The Entrepreneurship Dream is, and always will be, to come up with an idea, start a business and become rich from your own efforts. Based upon this motivation, thousands of businesses fail each year, due primarily to not being familiar with the basics involved in running a business. This and the articles to follow will enlighten you, and give you a number of suggestions you can use to better guarantee your chances for success. The previous Young Money articles were based on the concept of business and the inspiration philosophies to accomplish your aspirations. Although more are still to follow, the following articles are slowly but surely introducing the gist of business and written with the warning that any and every business venture contains certain inherent risks, and any number of alternatives. We do not espouse that any one way is the right way or that our suggestions are the only way. On the contrary, we advise that before investing any money in a business venture, you seek counseling and help from a qualified accountant and/or attorney. Just about the first thing you should consider before deciding to start or purchase a business is the legal form you’ll be operating under.
There are basically four choices: sole proprietorship, partnership, limited partnership, and/or corporation. Each has a number of advantages and disadvantages. We’ll try to enumerate some of them for you. As much as anything else, for many people starting a business is a form of ego-gratification, and they form a corporation for some sort of prestige gain – just to say, “I own a corporation.” With just a little bit of observation, you’ll find that one of the major causes of business failures is due to the founder wasting start-up capital on frills, such as an impressive storefront office, expensive furnishings, and corporate legal costs. One of the basic traits you must develop if you’re going to be successful in business; is a tight hold on your expenditures. In fact, a good rule of thumb is that anything that does not make money for you or protect your investment, should not be purchased at this time. Very definitely, this applies to the expense of setting up your own corporation. Unless you have a partnership and start your business as such, the only real advantage to forming a corporation would appear to be that a corporate structure will semi-protect the property you personally own. For example: you own a home and car. You form a corporation to protect these possessions from business losses. Yet, if you can be found guilty of misusing corporate funds, your business creditors can pierce the corporate shield and come after your possessions.
Basically, if you invest everything you have in your business, as most newcomers do, you don’t usually need a corporation because you have nothing to protect. Your household possessions, personal belongings, generally your car, and even a portion of the equity in your home are all protected by the homestead provision of the Bankruptcy Act, and cannot be taken away from you. As a sole proprietor or partner of a business you’ll be paying taxes on your overall earnings, much the same as if you were holding down a salaried or hourly paid job.
Whether you do or do not take out money as a salary will have no bearing on the earnings of your business and tax return. The often-advertised advantage of incorporating, that you can manipulate your salary in order to save on tax dollars, is real because of corporation laws. However, SARS frowns on this practice, because once you understand this practice and use it to your advantage you will be contributing to tax. In other words SARS will not put its hand and take what it ‘claims’ fit, instead you will put your hand in your pocket and give SARS what it deserves; as the greatest of teachers taught “… give to Caesar, what belongs to Caesar…”not what he wants. When your business is successful and making a lot of money, definitely check with your accountant on the advantages of incorporating. Let us stop here for now we shall continue on this topic in the following articles. As you can see; I can only touch upon these business aspects, because certain things can be taught, but certain things need to be learnt!