As Veterans Day approaches this weekend, discussion of life after military service for veterans gains increased visibility.
To be sure, life after military service can be a difficult transition for veterans, especially when it comes to finding jobs that utilize their unique skill sets. Many veterans have decades of training and experience in both leadership and planning. This is why starting your own business is often a viable option. Veterans can take advantage of their valuable military experience in choosing their own career path post-discharge. There are many state and federal programs that have been developed with the goal of helping veteran-owned businesses succeed.
While starting a business might be the best option for you, there is more to this decision than simply coming up with an idea and opening a shop or a website to launch your new business. There are a number of steps to consider, and you will need a strong team behind you to bring your idea to life.
Once you have decided what goods or services you will offer, you will need to determine what type of business structure you should form. This decision will determine the cost of your business formation, and it also will determine your ability to protect your personal assets from liability.
Selecting the right business structure
There are many options from which to choose:
- Sole Proprietorship
- Limited Liability Company
- Limited Liability Partnership
- C Corporation
- S Corporation
A sole proprietorship requires very little work to establish. Many businesses operate as a sole proprietorship simply because they have not taken steps to form any other type of business entity. While a sole proprietorship is the easiest and cheapest to establish, the business owner may face unlimited personal liability. This means personal assets, such as the family home, bank accounts, and automobiles may not be protected from liability.
Forming a Limited Liability Company (LLC) is often a quick and inexpensive way to limit the liability on personal assets while operating as a sole proprietorship. Owners of LLCs must be careful to separate their business dealings and finances from their personal dealings. The owner of a properly run LLC can benefit from limited liability and pass-through taxation. The gains and losses may be passed through to the private filings without having to file two separate returns, thus saving the business owner additional fees and expenses.
You may be considering a partnership. If so, you should enter your partnership looking forward to the day that the partnership dissolves. Nearly all partnerships will dissolve. Planning for this at the start will set you and your business up for success down the road. You must consider who will draft the partnership agreement and what the terms of that agreement will be. You must also consider what type of partnership you will form. If your partnership is not set up correctly, each partner can be held liable for the actions of their partners.
If you are looking to limit liability and hoping for similar benefits to that of an LLC, you may wish to form a Limited Liability Partnership (LLP). Doing so can help you protect your personal assets and limit your liability for partners’ actions.
There are a few negatives to forming an LLC or an LLP, though. There can be complicated forms and filings that you will need to comply with, but this is only at the time of formation of your business. Additionally, you may not rely on shareholders to invest in your company. Depending on your geographical location, the publication costs associated with formation of an LLC or LLP could be expensive. A good law firm has likely conducted research and can assist you with lining up the most economically efficient publishing agencies in your location.
Perhaps you wish to rely on outside investors and shareholders to fund your business. If you intend to form a larger business, this may be your best option. You should consider whether a C Corporation or an S Corporation would better suit your needs.
C Corporations generally allow for the greatest amount of outside investment, as you can bring in investors from all over the world. However, C Corporations may be among the most expensive entities to form. You will be subject to double taxation because you will need to file taxes as a corporation and again as an individual. Additionally, there are many complex regulations regarding record keeping. An S Corporation may help you avoid double taxation depending on how the corporation is structured and run, and there are tax credits available for business expenses. Unfortunately, the number of allowable shareholders would be limited, and each shareholder must be from the United States.
Getting some help
Regardless of the business entity you choose, you should assemble a team of professionals to assist you. Spending a small amount on prevention now will likely save you a large sum in the future. You’ll need what many refer to as a BAIL team – a banker, an accountant, insurance, and a lawyer.
Your BAIL team can be your safety net.
When looking for a banker, I suggest that you start by talking to local banks and branches rather than big lending institutions. Generally, local, smaller banks do a very good job with small businesses. They are local and convenient, and they often appreciate the business.
Having an accountant you can trust is vital to protecting your financial investment and will make it easier to track and plan your business transactions and efforts. Regardless of the type of entity you form, you don’t need the added headaches of tracking all of your expenses and figuring out how much to set aside for paying taxes, vendors, overhead or payroll. I recommend that you form a relationship with a good certified public accountant who also is a certified financial planner. I also recommend that you ask the accountant if he has experience handling both small businesses and veterans’ benefits.
As a service-disabled veteran and business owner, I relied heavily on my CPA/CFP for both my business and my VA benefits. A good accountant is an added expense in the short term, but the advice and peace of mind you will receive is invaluable.
Whether you have a home-based business or own an office building, you need to have insurance. Far too many things can go wrong: product that needs to be replaced, a claim made against you by an employee or a contractor, a disaster such as flooding or fire — the list goes on. It pays to have a comprehensive insurance policy in place so you will be protected from any potential risks. You also should consider adding an umbrella policy. Often, you can add hundreds of thousands of dollars in coverage for a couple hundred dollars per year.
Finally, and perhaps most importantly, every business owner should spend the time to sit down with an attorney to discuss all aspects of business starting with the development of a business plan and the formation of the business entity. I recommend that you hire an attorney or a firm that handles all areas of business law. A good firm will have contacts in the banking, insurance and accounting industries that can be helpful to you.
I also recommend that you exercise caution in hiring an attorney who does not regularly practice in corporate law to handle business matters for your business. Instead, I recommend that you consider a firm with many attorneys who focus on particular areas of corporate law and can offer you the best protection for your business. If you are a veteran-owned business, you should also consider meeting with an attorney who has experience assisting veteran-owned businesses and service-disabled veteran-owned businesses. Again, it is an expense, but one that will be worth it in the long run. You can handle many of these tasks by referencing websites, but you likely cannot sit down with a website and ask questions to get legal advice tailored to your particular needs. I recommend that you spend a little money up front to save a lot of money down the road.
If you are eligible, you should register your company as a service-disabled veteran-owned business. Registering as an SDVOB may open your business to contract procurement opportunities at the state and federal levels. The Department of Veterans Affairs and the U.S. Small Business Administration btoh have programs available to assist you with filing for veteran-owned or SDVOB status. Generally, there are a few requirements. Most often, there are requirements that the business owner be eligible for 10 percent service-connected disability from the Department of Veterans Affairs for a service-connected injury and that the veteran be the owner of no less than 51 percent of the company or partnership. Not all partners are required to be veterans. Additionally, 14 states presently have versions of service-disabled veteran-owned business programs, which give you opportunities for additional service procurement contracts.
Yes, starting your own business is a lot more complicated and involved than just putting a sign in the window or creating a website and a social media presence. If you take the time to create the right business entity and assemble your BAIL team, you will be well on your way to creating a successful business.
Anthony Kuhn is managing partner of Tully Rinckey PLLC’s Buffalo office. He has served in the U.S. Army and Army Reserve for more than two decades as a senior drill sergeant, a combat intelligence advisor to the New Iraqi Army and in a brigade-level staff sergeant major position. At Tully Rinckey, he focuses on corporate/business law, military law, security clearance representation, federal employment and labor law, and veterans’ benefits.