The Most Important thing to Know Before Starting Your Own Business

You have a killer idea, or you’re really good at something, and you want to start a business. Did you know that according to the Small Business Administration (SBA), approximately 543,000 businesses are started every month, and more businesses shut down each month than start up?

Many people start their own business because they determined they were good at something and could make a living doing it. However, I’d like you to consider the two primary options you have here:

  1. Be good at something, start a business and make a living doing it, or
  2. Be good at something and have an employer pay you for being good at it

Both are viable options and can lead to a fulfilling career in something you enjoy. The Grand Canyon-sized chasm separating the two paths is one important skill; Are you good at business?

“The person looking back at you gives you that look; you know the one, where you seem to be the one ruining their day, as if you’ve inconvenienced them.”

Some people believe if they have the very best product their business will succeed. In reality, Walmart is one of the world’s largest retailers, with $485 billion in revenue in 2017, and their products aren’t exactly top-shelf. If you’re like me, you’ve stood in a Walmart at the one open line for 25 minutes while the other 16 registers are unmanned. Maybe you have a child with you, tugging at your clothes asking to go home. When you finally have a chance to pay for your sub-par products, you load them onto the conveyer belt and approach the cashier. The employee looking back at you gives you that look; you know the one, where you seem to be the one ruining their day, as if you’ve inconvenienced them.

Would you run a business this way? My guess is you wouldn’t. At least, that’s not how you’d begin. Walmart is a perfect example of someone who has an inferior product, but an incredibly profitable business model. The owners of Walmart, the Walton family, are not just good at something, or offering the best product. They’re good at business.

You may have a fantastic idea, or be incredibly talented in one area, and hope to make a living working for yourself. However, your business shouldn’t start because of those things; it should start because you want to run a business. Running a business includes many things that aren’t part of your fantastic idea, such as record keeping, checks and balances, AP/AR, hiring, firing, etc. Can you recognize what drives the profitability of your product? I see many small business owners who can’t tell me basic things like what their mark-up is or how much their gross sales were for the tax year. How can you know what your profit margins are, and which choices to make when selling your services, when you don’t know these things?

You don’t track this information just for tax purposes; you do it because you want to be successful in business. Having your records perfectly kept is a nice bonus come tax time.

If you are going into business for yourself, or know anyone who is, you desperately need competent advice from tax, financial and legal professionals. Ask yourself this: “How many businesses will I start in my lifetime?”

How to organize my new business?

One of the most common questions I get when I meet with my clients for our one hour tax preparation session each year is “I want to start a business, a friend told me I needed an LLC. How do I set one up?”

Ah… the “friend”. The “friend” is to tax preparers what WebMD is to doctors. Friends can be a very broad, shallow source of information. I encourage you to listen to your friends and glean what information you can from them and their experiences. However, you should always use your tax professional as a sounding board for information you hear in your social encounters with others and from the internet. Your tax preparer’s job is the interpretation and application of tax laws based on your facts and circumstances.

So the friend told you to set up an LLC. What is an LLC? When I ask most people, their answer is “Limited Liability Corporation”. In reality, LLC stands for Limited Liability Company. You are not incorporated when you become an LLC. An LLC for tax purposes is considered a “Disregarded Entity”. The IRS doesn’t recognize an LLC as any type of corporation. Unless you file election paperwork with your LLC, you’re considered what’s called a “Sole Proprietor”. This means you’re in business with, and for, yourself.

An LLC in and of itself offers you no tax benefits and depending on the state, may not even provide you with much limited liability. If you’re concerned about liability in your new small business, for example if you sell custom firearms, you need to educate yourself on something called piercing the veil of the corporation. (Cornell Law) “’Piercing the corporate veil’ refers to a situation in which courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s actions or debts.”

This means you could find yourself in a position where you did everything you thought you needed to do, and you still didn’t have the liability protection you sought. Please consult with a competent attorney when determining how best to protect yourself and your small business.

Start Smart

Often times my advice to new business owners is begin with a DBA, set up a bank account in the business’ name and go from there. Keep your tax preparer involved, especially in the early stages, because there are many reasons to change to an LLC and incorporate based on the profitability of the business. Being incorporated is where the real tax benefits start to come into play.


If you are going into business for yourself, or know anyone who is, you desperately need competent advice from tax, financial and legal professionals. Ask yourself this: “How many businesses will I start in my lifetime?”

You have one chance to start off on the right foot. We would love to sit down with you and show you the tax benefits for different types of entities and how it will affect your business.  Call me at (281) 440-6279 for a free 10-minute consultation and we’ll talk about how to set you up for success!

Kevin Molen
Senior Tax Professional and Department Head

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Should I Open an HSA?

Should I Open An HSA Account? Are you considering a Health Savings Account (HSA)? If so, it is vital to understand what exactly an HSA entails. With this guide, you'll learn all about it: the advantages of an HSA and how it can help you manage your medical expenses....

Personal Finance Tips for Young Adults

As someone who has been working for most of their life, I wish there was someone out there who had shown me the correct way to save money for my future. Now that I am in my 30s, I have been getting better at saving money, but there are some personal finance tips that...

How to Track Expenses

There are many different methodologies, tools, tips, and tricks for tracking expenses, and it ultimately depends on your lifestyle and how actively and accurately you want to track them. This is information I’ve pulled from other sources and compiled into a few...

How To Accurately Record Commuting Mileage and Increase Tax Deductions

Increase Tax Deductions With the Business-Mileage Rule Using the Business Mileage tax deduction can be tricky. There are lots of situations that count while others do not. We don’t like commuting mileage. You should dislike it, too. It’s personal. It’s not deductible....

Bookkeeping 101

As a new business owner, you will certainly have some responsibilities you won’t be able to avoid. One of those non-negotiable part of your business is producing financial statements. It can be overwhelming trying to master a topic such as bookkeeping but don’t worry...

Bankruptcy – Everything You Need to Know

Everything you need to know Filing for bankruptcy protection is considered a statement on your ability to repay your debt to your creditors. Filing for bankruptcy will also put a halt to foreclosure or legal actions against you, and it stops creditors from calling and...

Top Tax Tips for 2023

Tax Refunds May Be Smaller This Year Plan now to learn these 2023 tax tips avoid surprises in the future! If you’re expecting a tax refund in 2023, it may be smaller than last year, according to the IRS. Your annual balance is based on taxable income, calculated by...

What is an EA?

Have you ever seen the title EA next to a tax professional’s name and wonder what it means? Or maybe you’re familiar with the title and you’re curious about the differences between an EA and CPA? Either way, in this blog I will be answering these frequently asked...

History of Federal Income Tax Rates: 1913 – 2021

The United States federal government levies taxes on the income of its citizens and legal residents. The Internal Revenue Service (IRS) is the agency responsible for collecting these taxes.  Federal income tax rates have changed several times since 1913, when the...

Familiarize Yourself With Tax Terminology

Yes, I know, tax terminology feels like a whole new language. For most people all of tax forms can be even more confusing than a foreign language. What’s the difference between itemized deduction and standard deduction? What’s Income tax?  These words and more tax...

Request an Appointment Today

5 + 11 =

Call us at

Pin It on Pinterest

Share This