Guidelines for Starting a Business

Starting a business can be an exciting venture, and proper planning can help make it a success. Here are some guidelines for starting your own business.

Do you have a mindset that will serve you well in running your own business?

  • Risk assessment – Starting a business is risky, both from a financial and psychological point of view. Before you decide to go into business for yourself, make sure you have the resources you need and a realistic understanding of the risks involved, including that your venture could fail.
  • Expectations – Every business must generate sales, and during the sales process it's inevitable that some customers won't buy your product or service. Be prepared to cope with how this affects your revenue and your attitude.
  • Work-life balance – Starting a business requires working long hours, staying focused and dealing with stress. Take time to consider how this will affect your family and other commitments you may have.

What type of business makes sense for you?

Starting a business from scratch, buying an existing business or entering into a franchise arrangement all present opportunities and potential pitfalls.

  • Be sure to do your homework – Research the current and potential markets for the business you are considering. Examine the strengths and weaknesses of competitors. The Internet and trade associations can be valuable sources of information.
  • Find a line of business that matches your experience and abilities – If you're considering a personal services business, it can be nice to begin with at least one existing customer. Whatever type of business it is, be sure that you have a passion for it. If you're successful, you may spend many years or several decades in that business. There are few things worse than disliking your job—especially if it's one of your own choosing.
  • If you're considering the purchase of an existing business, investigate it thoroughly – While it may be attractive to step into a business that already has existing operations, learn why the current owner wants to sell. Buying someone else's failing business is significantly different than buying a successful business from an owner who's retiring. Have a professional look at the financial statements and any contracts you may be signing.

Will you be the sole owner or will you have a partner?

Deciding to go into business by yourself or with a partner can be one of the most challenging decisions you'll face, so it's important to consider both options carefully.

  • Sole ownership – Running the business yourself gives you the opportunity to make all the decisions. It allows you to follow your own vision, grow professionally and match your business goals with your personal goals.
  • Partnership – If you choose to go into business with a partner, you'll have the benefit of that person's skills, experience and capital. Be sure to define the responsibilities and authorities of each party to reduce the risk of any operational problems.

Whether you decide to go it alone or with a partner, you should have an exit plan in place. In business, things can and often do change. Having a buy-sell agreement or a contractual agreement will help to avoid difficulties, legal complications or hard feelings later.

Where will you get the financing you need?

  • Create a budget – Estimate the funds you'll need for office space, equipment, inventory, marketing and working capital. Don't forget to include funds for your normal living expenses as well. Create a spending plan that covers everything you think you'll need and then build in a contingency amount.
  • Secure adequate funding – You should secure the funding you need at the beginning of the startup process so that once the business is operational you can focus on running it. Find out up front what your financial institution requires in order to lend to a new business and make sure you meet the requirements. You can also explore getting a loan through the Small Business Administration (SBA).
  • Be prepared – Consider setting a limit on how much you're willing to risk if you have to close your business before you're ready. While this may be difficult to figure when starting out, it's smart to have a contingency plan.

What are some of the other legal, financial and tax issues to consider?

It's important that you define your business structure. Each structure has its own advantages and drawbacks, depending on your needs. Consider the following common business structures and their characteristics.

Sole proprietorship

  • One owner
  • Unlimited liability for obligations of the business
  • Entity is not taxed; all income and losses passed through to owner
  • Sole proprietor manages the business
  • Sole proprietor makes capital contributions as needed
  • Easiest to establish

C Corporation (regular corporation)

  • Unlimited number of shareholders with no limit on the classes of stock
  • Generally, no personal liability for obligations of the corporation
  • Corporation is taxed at the corporation level. Shareholders are taxed on any dividends received.
  • Board of Directors has overall management responsibility with officers having day-to-day responsibility
  • Shareholders usually buy stock in the corporation. Corporation can issue common and preferred stock.
  • Must file Articles of Incorporation with the Secretary of State

S Corporation (Subchapter S corporation)

  • Up to 75 shareholders are allowed
  • Only one class of stock is allowed
  • Generally, no personal liability for the obligations of the corporation
  • Entity is not taxed; profits and losses are passed through to the shareholders
  • Board of Directors has overall management responsibility with officers having day-to-day responsibility
  • Shareholders usually buy stock in the one class of stock issued by the corporation
  • Must file Articles of Incorporation with the Secretary of State

General partnership

  • Unlimited number of general partners
  • All general partners are fully liable for the obligations of the business
  • Entity is not taxed; all income and losses passed through to the partners
  • General partners have equal management rights unless they decide otherwise
  • General partners contribute money or services to the business and receive interests in income and losses
  • No filing, but a partnership agreement is needed

Limited partnership

  • Unlimited number of general and limited partners
  • Unlimited liability for general partners and no personal liability for the limited partners
  • Entity is not taxed; all income and losses passed through to general and limited partners
  • General partner manages the business subject to the Limited Partnership Agreement
  • Both general and limited partners contribute money or services and receive interests in profits and losses
  • Must file an application with the Secretary of State

Limited liability company (LLC)

  • Unlimited number of members allowed
  • Generally, no personal liability for obligations of the entity
  • Entity is not taxed; all income and losses passed through to the members
  • The Operating Agreement describes how it is to be managed. A manager is usually designated to manage the business.
  • Members typically contribute money or services to the LLC and receive an interest in the profits and losses
  • Must file Articles of Organization with the Secretary of State

Keep in mind that as a business owner, your personal financial and tax situations may change from what you've experienced as an employee, including scheduled paychecks, subsidized medical insurance and a retirement account.

The bottom line

As you consider your future, remember that being in business for yourself has its share of risks but can also be very rewarding. Taking some key steps early in the process—along with hard work, a good idea, sound business practices and maybe a little luck—can make all the difference.

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The information provided is not intended to be legal, tax, or financial advice. BB&T hopes you find this information useful but we cannot guarantee that it is accurate, up to date, or appropriate for your situation. You should consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.

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