idea, there may be no other businesses engaging in the product or service you plan to provide. The absence of an existing business may force you to start your own from scratch. Even if a business is for sale in your chosen field or region, you may still choose to start your own for any number of reasons, including the purchase cost and your access to suitable financing.

Before deciding to buy an existing business or to start one on your own, engage in some research. Study the industry, the competition, and your target market. Consider the type of business you want, where you would like to operate, and your access to financing. Your research may indicate whether it is less costly to start your own business or to buy a going concern. As you evaluate your options, remain open to all of the possibilities.

How does a limited partnership work?

A limited partnership is a form of business ownership that consists of general partners and limited partners. There is no maximum number of either type of partner, but there must be at least one general partner. The general partners manage the partnership and are typically personally liable for all of the partnership’s obligations, as well as for the acts of the other partners on behalf of the partnership. Limited partners are generally exposed to such liability only to the extent of their investment in the limited partnership. However, they are not permitted to participate in management of the partnership without the loss of this liability protection. A limited partnership offers some flexibility when allocating profits and control. This flexibility can provide certain tax and business advantages for individual partners.

State law and the partnership agreement govern a limited partnership. Your partnership agreement should spell out the entire arrangement between the partners and state each partner’s share of profits and losses. In cases where the partnership agreement fails to address an issue, state law will dictate how the partnership is to operate. In these instances, your state’s version of either the Uniform Limited Partnership Act (ULPA) or the Revised Uniform Limited Partnership Act (RULPA) will determine how disputes are resolved.

What should I look for in a business location?

The type of business you choose to operate will affect the specific factors you must consider when looking for a location. Some businesses need high visibility and high foot traffic, while others may not even need a sign. If you are operating a retail outlet, visibility, pedestrian traffic, and available parking may be crucial to your success. However, if your business is highly specialized (e.g., violin restoration), customers may go out of their way to find you after they learn of the service that you can offer to them.

Some of the considerations when choosing a location include:

  • Do you need a separate facility? Should you own it or lease it?
  • Are there any environmental restrictions that may apply to your business if it locates in a particular area?
  • What are the zoning laws?
  • Does your business lend itself to an industrial park, a downtown district, or a rural location?
  • Will the local government (i.e., city hall, county clerk) require a permit or taxes to operate in a certain location?
  • Are there additional costs associated with certain locations, such as higher rental rates, or higher income or property taxes?
  • What are your likes and dislikes about locations that you patronize? Try to look at potential locations as a customer might.

If you are planning to run your business from your home, remember to check local zoning requirements. Some communities do not allow businesses of any type (not even private piano lessons) to operate in residential areas.

What benefits should I offer to my employees?

The benefits you offer to your employees should be as attractive as you can afford. They can help you recruit new employees and retain those who are crucial to your company’s success. As a business owner today, you have a comprehensive array of basic, elective, and fringe benefits to consider:

  • Basics, such as vacation, paid holidays, sick leave, and a health insurance plan, are often needed to be competitive in today’s benefits market. In large companies, most employees also expect a qualified retirement plan to be available.
  • Consider including long-term and short-term disability coverage, group life insurance, dental and vision care, stock options, and contributing to or matching your employees’ contributions to the company’s retirement plan.
  • Other benefits you can offer include fringe benefits, such as the use of a company car, flextime, telecommuting, parking passes, public transportation passes, club memberships, or tickets to sporting events.

You might view these from the aspect of which ones actually cost the company money. For example, unless you need a certain number of staff on shift, flextime may not actually cost you money. You can also set up pretax accounts for employees to save for dependent expenses. The only cost to your business is the administrative fee.

The cost of providing these benefits to your employees is often tax deductible to your business. You also may be able to exclude the value of the benefits from your employee’s gross income. This reduces your taxable payroll, resulting in a decrease in your Social Security, Medicare, and state and federal unemployment tax obligations.

Should I buy or lease assets for my business?

This decision depends on several factors, such as the cost of the asset, your cash and/or credit position, and the asset’s value to you now and in the future.

In the short term, leasing an asset allows you to try out a product without making a lengthy commitment. If you find the item does not meet your needs, you are not stuck with it as you might be if you had bought it and had difficulty reselling it. For items that quickly become technologically obsolete (e.g., computers and communications equipment), successive leasing allows you the flexibility of upgrading. In most cases, a lessor (particularly of office equipment) will also provide maintenance support on the items you lease.

Buying an asset provides you with equity. But it may also require a substantial cash outlay for an outright purchase or a down payment. Certainly, obtaining credit for a large purchase (e.g., an office building) may be difficult, and credit for leases is easier to obtain.

In contrast, you will likely spend more dollars by leasing over the life of the asset than you would with a purchase, even if you consider the interest payments on a loan. This is particularly true with real estate. The interest you pay on loans to acquire real property may be tax deductible as a business expense, as may maintenance costs and depreciation on the asset. Also, even though most lease payments are fully deductible as business expenses for tax purposes, your purchase of the asset may provide greater tax relief in the long term.

As a general rule of thumb, buy the asset if it will increase in value over time and you plan to keep it more than five years. If the asset will decrease in value, lease it.

What kind of insurance coverage do I need for my small business?

Your insurance needs will obviously depend in part on the type of business you operate. However, all business owners should consider at least three types of insurance.

One, you may need business property insurance to cover your assets against various losses that result from natural and man-made causes. Check the policy to determine what assets and events it covers, and purchase riders for any additional coverage you feel is necessary. You may want to cover any building you own and its contents (e.g., furniture, office equipment, inventory, and supplies). If you lease space, you may still want to purchase property insurance; your landlord’s building insurance will not cover your business possessions. If you run your business from your home, you should consider purchasing separate business property insurance. In most cases, your homeowners policy does not cover the use of your home for business purposes.

Two, you may also need liability coverage to protect against lawsuits that could arise if the services or products you provide injure or harm your customers or their property. Liability insurance pays the cost of these damages, as well as attorney fees and costs. A similar type of protection for professionals is called Errors & Omissions insurance.

Three, if you have employees, your state may require you to purchase workers’ compensation insurance. This insurance covers medical expenses and at least a portion of lost wages for employees injured or taken ill as a result of their employment. Your state’s laws determine the maximum number of workers you may employ to be excluded from mandatory coverage, and the types of employees (e.g., independent contractors) that you may exclude from coverage.

Don’t most small businesses fail?

Although it’s true that many new small businesses go under within their first year or two, there are usually reasons that can explain their failure. If you’re aware of the pitfalls associated with the start-up of a new enterprise, you can take steps now to maximize the chances that your business will succeed.

Don’t start a business you know nothing about. If you’re a pastry chef, don’t open an auto-body shop. Your experience, skill, and knowledge of the business you wish to run are key to its success.

You’ll want to conduct extensive market research to determine if the product or service you will offer is currently in demand. Define who you’re marketing to and target your message to them. Also, consider the most favorable time to market your product or service (e.g., toys at Christmas). Of course, another key to your success is location, location, location. Finally, plan your advertising campaign and consider how you will distribute your product or service.

Pay attention to your competition. Be sure your product or service offers your customers something your competitors do not.

Set up a written business plan detailing the design of your business growth. Organize a start-up team of people who have abilities you lack. Determine how you will obtain the capital to finance your project, and be sure you have adequate capital. More importantly, make sure you have enough to live on. Many new businesses do not generate income immediately. Finally, include in your business plan an exit strategy for closing the business should things not work out as you had hoped.

How do I find good advisors such as lawyers and accountants to help with my business?

To run your business successfully, you may need advice in a number of diverse areas such as financial planning, accounting, law, taxation, insurance, and investment management. For this you may have to hire one or more advisors. Before you hire an advisor, however, it is important to understand your needs, because a well-chosen advisor can point your business in the right direction and help you pursue your goals.

When looking for a particular advisor, start with a referral from someone you have worked with previously or from colleagues you respect. If that doesn’t work, call a local referral agency or local professional association. Other options include the Internet and advertisements in the local media.

Before your initial meeting with the advisor, prepare a list of questions and topics you wish to discuss. Topics you may choose to cover include the advisor’s experience, education, credentials, licenses, area of specialization, and references. After your initial meeting with the advisor, evaluate the meeting. Ask yourself the following questions:

  • Did the advisor listen to you?
  • Did the advisor understand your situation completely?
  • Does the advisor work with other people in your business?
  • Did the advisor make any suggestions or offer any advice?
  • Is the advisor willing to work with other advisors?
  • Did you feel comfortable with the advisor?
  • Do the advisor’s fees work within your budget?

If you’re satisfied with the answers, you may have identified someone to help you with your business.

How can I find good employees for my business?

In a job market where the economy is strong and unemployment is low, finding qualified employees may be difficult. However, in a slow-growth or recessionary environment, finding qualified individuals will probably be much easier.

Think about the type of employees that you want to hire. The skill level and experience requirements you set will determine the best search method for you. You should consider recommendations from friends, family members, and business associates. You may also find help through professional, government, community, and religious organizations.

While word-of-mouth recommendations often result in the best candidates, another option is a career-oriented website. These sites are typically user-friendly and full of qualified job seekers looking for the right opportunity. Some sites can even manage your search by keeping a list of candidates you’re interested in or not interested in, those you’ve contacted, those who’ve contacted you, and so forth–all with the click of a mouse. You can find a list of these sites by typing “job,” “career,” or “employment” into your favorite search engine. Most sites charge a flat rate for their services.

Do you need someone to make deliveries or wait on customers? Try posting flyers at the local high school or college campus. Find out if local colleges and technical high schools have training programs in your business (e.g., culinary arts or computer skills).

Although the traditional “Help Wanted” sections of the newspaper are rapidly becoming obsolete, they can still be helpful if you’re looking for a local candidate for unskilled or part-time work. Placing an ad in the Sunday edition of a local newspaper will likely allow you to reach a wider audience than you could reach with the same ad on any other day.

If your goal is to find a highly skilled professional or an executive with years of experience, your best bet may be to hire a professional headhunter or search firm to assist you. These firms will do the legwork for you (e.g., sift through resumes, conduct initial interviews, and weed out unqualified candidates), but the service typically comes with a substantial price tag. Most will charge a percentage of an employee’s first-year salary as a fee. If you have a small business and funds are tight, you may be better off conducting your own search via the Internet or professional organizations. The money you save can be used to attract new employees or hold on to the good ones you already have.

I am buying a business. Can I make the seller sign a noncompetition agreement?

Yes. A noncompetition agreement can be either a distinct agreement or part of a sales contract. Its purpose is to prohibit the seller from working in or starting a related or competing business in a specified geographic area for a specified period of time.

If sensitive or confidential information (e.g., customer lists, pricing information, manufacturing or sales materials) is a component of the business you’re buying, you can require the seller to sign a noncompetition agreement. This will prevent the seller from starting a similar business or going to work for a competitor and walking away with the customers, the employees, or the know-how of the business you just bought. Simply put, it prohibits the seller from competing with you. You may also want to consider entering into noncompetition agreements with the seller’s employees.

A noncompetition agreement will be legally enforceable only if it is properly drafted. The courts will generally enforce a noncompetition agreement only if it is drawn narrowly, defines the interest you want to protect, and is related to what you want to achieve–namely, to prevent the seller from competing with you.

Note: Laws regulate the enforceability of noncompetition agreements in many states. They may be unenforceable in some states, and their enforcement may be limited in others. Consult an attorney to determine whether and to what extent noncompetition agreements are enforceable in your state.

I’m an independent contractor. Where can I get health and disability insurance?

It depends on the laws in your state. In most states, you can purchase an individual or a one-person group policy for your health insurance. Both are available as managed care or indemnity plans. The big difference is guarantee of acceptance.

One-person group policies can’t refuse to insure you or your dependents because of health problems. But, you will have to prove that you operate a legitimate business. Usually, this requires supplying copies of your tax returns and business licenses. In any case, as of 2014, the Patient Protection and Affordable Care Act provides that you can’t be denied coverage based on your health status or health history or the health of a family member included in coverage. And, since you don’t have coverage available through an employer, you can shop for and buy coverage through either a state-based or federal health insurance Exchange Marketplace.

Disability income insurance is vitally important to the self-employed and will give you an income if you get sick or injured and cannot work. It is available to you as an independent contractor, but it can be difficult to get. The insurance company will require several years of tax returns and a medical examination. Like all insurance, the insurance can be rated or declined if you have health problems or the insurance company feels you have a dangerous job that makes you a higher risk.

The amount of coverage you can purchase is based on your income, age, and occupation. Premiums vary, depending on the waiting and benefit periods you select, and on the percentage of income you insure.

I’m thinking about opening a day-care business in my home. Does this raise any insurance issues?

Operating a day-care business in your home presents an increased liability risk–the possibility that someone will be injured in your home or that your property will be damaged. Your standard homeowners insurance policy may not provide enough coverage for either of these situations. In fact, some policies specifically exclude coverage for home day-care businesses.

Contact your insurance company to ask whether it will allow you to attach a rider or endorsement to your existing homeowners policy that will extend coverage to your day-care business–a business owners policy might be appropriate. If not, you should consider purchasing a separate policy to cover your day-care business. Even better, some insurance companies offer special day-care policies that will provide you with additional liability coverage. This type of policy is completely separate from your homeowners policy. Check with your insurance company for more information.

Beyond liability coverage, you may have additional insurance needs. If you’ll be driving any children in your car, you’ll want to make sure that your auto insurance policy provides coverage for the business use of your personal vehicle. If it doesn’t, you should think about purchasing a business auto insurance policy. You may also want to consider legal defense coverage that will cover your legal fees if you’re sued for the emotional, physical, or sexual abuse of a child in your care. For more information about legal defense coverage, contact your insurance company.

I use my laptop computer for my home business. Is it covered under my homeowners policy?

Homeowners policies usually don’t cover laptops used for business. Check with your insurer to find out what your other options are. You may need to purchase incidental business coverage, add a floater to your homeowners policy, or purchase a separate laptop policy.

Can I get disability insurance if I’m self-employed?

Yes. In fact, if you’re self-employed, disability insurance is even more important for you than for the average employee. If you are injured and are unable to work, you don’t have the built-in luxury of paid sick leave to tide you over. So you’ll want to take a serious look at your financial situation and decide whether your cash reserves are sufficient to carry you through an extended disability. If not, disability insurance is a good idea for you. At any age before 65, you are statistically more likely to suffer a disability of more than 90 days than to die unexpectedly.

If you purchase it, disability insurance could be the only thing that prevents you from losing things such as your home or your business. When you’re unable to work for an extended period of time because of an injury or illness, disability insurance provides a financial safety net by paying you monthly benefits until you are able to return to work. Since your business is likely your only source of income, your disability insurance policy should have as short a waiting period as possible. Most disability policies offer waiting periods of 30 to 180 days after the onset of the disability. When applying for the insurance, you can choose a policy with the waiting period and benefit period you want. Keep in mind, however, that your premium will increase as the waiting period gets shorter and the benefit period gets longer.

Being self-employed, you’ll have to purchase this insurance on your own. The availability of coverage will depend on factors such as your occupation, whether you work from home, and whether you have any risky hobbies (e.g., motorcycle racing). Your insurance agent should be able to help you find a disability policy that meets your needs.

How can I get affordable health insurance if I’m self-employed?

If you are self-employed, one of the best ways to obtain affordable health insurance is by enrolling in your spouse’s employer-sponsored health plan. Group health coverage is often significantly less expensive than individual health insurance, and your spouse’s employer may pay part of the cost.

But if this is not an option for you, look into group health insurance sponsored by a local or national association. Many kinds of associations offer group health insurance, including national and industry groups, groups created specifically for small employers, and chambers of commerce. To be eligible for an association’s insurance plan, you’ll need to join the association, and possibly take a medical exam before you’re accepted into the health plan.

In some states, private insurance companies will provide health insurance to the self-employed. Check with your state’s insurance department to find out which health insurance companies do business in your state. Although private insurance can be quite expensive, premiums will vary with each company, so it’s best to shop around.

If you’re reasonably health and need only occasional health care, one way to reduce your premium cost is to purchase a high-deductible health plan. A qualified high-deductible plan may be paired with a health savings account that will enable you to save money for health-care expenses tax free.

Because the cost is generally reasonable, buying short-term medical insurance may also be an option worth considering if you only need insurance for a brief period of time. Policies are effective for one to six months, and you can generally renew them once. However, not everyone will be insurable, and no coverage for pre-existing conditions is available.

As of 2014, you also have the option of shopping for and purchasing individual health insurance through either a state-based or federal health insurance Exchange Marketplace.

Ask your insurance agent to help you find health insurance. Your agent will be familiar with both the local markets and state regulations, and can guide you through the process of finding and applying for the proper coverage.