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Starting A Business

Business Owner Vs. Self-Employed: Which is Right for You

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Have your entrepreneurial inspirations motivated you to run a business? If so, you are likely trying to decide if you want to incorporate or operate as a self-employed individual. But, believe it or not, these two are not the same. Instead, their business models work differently in several important ways, dramatically impacting how you run your company.

If you’re stuck trying to determine the best option when starting up, this guide is for you!

What Does it Mean to Be Self-Employed or a Business Owner?

In business, two of the most common interchanged terms are “self-employed” and “business owner.” The difference between these concepts relies on the application more than the meaning. Technically, if you’re a business owner, you are also self-employed. But, not everyone who is self-employed is a business owner—confused yet?

Essentially, you are a small business owner if you hire employees or independent contractors to help run your company. On the other hand, if you are your own boss, you are self-employed.

Those who own companies choose an entity formation to incorporate, such as a limited liability company (LLC). This step highlights how a self-employed person does not go through this process because they act as sole-proprietorship. All related business management duties, risks, benefits, income, and taxation pass through them directly.

Pros and Cons of Being an LLC or Sole Proprietorship

Any entity formation you choose to run a business under has advantages and drawbacks. To get a better idea of what you’re signing up for when choosing an LLC or Sole Proprietorship structure, a few pros and cons are below:

Pros and Cons of a Sole Proprietorship

Right off the bat, you enjoy minimal start-up costs when launching a business as a sole proprietor. Typically, there aren’t any filing fees, annual reporting requirements, operating agreements, or hiring of a registered agent. In addition to low upfront investment, income gets reported on your personal tax return.

With these budget-friendly advantages, there are some serious risks too. For example, your personal assets could be put on the chopping block if you fall behind on your debts because your business can’t afford them. This includes if someone gets hurt because of your services or products and decides to sue you for personal injury damages. It’s also challenging to acquire funding for a sole-proprietorship since you can’t share ownership interest. Lenders may view your business as a high-risk investment and say no.

Pros and Cons of an LLC

One of the most popular reasons small business owners rely on an LLC structure is to safeguard their personal assets from business-related liabilities. The possible tax savings can’t be ignored either since there are different types of limited liability formations to choose from. You can file as a partnership, single-owner, S or C-corporation, and more!

As incredible as this sounds, start-up filing fees can get pricey depending on your incorporated state. Every year a renewal fee is due to the Secretary of State. In addition, you will need to hire someone to act as your registered agent. Entrepreneurs with limited funds may find this challenging to afford. In addition to formation expenses, LLCs sometimes have to pay additional local and state taxes.

Company formation compliance

Cost of Forming Your Business as an LLC or Sole Proprietorship

A sole proprietorship is the default entity structure for anyone operating a business. No filing is necessary since this is automatic. For example, you’re a sole proprietor when you accept payment and ship out that product or pressure wash a customer’s fence.

Those who opt to form an LLC model immediately will pay for any required state filing fees, including the costs of all required licensing and permits to operate. In addition, most states require limited liability companies to submit an Operating Agreement and an Articles of Organization. These documents outline how your business gets managed, by whom, and what ownership stake all members have.

The price to set up an LLC varies by state, with some starting as low as a hundred dollars. However, you also have to remain compliant and submit an annual report to your Secretary of State to maintain good standing.

Self-employed individuals never worry about this additional responsibility because they are the only member of their company who has ownership.

What Liability Insurance do LLCs and Self-employed Businesses Need?

One thing that both LLCs and sole proprietorships should always have is insurance! Without it, the fallout from expensive lawsuit settlements, business interruptions, and dangerous climate events can leave your company financially devastated. A comprehensive Business Owner’s Policy can address many of your company’s daily risks.

Not sure options you have to choose from when creating a BOP? Below are the four most commonly bought commercial insurance policies and how they protect your business:

General Liability

One of the most important coverages you can purchase for your business is general liability coverage. It will protect your company against a wide variety of claims that could involve:

  • Property damage
  • Bodily injury
  • Libel claims
  • Copyright Infringement
  • Intellectual property theft

This coverage only applies to third-party claims and not those of your employees. If you have a customer or other company sue for any of the above, your policy will cover the costs of defending your claim and cover ordered damage settlements.

Professional Liability

Also referred to as Errors and Omissions (E&) coverage, a professional liability policy addresses claims against your company alleging financial losses. This insurance protects a variety of professional services, including accountants, attorneys, doctors, and more.

Some of the common scenarios that you would need this coverage for include:

  • Negligence (purposeful harm caused to a third party)
  • Financial loss caused by your services/advice
  • Mistakes and omissions you make
  • Not fulfilling the services you agreed to perform

Business Owners Policy (BOP)

This policy option is a bundle of several coverages into one. Many businesses choose this insurance to provide the most comprehensive liability protection possible. Often, these packages offer a better price than purchasing each coverage separately.

Standard BOP packages often include many of the following:

  • General liability
  • Business interruption
  • Commercial property
  • Professional liability
  • Commercial auto
  • Workers’ Compensation
  • Cyber protection
  • Hired and non-owned auto

Commercial insurance for self-employed individuals can offer effective defense against liability situations that threaten your financial stability. LLCs should also take getting insurance seriously since their business structure only prevents personal assets from being used to settle claims.

Businessman browsing for information

Who’s The Winner: LLCs or Self-Employed?

Believe it or not, both can be when you’ve just opened for business. A sole proprietorship gives you much more flexibility and control of how you’ll run your company in the beginning. You won’t have high start-up costs related to paperwork or registration, so you can focus on growing.

An LLC model is an excellent option once you are ready to expand and add more members to your entity. Costs are relatively low to set one up compared to corporations and partnerships, and you still get significant tax breaks. Plus, your personal assets are separate from your company, so you never have to worry about creditors coming after your private checking.

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Finance & Accounting

4 tips to find the funding that fits your business

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The facts are clear: Startups are finding funding increasingly difficult to secure, and even unicorns appear cornered, with many lacking both capital and a clear exit.

But equity rounds aren’t the only way for a company to raise money — alternative and other non-dilutive financing options are often overlooked. Taking on debt might be the right solution when you’re focused on growth and can see clear ROI from the capital you deploy.

Not all capital providers are equal, so seeking financing isn’t just about securing capital. It’s a matter of finding the right source of funding that matches both your business and your roadmap.

Here are four things you should consider:

Does this match my needs?

It’s easy to take for granted, but securing financing begins with a business plan. Don’t seek funding until you have a clear plan for how you’ll use it. For example, do you need capital to fund growth or for your day-to-day operations? The answer should influence not only the amount of capital you seek, but the type of funding partner you look for as well.

Start with a concrete plan and make sure it aligns with the structure of your financing:

  • Match repayment terms to your expected use of the debt.
  • Balance working capital needs with growth capital needs.

It’s understandable to hope for a one-and-done financing process that sets the next round far down the line, but that may be costlier than you realize in the long run.

Your term of repayment must be long enough so you can deploy the capital and see the returns. If it’s not, you may end up making loan payments with the principal.

Say, for example, you secure funding to enter a new market. You plan to expand your sales team to support the move and develop the cash flow necessary to pay back the loan. The problem here is, the new hire will take months to ramp up.

If there’s not enough delta between when you start ramping up and when you begin repayments, you’ll be paying back the loan before your new salesperson can bring in revenue to allow you to see ROI on the amount you borrowed.

Another issue to keep in mind: If you’re financing operations instead of growth, working capital requirements may reduce the amount you can deploy.

Let’s say you finance your ad spending and plan to deploy $200,000 over the next four months. But payments on the MCA loan you secured to fund that spending will eat into your revenue, and the loan will be further limited by a minimum cash covenant of $100,000. The result? You secured $200,000 in financing but can only deploy half of it.

With $100,000 of your financing kept in a cash account, only half the loan will be used to drive operations, which means you’re not likely to meet your growth target. What’s worse, as you’re only able to deploy half of the loan, your cost of capital is effectively double what you’d planned for.

Is this the right amount for me at this time?

The second consideration is balancing how much capital you need to act on your near-term goals against what you can reasonably expect to secure. If the funding amount you can get is not enough to move the needle, it might not be worth the effort required.

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Starting A Business

What to keep in mind when updating your business plan

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Why, when and how

Did you know updating your business plan should be a part of your regular business practices? If not, don’t worry — a lot of people skip this step. But it could benefit you to make this effort.

Read on to learn why updating your business plan is so important, how to tackle this task, how often you should make updates, and key things to keep in mind.

Let’s get to it!

Why should you update your business plan?

Black and white photo of man looking at laptop screen
Image source <a href=httpsunsplashcomphotosLks7vei eAg target= blank rel=noopener nofollow external data wpel link=external>Unsplash<a>

Outside of updating your business plan as a standard course of doing business (which we’ll discuss in detail shortly), there are a few noteworthy situations that warrant a full business plan overhaul:

You need to raise funds

If you need capital to make tech upgrades, grow your team, or expand operations, you’ll likely need to raise funds. Before you can reach out to new investors, however, your business plan must be up-to-date and reflect your company’s current financial situation, including operating costs, cash flow, business goals, and income projections.

Related: 10 small business funding options

You want to refinance

Similar to potential fundraising moves, refinancing your business loans requires an updated business plan because it outlines operating costs, your company’s challenges, and forecasted revenue. No lender will entertain refinancing or even new loans without an updated business plan and financials.

You want to launch a new product

Big business moves necessitate an updated business plan and launching a new product or service qualifies. A new product means new potential revenue, so updating your business plan to reflect that fresh revenue stream is critical. Be sure to include everything you would’ve when writing your business plan the first time around — like costs, vendors, time frames, target demographic/segmentation, and financial projections.

You want to expand your company

Company expansion can take many forms. Perhaps you’d like to open up a second location in another city. Maybe you want to purchase more warehouse space for your products. Large technological upgrades are considered expansions, too. No matter what type of growth you have in mind for your business, updating your business plan to reflect this intention to grow is a key step before reaching out to investors and potential lenders.

You’ve changed your supply chain

Supply chain issues have become an acute problem since 2020. However, there has always been a need to update business plans to reflect changes in the supply chain and/or a change in the vendors you decide to use. Any time you make changes to your vendor list, put updating your business plan on your schedule.

Related: How to overcome supply chain challenges in 2022

You have new competitors

If a new major competitor enters your industry, it’s likely to affect how you do business. Whether that means your share of the industry “pie,” so to speak, decreases, or it means a new brand changes the expectations for your industry and you need to now follow suit — a  business plan update is in the cards to reflect these changes.

When and how often should you update your business plan?

As you can likely see by now, updating your business plan is an essential part of having a business plan in the first place.

It’s a dynamic document that needs to be updated to meet where your business is at right now.

Though you don’t need to update your business plan to reflect every little change, making regular updates is a solid business practice.

If your company is chugging along with no major changes, giving your business plan the once-over at least once a year should be sufficient for updating financial data and projections. However, if your company undergoes a major shift, you’ll want to update your business model when you expect that change to occur.

How to update your business plan

Close-up of person looking at charts next to smartphoneClose-up of person looking at charts next to smartphone
Image source <a href=httpsunsplashcomphotosjrh5lAq mIs target= blank rel=noopener nofollow external data wpel link=external>Unsplash<a>

Now that you have a sense of how often you should update your business plan and why you need to do so in the first place, let’s turn our attention to the real meat of this article: how to update your business plan. Here are six key things to keep in mind when updating this most important document.

1. Make updating your business plan part of your regular review process

One of the biggest obstacles to updating a business plan is scheduling the time to do it. Business owners are busy people, and it’s all too tempting to leave these sorts of tasks until tomorrow. However, you can get around this by simply incorporating a business model review into other processes you already complete.

If your company does quarterly financial reviews, add in a business plan review during this time. You’ll already be taking time away from day-to-day business operations to complete the financial review, so you might as well spend a couple of extra hours updating your business plan.

You could even schedule it for when you do your taxes or prep documents to send to your accountant. Add the business plan update to your to-do list for those days.

2. Include your team in the process

If you have any kind of team for your business, you must include them in this process. They are likely involved with the day-to-day functions of operating your business and can provide key insights into what the future of your company looks like. For example:

  • Ask the marketing team for reports on trends they’ve noticed over the past six months or so.
  • Ask sales about any demographic shifts they’re noticing in the customer base.

Those who are doing work within your industry daily are going to feel the subtle shifts within the market before anybody else. And they might have insights into what projections look like — things that you might not come up with on your own.

Leveraging your team means getting a more complete picture of what your company has accomplished, how it’s currently positioned, and where it will go from here.

Pro tip: You can manage these tasks directly in Microsoft 365 as well. Sharing documents is a snap and you can collaborate on your business plan in real-time.

3. Note regulatory changes

When updating your business strategy, take some time to research any regulatory changes that have taken place in your industry. New rules, regulations and laws are passed all the time and many can have a direct impact on how you do business.

For instance, payment processors now must report your earnings to the IRS. This change could affect how you report income and change your relationship with contractors. The implementation of sales tax on internet sales made in the state where your business is located is another example from the past that had a profound effect on companies doing business online.

Such changes can impact your financial reporting and/or make your business more competitive, and less competitive, and otherwise change your approach to how you do business.

4. Note vendor/supply chain changes

Another factor to take into consideration when updating your business plan is any vendor or supply chain issues or changes that have occurred since your last plan update. If a vendor suddenly changed their billing system or adjusted their fees, you might need to account for this in your business plan as it could cut into your profit margin projections.

Or, if the supply chain has made it so you need to use multiple vendors to meet your company’s needs without experiencing disruptions, your business plan should make note of this change — and even indicate that supply chain issues are an ongoing problem.

To be honest, nearly every company has experienced some issue with the supply chain since 2020, so if you haven’t updated your business plan since then, now is probably the time.

5. Keep broader economics in mind

The overall state of the economy can directly affect your company’s performance. And while economic downturns can leave some industries untouched, it’s rather rare. But even if your company is lucky and hasn’t been affected by broader economic fluctuations as of yet, keep updating your business plan on your radar.

The economy as a whole can impact your vendors, shipping, packing, contractors and other services related to how you do business. It can also affect staffing and the accessibility of talent. So even if your company hasn’t experienced negative effects, acknowledge the general state of the economy in your business plan and include contingency plans should issues arise.

6. Follow demographic changes

We’re currently in the midst of huge demographic changes in the United States and all over the world, which will have a direct impact on how you do business and what the future might bring to your company.

As of 2022, the median income among the middle class is going down, the income of the very wealthy continues to go up, and the median age of workers is going up, too. People are having babies later in life and at lower rates than in the previous generation.

All of these factors can directly impact your revenue potential as well as who your target demographic or ideal customer even is. And this means you need to update your business plan to account for these shifts. Continue to revisit demographic data and projections a couple of times per year to ensure your internal projections still apply and to see if your processes need updating and track your actual results. If so, a business plan update is in order, too.

What to do next

If you haven’t even so much as glanced at your business plan in a bit, now’s the time to dust off the document and give it a once-over. Times are changing — seemingly faster than ever before — so it would behoove you to set aside some time to update your business plan sooner rather than later.



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Business Ideas

Build your own brand (and stop reselling!)

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Take control of your own branding

I used to think that every “brand” was supported by its own factory and an army of in-house employees. I was wrong. Branding your own product doesn’t mean you need to design and manufacture it yourself.

Rolls of frabric with prototype clothing in background

Of course, most brands partner with factories, freelancers and agencies for extra support. But many others use white label designs straight from a factory. Here’s how it works:

  1. You find a manufacturer with a product design you like
  2. Add your brand name on it
  3. Sell it as your own

Sometimes there’s simply no need to design a product from scratch. There are plenty of well-designed products out there that just need a brand to sell them.

Where can you source white label products?

You can use sites like Alibaba and AliExpress to find pre-designed products ready for your brand name. No need to invest in product development, which can take months (or sometimes years) before a final sample is ready for production.

This Reddit post shows you how to use Alibaba or AliExpress to build your own brand step-by-step with just $1,000, a little imagination and a healthy amount of drive and ambition.

White labeling gives you so much freedom compared to reselling other brands’ products.

It can be the stepping-stone you need to put your brand on the map — even if you do end up reselling in the future or invest in R&D for products down the line.

1. Building your own brand means having control

When you buy stock from other brands to resell on your website, you’re not in control. They are able to dictate things like:

  • Singular keyboard buttons on blue background that spell CTRLSingular keyboard buttons on blue background that spell CTRLThe price you pay
  • Whether you can discount it and for how much
  • How you can and can’t market it

When you start your own brand, you have control. If you source directly from a factory, you can afford to drop prices to undercut competitors, while still making large margins. The tough design decisions have already been made, but you still get to make the product yours by customizing its look and adding your branding.

Where the brand goes in the future is up to you — it’s your adventure!

2. It reduces competition

Selling other brands’ products seems like an easy way to get rich. But often, you end up competing against other companies selling the exact same products. It’s not easy.

When starting your own brand, you’re the only one selling the products with your name on them, so you can build your own reputation.

For example, if I sell Beats headphones, I have to compete against all the big names already selling them. Those bigger companies can undercut me because they buy the headphones in bulk, which means they can sell them at a cheaper price.

So without competitive pricing, I could be crowded out of the market altogether. There’s just no way for a one-person company to achieve meaningful success by selling Beats headphones.

Black headphones laying on white desk

Black headphones laying on white desk

That said, if I launch my own brand of headphones called Nick’s Brilliant Headphones, I’ll still be competing against other companies making headphones. However, I’ll be the only person in the world selling Nick’s Brilliant Headphones.

With proper branding, some good reviews and the ability to maintain a good reputation, I could be on my way to the top.

3. It’s a stepping-stone to success

Perhaps you’ve heard of the popular saying, “Mighty oaks grow from little acorns.” The understanding of this quote means that sometimes something grand can stem from a small venture.

It doesn’t matter if you start out selling water bottles you bought on Alibaba, then rebrand them in your living room. After all, Jeff Bezos started Amazon out of his home.

The biggest brands have humble beginnings. There’s no telling how far you’ll take your brand once you get off the ground.

You could be importing en-masse from factories this year, developing your own products the next and building your own factory in five to ten years. As your brand reaches more people, it’ll gain recognition and loyalty. You’ll be able to take the brand wherever you want from there.

Importing products and adding your brand name to them may seem primitive, but it’s the first step to success and ownership over your future.

4. You can become the distributor

Today, you might approach Beats by Dre to resell their products. But instead, imagine if people approached you to sell your product?

You still get a cut of every sale, but you also get the following perks:

  • Increased brand exposure
  • Added benefit of a new revenue stream
  • No burden of selling to customers all by yourself

You can go from begging other brands to let you work with them to the person whose products everyone else wants to stock.

I know several companies whose products are stocked in brick-and-mortar stores — and they all tell me it adds cushy extra income. There are always people who prefer to shop in a store or buy important last minute purchases in-person so they don’t have to wait for delivery.

5. Increase profits by cutting out the middlemen

If you resell products from an existing brand, you pay a wholesale fee to them. This helps cover their margin, plus the cost of the product, but may leave you with a lower profit.

Scissors next to orange thread and measuring tape

Scissors next to orange thread and measuring tape

If you start your own brand and sell it online, you only pay the manufacturing costs and any import and shipping fees.

That wholesale fee you would’ve paid another brand is money in your pocket.

You can then afford to undercut other sellers of similar products, while still maintaining a great margin.

It’s time to build your own brand

There are many merits to selling other people’s products. But the advantages speak for themselves when you have:

  • Time
  • Determination
  • Personal drive to start and build your own brand

And with white labeling, it’s easy to get started with a small investment.

Save the time and effort of marketing someone else’s products and promote your own instead. It could be the start to your brand becoming a household name.

Have thoughts on building a brand? Share them in the comments!

Image by: Mediamodifier on Unsplash



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