Almost half of new businesses do not survive the fifth year. And one of the reasons behind failed businesses is poor decisions.
Venturing into the right market at the wrong time, straying too far from the business plan, and bad location are some of the bad decisions that make businesses fail.
Another common but often overlooked bad decision is choosing the wrong entity.
This is because the entity you choose for your retail business determines:
- How much additional funding you can get to save your business from financial problems
- Your tax expenses
- Your ability to expand your retail business
- How seriously customers take you
We will look at 3 of the most popular entities for starting a retail business and you can choose what entity works best for you based on your priorities.
Sole Proprietorships
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Setting up a Sole Proprietorship means you’ll have an unincorporated retail business.
One advantage of a Sole Proprietorship is that you’ll have an easy time forming or dismantling it and you’ll report the business’s income on your personal tax returns.
But growth is limited with Sole Proprietorships.
If you plan on expanding your business, this entity is not going to make it easy as it’s difficult to raise funding for it. You could also lose your personal assets to business creditors in case your business fails.
Limited Liability Company (LLC)
An LLC is one of the most popular business structures and it would also make a great fit for your retail business.
To start with, you’ll be free from corporate taxes, like a Sole Proprietorship. But you may need to pay LLC taxes depending on the chosen state for the LLC formation.
Operating a franchise for your retail business will be easy but raising additional capital through issuing shares will not be possible.
Corporations
If you want tight protection from personal liability to business debts, go for a Corporation.
Its formation will be complicated and so will its maintenance.
Its formal structure also makes stakeholders trust your business more. You can also issue shares to raise capital for business expansion. This makes it the best entity type if you plan to expand your business.
But brace yourself for hefty corporate taxes and double taxation.
The Choice is Yours
You now know what to expect from each of these three business entities. Each has its fair share of pros and cons, and this means the final decision lies with you.
Do more research about what each entity offers to make the right choice. Start by studying this infographic by GovDocFiling.
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Author Bio:
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
Image Source: BigStockphotos.com (Licensed) and from www.govdocfiling.com
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