Something Personal Episode 3: How To Succeed In Starting A Business, Shark-Free
Palisades Hudson managing vice president Paul Jacobs wrote “A Second Act: Starting A New Venture” in the firm’s book Looking Ahead: Wealth, Family, Wealth and Business After 55. In a chat with host Amy Laburda, Paul discusses why some retirees may want to start their own business. He also offers advice to entrepreneurs of any age considering taking the plunge and starting their own enterprise. Listen in for an overview of basics including financing, creating a business plan, deciding on a structure, mastering taxes and more.
About the Guest
Paul Jacobs, CFP®, EA, assumed the role of managing vice president in 2023 after joining our executive team as a vice president in 2017. As managing vice president, Paul oversees the entirety of the firm’s client service operations. He also continues to work with clients across the country. Paul is among the authors of Looking Ahead: Life, Family, Wealth and Business After 55. In this episode, he discusses Chapter 19, "A Second Act: Starting A New Venture." For Paul's full biography, click here.
Episode Transcript (click arrow to expand)
Welcome to “Something Personal,” the podcast where a team of financial planners talk about personal finance, starting a business, and the things you might want to think about before you go out looking to strike a deal with Mr. Wonderful. I'm Amy Laburda, the editorial manager at Palisades Hudson Financial Group. My guest today is Paul Jacobs. Paul works out of our Atlanta office and he's the company's managing vice president. Thanks for coming on the show, Paul.
Thanks for having me. Good to be here.
Amy Laburda 00:38
As I often mention, our firm has written two books, and a new edition of our book Looking Ahead, Life, Family, Wealth, and Business After 55 is out now on Amazon. Paul, you wrote a chapter along with our colleague, Eric Meerman, about starting a business in Looking Ahead. It presents this as an option to people who maybe recently retired from their primary career and are looking for a new thing to do. But why should someone start a business rather than taking up a
hobby like baking bread or knitting?
Well, in retirement, I always encourage people leading up to retirement to think about what retirement looks like. And, you know, for some people, it's the opposite of their working years. It's just a chance to relax and go on vacation, see the world. But for other people, retirement often still involves work. It can involve a whole second career.
And it can be an opportunity to really pursue a passion or follow into or move into something that you've always wanted to do, but maybe just didn't have the time or ability to do while you were working a full time job. So for someone who is retiring, I've seen good retirements where it can be very fulfilling and rewarding and I've seen retirements that don't go so well because people haven't planned ahead and thought about what they're going to do in those years. And it can kind of be a letdown
when the time comes. So retirement can definitely be a great time to follow your dreams and do something that you always wanted to do.
I think a lot of people found out during the COVID lockdown that baking bread can only take you so far unless you're very passionate about baking bread. So the book chapter has a lot of advice for anyone starting a business as a second act
but really, the advice in the book seems to apply to anyone starting a business at any stage of life. Is that right?
Yes, absolutely. Obviously, you don't need to wait till retirement if you want to start a business. There are a lot of great benefits to starting a business and while it's not for everyone, some people really love the idea of being your own boss. And the financial rewards can obviously be much greater if you are the owner of a business that really is successful and takes off. So
by no means is this something that is limited to people during their retirement years. A business can be started at any time by anybody and the more passionate you are about it and the more prepared you are, the better your odds are of success.
So if you find yourself drawn to starting a business, what do you really need to get started?
So there are several important things that are necessary to be thinking about as you start a business. I'd say that it's, first off, you could go nuts thinking about
just all of the things that go into it and trying to get everything perfect and something that I would call just paralysis by analysis. So while it is important to have a plan and to think through a lot of things, it's also, I'd say, important to just be ready to hit the ground running. In terms of what is needed, what's the most important things, a few things I would say. One is money, what we call here working capital. So just
to start a business, maybe there really won't be much money needed at all to get it going, or maybe there is going to be some investment necessary at the get-go. So, it's important to understand what the financial necessities will be to get your business going. And another thing that is definitely very related to that is a business plan, which I think we're going to talk about more. But drafting a business plan can be very helpful, not only for
investors and outsiders to understand, but also for yourself, I'd say, to understand and really make sure that you're looking at this from every angle. You know, what is this business going to look like? How many people do you need? What are you selling? Who's going to buy it? What does the future look like? How does this scale? How does this ramp up? So by drafting a business plan, that really formalizes and gives you a kind of a roadmap for the future. Obviously, you're not going to get things perfect. It's not something, again, to
just go completely overboard on and spend way too much time on, but it is going to be very helpful to have something in place, and that way you can look back on it as time passes and kind of see how things are going compared to what the original plan was.
Right. So diving in on business plans a little, you've made a compelling case for why to have one. What sort of things should you expect to include to make a solid business plan?
So it's not a one-size-fits-all
kind of thing, obviously. Depending on the business, some business plans are going to look very different than others. But in general, like I said before, I think the financial side of things is important. So having a good grip on the numbers in terms of money going in, money going out, what that looks like, having an idea of what your profitability would look like, whether you're selling a service or a good, just kind of what your
revenues and costs will look like and how it'll all add up over the course of time. In addition to the numbers, there's also a lot of things that are not financial. Obviously, you don't need to be a financial person to start a business. Some of the best businesses are started by visionary people, creative people who do not have numbers backgrounds, and that's really not where their passion is. Marketing. Having an idea of how are you going to get the word out? How are people going to find your business and
become customers, an analysis of what the industry looks like, what the competition looks like, what the opportunity looks like, whether you're going to need to hire people, staffing needs. There's a lot of different things that can go into this. But I think that between the numbers and also just thinking things through on a more qualitative basis, your business plan should cover all that. Obviously, there's lots of templates and information and examples online that you can use.
I would not want to just take something that looks good and slap your name on it, obviously, or anything like that, but if you can find examples that you think are useful, you can kind of piggyback off that work that's already been done to make your business plan look as attractive and as useful as possible.
So it sounds like we've kind of threaded the needle between avoiding the analysis paralysis you mentioned and not thinking things through. So the business plan is kind of a
just-right attempt to find the middle ground of thinking it before you start going forward. So once you have the business plan, what's the next step?
So once you have a good idea of what your goals are and how you want to try to accomplish them, like I said before, an important step is raising money for your business. And while some businesses have very low needs in terms of financing,
others can call for a pretty significant amount. For example, if you wanted to start a rent out of storefront and sell a product, there's going to be a need not just for rent money, but also maybe for equipment to build what you're making. There may be a need for money for payroll. So at least some seed capital in the beginning is going to be necessary and in some cases, it could be a significant amount. And there are different ways you can raise this capital.
It's one thing if you have the money yourself to just go ahead and go forward and fund it entirely yourself but oftentimes it's necessary to get funds from the outside. And a couple of ways that this can be done is, well, you have two main options of how you can raise capital. One is called equity financing and one is debt financing. So equity financing is when someone invests in your business in exchange for a percentage ownership of the business. And debt financing is borrowing
money, so that way you're not giving up ownership, but you are getting money that will need to be repaid in the future.
So equity financing is essentially the “Shark Tank” model, if not always quite that entertaining.
Yeah, I know that “Shark Tank” is something that is in the title, and I wanted to just take a minute and take a step back, and I thought it might be helpful to just talk about how I hate “Shark Tank.”
I'm obviously in the minority on this, but I'm not a big watcher of “Shark Tank,” and I remember the first time I watched it, and I turned to my wife and I said, “What is this?” Like, this is not how it works. There are people who have watched many more episodes than me, and perhaps I'm not the best qualified to generalize on what this show is but when I watched it, what I basically see is someone gives a snappy sales pitch and then
the sharks ask a few questions, ask a handful of questions, and then they start bidding. They either just reject or they start offering money and that's not how this works. So I just was like, when I watched it, I just think to myself, “This is absurd; this is not how it works. This gives people a strange idea of how getting a business off the ground works.” And so I kind of don't like the show.
I will say that,
you know, it does get entertaining when the money starts flying but it probably is good in terms of encouraging people to think entrepreneurially and think about trying to start their own business. But in some ways, I think the show may do more harm than good, because it's just so ridiculous, how it makes people think this process works. My understanding is with that show, they spend a lot of time beforehand doing due diligence and analyzing these businesses,
so that it's not just asking a few basic questions and then offering money. I think they have to go through a lot of deep diligence, and that's how it's going to work if you're trying to raise equity investments from investors. They're not just going to listen to your elevator pitch and offer you money. I mean, if they do, OK, but that's almost a red flag, I'd say, if someone's willing to give you money based on just nothing. So I think it is important, again, going back to that business plan, the more detailed it is,
the easier it is to get investors confident that you really do have a plan, that there are hard numbers and support for what you're trying to do. So, I hate “Shark Tank.” I get that it gets entertaining as the show goes on and the offers start flying, but I also think it's important just to understand that the show is, from my perspective, a little bit ridiculous.
Amy Laburda 11:23
It seems like the more that you know about the background of a given reality or game show, the less capable you are of enjoying it on its own terms, probably. But I think, you know, the main takeaway is it definitely makes sense, if you're looking for equity funding, to focus on substance and not just flash. But whether you're dealing with something entertaining like “Shark Tank” or a more traditional equity funding method,
you're giving up some amount, necessarily, of control or influence, presumably, getting in these outside investors. You mentioned that a lot of people, in the book that we're aiming to talk to, are thinking about entering this business as a second career, so they might come in with some amount of capital themselves. What are some things that they might want to think about if they're self-funding their business?
So having full ownership of your business is great. It can
definitely simplify things and make sure that all the rewards go to you and don't end up in someone else's pocket. I think one of the most important things to think through, though, and make sure you understand before self-funding, is what the impact will be on your financial affairs. It's one thing to dabble in something and put in enough money that it doesn't really affect your life, and it gives you enough money to try to get the business off the ground.
But sometimes I've had conversations with clients who are interested in starting a business about really just making sure that they understand what the impact will be if things don't work out. You don't want to put up so much money into your own business that if things don't work out, it could put your financial future at risk. So there are trade-offs. Again, self-funding means that 100% of the gains can end up going back to you in exchange for all your hard work, but if you don't have enough capital necessarily to fund yourself,
and because the risk is that you could really do damage to your future and your retirement, that's something to really try to get a handle on early on. If fundraising is going to be necessary, that's a good thing to know early on rather than just plan to fund it all yourself and then realize, “Oh, wait a minute, I don't have enough money to make this happen using just what I have in my name. I have to go outside.”
So you mentioned in addition to equity financing, there's also debt financing.
What does that involve and what are the pros and cons there?
So with debt financing, we're basically talking about borrowing and there's different places to borrow. Obviously, you know, there are bank loans, there are government backed loans. There are, you know, it's possible it may be possible to borrow against personal assets. There are various ways to borrow money and it's different, you know, it can be different to try to borrow money now than it would have been 20, 30 years ago because of changes with the financial system. But, you know, I'd say in general,
borrowing can certainly be an option however, it's important to think about what you're giving up when you start to borrow funds. Obviously, those funds need to be repaid with interest. We've seen interest rates rise pretty significantly over the past few years. Whereas before, money was cheap, now, in many cases, borrowing is a lot less attractive than it used to be. The benefit of borrowing,
as I said before, is you can retain 100% ownership in your business. When someone lends you money, they don't get a stake in your business, they're just lending you money to be repaid in the future so it's a great way to retain ownership. And if interest rates are low, that can make it even more attractive and appealing. However, any money that gets borrowed, the idea is that it will have to get repaid in the future, so
that may have to be part of the business plan, too. Again, going back to the business plan, sometimes borrowing can play a major role, especially early in the life of the business, and it's important to make sure that you have enough cushion built in to repay that debt and that interest and not have it be something that's really eating into your operations and making you have to cut costs or anything like that in order to keep up with your debt.
So if you have friends or family who are enthusiastic about your idea, hopefully
you have people who are supportive in your life, and you may have some people who are willing to be generous. If they were offering to give you a personal loan, is that a thing that you should think about, or is that a red flag to avoid as a new business owner?
That's a really good question. Again, there are trade-offs, and a lot of businesses do get funded in the way you just mentioned, in terms of getting either investments or loans from family and friends and just peers, people that you know. But
another point I wanted to make is I've seen it both ways. You know, for some, as they say in “Seinfeld,” “worlds colliding,” right? For some people, the idea of mixing business and family and friends is not a big deal at all, it's just natural and it's easy and it works. For other people, it can just be a no-go. It can be a non-starter completely, you know, just not wanting worlds to collide like that. And sometimes maybe they haven't thought it through
and then they regret it in the future. It's definitely not a one-size-fits-all decision. It's not something where there's a right or wrong answer. It kind of depends on the situation. But I'd say that if you have a family or friend who wants to invest in your business, it's just important to take a minute, think that through, and think about how the various ways this could play out.
Again, I've seen it go both ways. There's not a right or wrong answer. But if you're not comfortable with the risk of maybe losing someone's investment through no fraudulent or illegal action or anything like that, but just because things didn't work out, then the right thing to do may certainly just be to say no and look elsewhere, rather than take the risk of doing something that years from now you look back and say, “Boy, that was really dumb, I should have known better.”
Amy Laburda 17:23
Makes a lot of sense. So you've got your business plan, you've got financing, whether equity, debt, a combination, whatever you've secured. What's the next thing to start thinking about when you're structuring your new business?
Another important decision that needs to be looked at when creating a business is deciding how to structure the business. There are several different ways to structure a business. For example, you've got corporations, you've got partnerships,
sole proprietors, LLCs: There's a lot of different kinds of structures for a business. The good news is that while it can seem overwhelming, all these different options, and you may not know at first which one is right for you, I'd say that in the vast majority of cases, it's a pretty simple decision. For example, I think some people may think, “Oh, I'm starting a business, it needs to be a corporation.” Unless you have a very special situation, a C corporation or an S corporation is not
likely to be for you. The corporations can involve significantly more administrative expense and just red tape and steps than either an LLC or a sole proprietorship. LLCs are great. Limited liability companies, that's what LLC stands for, and essentially, the idea with an LLC is that you're protected from liability. The LLC, if structured correctly, should really only — If things go wrong,
the only thing that creditors can go after is the LLC's assets, not your personal assets. So obviously, when you're creating a business, you want to think about what could go right, but you also want to think about possible issues and things that could go wrong and how that might expose you to potential liability. By creating an LLC, if something unfortunate were to happen, and say perhaps you get sued by a customer or something like that, and your business does not have enough assets to satisfy any liability,
what you don't want to have happen is that your personal assets — your house, your car, your other belongings — need to be used to pay that liability. By creating an LLC, it's a great entity, it's a great way to structure things so that only the LLC's assets are at risk, not your own. Sole proprietorships are another very common form of business, and sole proprietorships are basically a business owned in your personal name.
So, you know, if I, Paul Jacobs, start a business as a barber, I may create an LLC or I may be a sole proprietor.
I think that some people just don't think at all about entity structuring and just are sole proprietors. But it's important to think about liability risks. Some professions have much greater risk of getting sued or facing liability issues than others. Tech programmer, perhaps, can be a sole proprietor. I'm sure you can use your imagination and find ways that liability could be an issue. But a plumber,
a contractor, LLC is going to make a lot more sense because of the risk of things going wrong and people getting litigious or having other issues where liability becomes a concern. So, I've had clients ask me, “Do I need an LLC?” And I say, “Look, unless you are worried about liability, it may not really be necessary.” Some professions, you just don't see LLCs. They're just not really necessary. There is
some administrative work involved with LLCs, but not nearly as much as corporations. Overall, it's a pretty manageable and simple way to structure a business. Other clients I've had ask me, “Should I create an LLC?” when they're getting started, I say, “Absolutely.” Just 100%. Create the LLC, run the business through it, and that way, if things don't go well, you don't have to worry one bit about your personal assets being at risk.
So it sounds like the LLC is balancing the
paperwork administration burden that you would have had with a more complex structure versus a sole proprietorship, you're kind of just flying solo liability-wise. So you're sort of balancing those two things in the LLC effectively.
Right. And one other thing with LLCs that comes up a lot, and I feel like it's important for people to be aware of, I mean, it depends on what state you live in, but oftentimes people who are married may want to put
add their spouse as a member of the LLC. And that's certainly doable. An LLC can be owned by multiple people. But with a single-member LLC, that is often my favorite entity, because a single-member LLC can just be reported on your tax return. There's no need for a separate tax return. It's a lot cleaner and simpler. But if you add your spouse as an owner to your LLC, and your spouse did not need to be an owner of the LLC,
by having two owners in many states, now you have a separate tax return to do, because now it's treated as a partnership. And that's a separate tax return, just more administration, more expense. So if you want your spouse to be a part owner in your LLC, or it's the right thing to do, then you certainly can. But again, it's important to understand the additional complexities that can come with that.
All right, Paul, so you mentioned tax returns and some added complexity there.
In addition to that, what sort of recordkeeping or administration should you expect as you're setting up your new business?
So recordkeeping is something that I think can be overwhelming at times for new business owners. It's hard enough to get a business off the ground and get customers and get revenue. But then, you know, especially for someone who does not have a financial background, the idea of having to keep records of everything, you know, be able to track all the
dollars and cents going in and out because that is something that will need to be reported in the future for tax returns and potentially other reasons as well, loan applications, things like that. So that can be a bit overwhelming for some people. I'm completely busy with this business to begin with. How am I supposed to be a bookkeeper and record keeper as well? And what I tell clients when it comes to that is it really depends on how
how complex the nature of the business is and how many transactions, how much is going on daily with the business. In a lot of cases, with a new business, there's really not that much to keep track of. What I'll tell clients a lot of the time is, just worry about the business. We can always go look back at bank statements and credit card statements, things like that, and piece together the financials
for your business. So if it's not something you want to be thinking about daily or weekly, that's OK, especially at the beginning, and especially if there's not a ton of transactions involving your business on a regular basis. So sometimes it can be OK to just figure that out later. Not everything has to be figured out at the very beginning. However, having said that, if your business is something where there is a lot of volume of transactions and flows,
then it does become pretty important to make sure that you're not missing anything, that you have a good picture of how things are going, not just for taxes, but for managing your business along the way. So, if it's something that you're comfortable doing yourself, there's obviously software and other programs out there that you can use for bookkeeping purposes, recordkeeping purposes, or it may be necessary to hire someone, to outsource that work to someone who specializes in it.
It may not be a full-time job. It may be a part-time job. It may not need to be an employee. It may be able to be a contractor. But it is something that, in the end, will have to be taken care of. But again, like I said, sometimes it really doesn't need to be top of mind, especially in the beginning. It's something that can be put together in the future. But it is important to understand that it is necessary, it is something that has to happen. But depending on the situation,
it may be able to get put off and treated as a lower priority than the more pressing matters.
I imagine that's especially true for businesses that don't really deal in cash ever. If it's an online business or an electronic-only business, there's going to be a record there. Is there anything particular you want to think about with recordkeeping that's different if you're a multi-state business, either online or because you have multiple locations, versus if you're just
one shop, or one plumber, or whatever kind of more local enterprise?
Sure. Again, complexity is something to watch out for. As you mentioned, whether you're operating online, sales tax can be an issue. And again, there's software and programs that can help with that. It's not necessarily going to be you using a pen and paper to figure all this out, but it can get hairy, it can get complicated. And so I think it's important to to understand,
even if you're not daily tracking all the transactions and things like that, it's important to understand the basics of how this is all going to work and how things should look in the end when your records are kept and your statements are prepared and ready to be looked at. Another thought having to do with recordkeeping and why it's important — obviously we prepare taxes here, and we give tax advice, and so we think about taxes a lot here. But another benefit of having good recordkeeping, like I said before, is really just to
have a picture of how the business is operating. You know, something I've seen, and something that I think there are stories of, is sometimes growth can kill a business, right? Sometimes a business can be doing so well, but there's not enough cash perhaps to keep things in line that to an outsider, it can look like the business is doing great.
But then if you're not looking at the numbers and the financial reports, you can miss that things could be going in a very dangerous direction. I've seen that. For example, I volunteer at where my kids went to preschool. And preschools during the COVID years, if you could keep your doors open, there's been a huge boom in preschools. Again, if you can keep your doors open and you have good help working at the preschool.
And that's what happened at this place where the revenues exploded. I mean, right before COVID, they had invested a pretty significant amount in renovations and building out more space for more kids. And revenues exploded in a good way. But expenses really started climbing as well. They needed to hire more teachers. They needed more supplies, more janitorial, everything. And so to an outsider, it looked like everything was going great. But when we started looking at the numbers, we saw, hey, wait a minute. You know, this is not,
in some ways, this is actually hurting the business that we're getting so many new customers and children. So there's many different kinds of examples of this. It's not always the same. But again, it's important to keep an eye on your bottom line. Make sure you have an understanding, even if you're not the one doing all the work with record keeping and budgeting and looking at the numbers. It's important to understand how the numbers are adding up, what the trends and directions are
because sometimes it's obvious when a business is not doing well and there's just not a lot of positives. But sometimes the opposite can happen where things can get so hot so fast, it can be easy to miss that things are actually kind of headed towards a cliff. And that's where having good records and financial statements reporting can help.
I've certainly worked at Palisades Hudson long enough to know that “set it and forget it” is almost never the right approach to anything,
so it sounds like that's certainly not true with bookkeeping either, which is probably not a surprise. But I think the point you made about succeeding your way out of your business is certainly one that I wouldn't have known as a new business owner. So it seems the more treacherous slope in some ways. If a client's sitting down with you and says, hey, I want to start a business, what do you advise? What do I need to get started? Beyond all the things we've talked about already, is there anything else you'd be sure to let them know?
Paul Jacobs 29:49
One of the other, I think most important things that some people really get a rude awakening and a bad surprise on, is estimated taxes. For a lot of people who have only worked as employees in their life, they don't really see what's going on in terms of how their taxes are paid. The taxes are obviously just withheld from their paycheck, and at the end of the year, they file a tax return. Maybe they get a refund. Maybe they owe a small amount, but they don't really see it and feel it the way a business owner does. With a business owner where there is no
W-2, you just keep the profits of your business. Unfortunately, like I said, some people find out the hard way that, yes, you owe taxes on your profits, but it's not OK to wait until the year is over to pay the tax. Quarterly estimated tax payments are typically required in these situations. So Uncle Sam and the states, they are not OK with waiting 12 months to get paid. Instead, they expect quarterly
payments based on your estimated income. And if those payments are not made, then you can be subject to interest and penalties on your tax returns. So, you know, it can be tough for people who aren't familiar with estimated taxes to find out not only do they owe a giant tax bill at the end of the year on all their profits, but on top of that, they may owe interest and penalties because they were supposed to be making payments quarterly. So that's an important one to understand. Sometimes I find that
it doesn't really sink in until you start making the payments and then it all starts to make a lot of sense. But that's certainly something that's important. One other point I just wanted to make about starting a business, and I think to some it can be overwhelming, just the thought of starting a business, and how do I actually do that? Where do I go? What do I do? And there are forms that need to be filed and
there may be fees to pay and things like that. And to some people, just the idea of that, I think, can be so overwhelming, it just shuts them down from the get go. But I think that for people who do go through the steps, they're surprised that in a good way, sometimes, how it's really not that bad. It's obviously not a pleasant experience, going through the steps of getting a business off the ground legally. But I was looking, I was doing a little Googling, and they they have rankings by country of
the ease of starting a business. And we're not number one, but we are number six out of almost 200 countries.
And so, yeah, we're up there. We're coming for you, Canada. And so, I think Singapore may have been number one, which I guess is not super shocking. But my wife has started a few businesses over the years. And with the last one, I was helping her along the way, and I just kept telling her, “Look,
imagine if you were doing this in Russia or Greece or some country that just has a reputation for fraud and for corruption, and just things take months to get approved.” And so in the US, it can just be a few days, a few forms, and your business is legally and technically up and running. So
I think for everybody, it can appear daunting and overwhelming, the idea of going through the steps of starting a business. But you know, A, we're way better than a lot of other countries. and B, I think as you go through the steps, you find it's really not that bad.
Well, speaking of steps, I know that in our book, you provide a sort of step-by-step overview checklist of how to start a business.
Obviously, a lot of the steps will vary depending on the type of business and the particular details. But would you just run us through sort of the step-by-step things to keep in mind?
Sure, sure. So, again, it's good to take a little extra time in the beginning stages and just make sure that you've thought everything through and you have a plan and you're not missing anything really important. So, you know, from the top, you want to think about what
the goal of your business is, what the aim of your business is, what are you selling, what are people going to be buying and why are they going to buy it. You want to write a detailed business plan. You want to have numbers, but not just numbers. You want to have plans of how this business is going to operate and succeed. You want to select a name. It has to be something that's available. You have to have a legal structure.
So maybe you're an LLC, maybe you create a partnership or you just choose to run it as a sole proprietorship, but you want to at least think about that one. You want to think about how you're going to raise capital, like we talked about. Maybe you self-fund, maybe you raise equity investments from outsiders, maybe you borrow money to start your business. You will need a tax identification number. You're going to need to open a bank account. It probably helps to have a credit card, too. It's good to
keep things separate, I'd say, as much as possible. You know, if it's something that is, the more you're intermingling your personal assets and your business, the more of a mess it can become, I would say. So the more you can keep things separate, certainly the better. You want to think about where the work is going to happen. Are you working from home? Are you going to lease space? Are you going to be out? You know, are you going to have a need for vehicles? Things like that. Where is the work going to happen? You're going to need to obtain
licenses and permits, things like that. As I mentioned, it can seem overwhelming, but in many cases, it's really not that bad. Recordkeeping. You want to think about how you're going to keep track, you know, how regularly and, you know, what kind of reporting will be available to you, who's going to do it, things like that. You want to research and plan for applicable taxes, you know, whether it's sales taxes or other federal or state issues, you want to think about what the impact of that will be.
Insurance, something we haven't talked about. But another thing that may be necessary or it may not be necessary, it kind of depends on the nature of your business. There are some businesses, insurance is required. Some it may be as common but not required. Some it may just not serve much purpose. And I think it can be important to think about your insurance needs.
With a business you're thinking of starting, there may be an insurance salesman who is happy to sell you lots and lots of insurance. But it's important to think about whether you really need it. If the answer is yes, then certainly by all means you want to make sure you have proper coverage. But if you think that someone's just trying to sell you unnecessary insurance, that is something that does happen sometimes. We have seen that at times. And the last thing that
or one of the last things to be thinking about as you start your business is thinking about your exit plan, right? Never too early to think about succession and what the plan is for the future of your business when you're no longer around. I think it's an important strategic question. Are you trying to create a job for yourself or are you trying to create a business that will outlast you? And again, there's not a right or wrong answer here. It's perfectly fine to just want to have
work to do and kind of create something that you can do for yourself. And you create that job. And, you know, when the time comes and you're no longer able to do it, that's the end of the business. That's OK. You know, maybe you can sell your customer list to somebody else and get a little something on the way out. Or maybe the business just folds when you're ready and the time comes. But if you're trying to create a business that will outlast you, then it's important to think about succession and training
future generations and people that can take that business and run with it in the future. It's something that we see a lot in our business, just business owners and who would like the business to outlast them. But it can be challenging at times to figure out what that looks like and how that will work. You see a lot of cases where perhaps a family-owned business by the second or third generation,
it'll fail. So the first generation can be very strong. Maybe the second generation doesn't share that same level of passion by the third generation, it doesn't work. So it's not a one size fits all decision. Some businesses do wonderfully by keeping it in the family. Some, that's a recipe for disaster. And there's all kinds of different ways this can play out. But I think I would be remiss if I did not at least mention
you know, planning for the future and what happens to your business when you're no longer around.
So we just started this business and we're already creating a succession plan.
We're always looking ahead, Amy. I will say, speaking of “Succession,” the show, you know, it's funny, when that show first came out, I thought to myself, “I don't want to watch this.
I do this for a living. I help people with these kind of, why would I want to watch a show about this?” It's kind of like going back to “Shark Tank.” But then I watched it and it was so good. The best, one of the best shows. So I'm glad I was flexible on that one. I didn't like the first episode too much, but then after that, it was just off to the races. It was great. So, you know, that was entertaining and it probably was, there was some,
some realism to some of that, unlike “Shark Tank,” which I still think is kind of ridiculous. But, you know, like I said, with the first generation and the second generation and the third generation, it just can be such a recipe for disaster, such an opportunity for drama. And while sometimes that show could get just very entertaining and unrealistic, it was I think you could watch that and learn from it
whether you're a business owner or financial planner, just kind of learning what to do and what not to do.
Yeah, if nothing else, a great object left in what happens if you don't have an effective succession plan. Or I guess, depending on what you want to happen — if the thing you want is drama and not a transfer of your business, you did it just right. But was there anything else about starting a business that you wanted to touch on that we didn't talk about yet today?
Paul Jacobs 40:36
You know, one other thing that I may have hinted at, but I just wanted to focus on for a moment is, again, you know, we think about taxes a lot and tax planning and tax opportunities. And I think one other benefit to being a business owner that I didn't mention is the tax benefits. So it's not like you start a business just for tax purposes, but I think something that people don't realize and can really make them think twice about
“Maybe I really should be thinking about starting a business,” is the tax benefits and the kinds of opportunities that are available to business owners that are not available to employees. Basically, what I generally tell clients is, if you're an employee, you got nothing. It's so rare to be able to really qualify for much in terms of deductions against your wages. Unreimbursed expenses used to be
deductible in certain cases, but with the tax cuts of 2017, that is basically gone. So if you're getting your W-2 income, if you're spending your own money for business purposes, really just nothing, not much available to you at all. However, if you're a business owner, it's almost the exact opposite. Then everything becomes deductible, it seems. Anything that's for a legitimate business purpose. So transportation, driving your car,
home office, the retirement account contributions for business owners. Each of these can be complex and may not be for everybody. But I think that our tax code is designed to encourage certain kinds of behaviors. And it can be really eye opening once you understand the numbers, just how large some of these tax planning opportunities can be for business owners that are not available to employees.
So again, not something you start a business just for tax purposes. That won't. I don't. That doesn't seem like something that would go very well. But if you do have the good fortune of having started a business and it is succeeding and it is doing well, just, there's a lot more that you can do for tax planning purposes as an owner than you can as an employee.
Well, Paul, thank you so much for coming on “Something Personal” today. It was a pleasure to have you.
Pleasure is all mine, Amy. Thank you very much.
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta, Austin, the Portland, Oregon metropolitan area, and the New York City metro area. Something Personal is hosted by me, Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor, and mixer. Our firm has written two books,
Looking Ahead, Life, Family, Wealth, and Business After 55 and The High Achiever's Guide to Wealth, which offers advice for younger professionals, entrepreneurs, athletes, and performers. Both books are available on Amazon, in paperback, and as e-books.