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5 Factors To Consider When Choosing A Business Legal Structure

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One of the crucial decisions you have to make when setting up a business is the choice of the legal structure upon which to base your business.

The term legal structure is sometimes referred to as the “ownership structure” or simply “business structure”.

Here in the Philippines there are basically four options available to you. These are:

  1. Sole Proprietorship. In this setup, you and the business is one the same.
  2. Partnership. This involves an agreement between two or more individual to engage in a business activity.
  3. Corporation. This is an artificial being and a legal entity separate from its members.
  4. Cooperative. This definition is taken in part from the Cooperative Code of the Philippines: “a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end…”

Some of you may have already heard of those types business forms, but don’t give it much thought. Each one has each own set of advantages and disadvantages; we have more about that in a separate article.

But right now, the question is: How do you know which legal structure best fits your business?

The following are five important factors you need to consider:

1. Ownership Flexibility and Control

Do you want to go it alone or with several people in a team? How much control do you want to have to influence in the direction of the company? Are you comfortable working with other decision makers?

True or false: Two heads are better than one.

2. Future Needs

Business Legal Sructures In the Philippines

Go Solo or With A Team?

How do you see your business in some future time, say 5 or 10 years? Do you want it to continue operating even when you are already retired? Are you planning to sell it out some time so you can spend more time at the beach, swimming with the dolphins?

How does “100 years in business” sound to you? There are locally based companies in the Philippines that have reached that milestone. It’s quite an achievement for them. Kudos to the founders for thinking long-term in serving the community!

Will you be inviting outside investors to help support the business and share the success with them? Do you see it going public soon and be listed in the Philippine Stock Exchange?

These questions are worth pondering if your business is here for the long haul.

3. Cost of Formation and Recordkeeping

In general, the more complex the legal structure, the more expensive it is to set up and the more time required to administer the business. You have to factor this in during the start-up phase, especially if monetary assets are hard to come by.

4. Legal Liability

How high is the potential of your business to incur liability?

In a sole proprietorship, you are also personally liable for whatever liabilities incurred by the business. That’s very scary if something really goes wrong. Naturally, you want to protect yourself against too much exposure to risks and lawsuits as a result of doing the business activity.

5. Tax Implications

You have to look at this in the light of your business goal and your individual situation.

Which business structure has favorable tax advantages? It is wise to avoid taxes, or defer its payment as much as possible. This must not confused with tax evasion.

If this part is really important, and it will be in sooner or later,
you should hire a professional on board who is an expert on Business Taxation in the Philippine setting.

For most people, the choice of business structure is very clear from the start. For others, the questions posted above would take a long time to answer and that’s a good sign that you are not careless in going about it.

There is no right or wrong answer here. Only you can answer those. You be the judge. After all, it’s your own business.

3 Tips On How To Name Your Business

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How do you choose the best name for your business? How important is a business name?

When it comes to business, it is very important to create a good first impression. Not only that, you want to make sure that your customers can remember you – hopefully, not your competitor — and that you are properly positioned in their minds. That’s Branding 101, right?

How do you do it then? How do you choose a business name that you can be happy with and be your long-term brand? We will give you some business name tips or ideas.

Tip #1: Start With Your Name

If you are a well-known expert in your field, or you are an authority figure on a very specific topic, you can actually leverage on that by naming your business after – what else? – your very own name.

People do it all the time, especially for service-oriented businesses like Accounting and Law Firms. You don’t even have to be a Donald Trump to do it. Having a good public image is a big plus factor, of course.

Locally here in the Philippines, we have the following as good examples:

  • Belo Medical by Dr Vicky Belo. And who doesn’t know her?
  • JG Summit, that’s the holding company of the entire conglomerate which was started by John Gokongwei, Jr.
  • Ayala Corporation. Sounds familiar? That’s the holding company of one of the largest groups of businesses in the Philippines.

How about you? Can you come up with a creative business name out of your name or in combination with those of your partners?

Tip #2: The Nature Of Your Business

Business Name Tips

Business Name Game

Can your prospects tell what your business is all about just be the name of your company?

If your name leaves them guessing, chances are good that they may pass you up for your competitor — or worst, simply ignore you. As a small business, you can’t afford this kind of mistake.

Come up with a business name that spells out clearly the nature of your business or your product lines.

Which of these is better: AP Bookkeeping or AP Ventures? Obviously, it’s the former. The latter should be reserved to your holding company, which doesn’t directly deal with the end consumers. That’s when you are already big.

Tip #3: Make It Sticky

We’re talking about name recall here. To be sticky, your name must meet the following criteria:

  • It must be easy to read or dictate over the phone.
  • It must be easy to write or spell.
  • It leaves an impression on the one reading it or hearing it.

You have quite a wide range of choices for your business name. You also have the time in the world to decide. Take your time to determine the best name for your business. Brainstorm, if necessary. Confer with friends; test the name in the market, and make sure that it is legally available for you to use. Choose wisely as this name will carry the company brand for as long as you want to stay in business.

Business Planning 101

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“What? Me, write a business plan?”

This is a very common attitude among business owners. They would rather be out there in the field, doing some real actions. They are too busy running the business, striking deals, or cashing the check.

But, is it really important? Like me, you’ve probably heard of stories about successful businesses whose business plans were written on a napkin. Could it be that the founders of those companies have some sort of “visual plans” held inside their heads? I wonder.

To answer that question, I’ve done an Amazon Search using the keyword “business plan” and the search resulted to 90,000 plus book title entries.

Hmm… There must be something to it that is of value to your business. Let’s discuss the basics of business planning in this article.

The 7 Uses of A Business Plan

Here are the most common reasons why entrepreneurs come up with a business plan, whether during the startup phase or soon after it is already operational.

  1. It sets business goals and milestones and program your activities in advance.
  2. It evaluates risks to minimize costly mistakes.
  3. It assigns tasks to people and departments.
  4. It defines a new business.
  5. It reviews the direction of an existing business.
  6. To determine the financial requirements of a business
  7. To support a loan application.

There could be other uses or reasons for coming up with a business plan. For some, the need to apply for a business loan is reason enough to craft a plan. 🙂

If you are already convinced about the importance of business planning, the succeeding paragraphs below will show you how to create one.

Important Components of A Business Plan

Business Planning Cycle

Business Planning Should Be An On-Going Cycle

To help you make your own business plan, here is a list of its major components that you need to include:

The Executive Summary: This is considered to be the most important part of the business plan since it provides a concise overview of the entire contents of the plan. You can put here the following:

  • Business Objectives, which include sales and profit objectives.
  • Vision and Mission Statement
  • Keys to Success

Organization Plan: Choosing people to be in the business is very crucial. You have to place the right people on their proper positions. Cite the hiring process and establish the qualifications needed to get the job. This step will make sure that everyone will work with the same objectives as you do and that the company goals will be met.

Sales And Marketing Plan: Without buying customers, your business will be dead. This part is your battle plan to keep your business alive. Included here are your sales and marketing strategies, which intend to acquire new customers or have the existing ones keep coming back to you. Hopefully will be an on-going process.

Recommended Product: If you love Marketing — and you should — you’ll love this piece of software too: Palo Alto’s Marketing Plan Pro, Powered by Duct Tape Marketing.

Product and Service Lines: What do you have to offer to your customers? Here you have to emphasize how your customers can benefit from your products and services. Sounds simple enough?

Financial Plan: With any business plans, you need to determine your financial sources. This is true whether it is for a new venture or for an expansion program. Point out how much money you need to start and keep the business running.

Business Planning Tools

Spreadsheet — If you are a Windows user, that means the good old Excel, which is probably your most favorite tool among the suite of applications from MS Office.

Business Plan Software — There’s a lot of them in the market and you can find one by going to Amazon and typing “business plan software”. We highly recommend the one created by Palo Alto Software called Business Plan Pro currently in version 12.

6 Tips On Starting A Part-Time Business

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Considering the danger of financial complications when starting your business, it is not surprising that many successful ventures started as part-time. Most entrepreneurs held on to their salaried jobs until they could see their start-up ventures getting off the ground. Part-time business brings with it the chance to augment the family income while enjoying a rewarding but flexible career for work from home parents.

Nonetheless, managing a part-time business has challenges of its own. At the very least, you must learn to juggle the demands of entrepreneurship to what is expected of part-time business owners.

Hence, if you wish to start a part-time business, maybe as freelancer, with the goal of making it long-term up to the point of going full-time, you need to come up with a strategy for your part-time business. Here are six tips in going about it:

Tip #1: What Do You Mean By Define Part-Time?

Most part-time businesses can balloon into full-time occupations in no time. This is because business owners fail to properly project the scope of investment needed in starting and running a part-time business.

Before anything else, it is necessary to define your goals in relation to your view of success. You need to set the number of hours you intend to spend on your business — include schedule for weekends. Be clear about your expectations, motivations, needs and the extent of work you will put into the venture to make it successful. There is a big difference between a few hours of work at night to working for the entire weekend — hence have an honest to goodness self-assessment.

Tip #2: Set Milestones

Have a clear perspective of goals and key tasks within your control by charting your monthly milestones. These milestones may include steps in business registration, getting your first customer, setting up a website for the business, networking, marketing and so on. After having these milestones charted, step back and plan on how to accomplish all these in terms of working hours, resources, etc.

The process of planning your business may feel daunting. Nevertheless, this plan will be your step by step working guide to help propel your business. Learn to keep your plan manageable and simple by reading more about it.

And after everything you have envisioned this business to be, never underestimate your efforts and hours that will be spent on it. However long it takes, if necessary double it.

Tip #3: Always Remember You Are In Business

Despite your venture being part-time, you are still a business owner. You can read and learn more about steps in starting a business to guide you on business registration, tax requirements, permits, etc. If you have a business running, read more about how to run a home-based business.

Also remember that your day job is always your first priority. It’s the one paying the family bills at this early stage of your business. Having a side business doesn’t have to mean cheating on your employer or burning bridges later on. Who knows, your current employer may become your business partner or client someday?

Tip #4: Get A Mentor

Starting any business on your own can seem overwhelming. Instead of having boss to support and guide you, you can learn from a mentor. He can assess your progress, provide assistance in correcting potential mistakes, and guide you to set realistic goals. You can try finding a mentor from organizations that offer free counseling and mentoring.

Tip #5: Hack Your Life

Google Apps

Google Apps Help You Become Organized at Work and In Business

When you juggle between family or salaried job and part-time business, it is crucial to have discipline.

Technology helps a lot. There are a lot of free software applications and mobile apps that help you organize your schedule, track your business transactions and keep things in order. Familiarize yourself with stuff like Google Apps. If you work in remote teams Trello, Basecamp are highly recommended tools. Even a simple voicemail forwarding service is a lot of help depending on your business.

You can also utilize the help of a virtual assistant. This assistant can help with taking calls on your behalf, manage your calendar, and give that polished touch to your business for a nominal fee.

Tip #6: Learn And Have Fun

Having a part-time business provides you with the joy of pacing your venture in relation to your needs. While doing so, you can learn if you want to have a full time business later on. It is a great training ground to learn and make mistakes with minimal risks. No one will beat you up for incurring mistakes and some failures. What is important is you learn from them and have fun as you journey to become a success in your start-up.

Sources of Capital: How To Fund Your Start-up?

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Any aspiring entrepreneur someday soon has to think about how to fund the start-up. Should you take it from your savings account or borrow money from friends and relatives? How good are you in dealing with the bank to get a business loan? Can you invite outside investors who are confident about you and can trust you with their money?

Finding the necessary funds for business is a full-time job on its own. It is no easy task to do especially when you are in a really tight financial constraint. This article helps you in this regard. Here is a short guide on how to find some sources of capital to fund your business venture:

Use Your Personal Savings

For most people, they come up with an idea and the desire to venture into business because they have earned enough money to spare. This is sort of like this mental self-talk: “I have money in the bank enough to buy a coffee-shop franchise, I think I’ll invest in one. And besides, I love coffee.”

On the other hand, if you are that risk-averse and you want to calculate as much as possible, you can start by determining how much money you have in your cash account. Out of it, how much you are willing to risk for your start-up? This is a very tough decision to make because worse comes to worst, it is your own money that is at stake and it may take a lot of time to gain it back if the business flops.

Borrow From Family and Friends

Imagine this: You are young, with little business experience, lacking in personal financial resources, but so full of enthusiasm. You think you really can make and succeed in your own business. How will you come up with the start-up money for your planned business?

Quick answer: Pester your friends and family to help you fund your business.

For many spoiled kids with a lot of guts, this would be an option. This approach is good if you have loving family and friends who will support you all the way whether financially or emotionally. You need not look for anyone else to get the money you need as long as they can provide for it. Be sure to give it back according to the terms that you promised prior to borrowing the amount.

Get Business Loan From A Bank

The most popular and common source of business capital in the Philippines is bank financing. This is also one of the most difficult sources of funds to get. To be able to borrow from them, you need to make sure that you have a good business plan. It has to be impressive and you have to be believable, too. It advantageous on your part if you have established a good business relationship with the bank in the past. It would also help if you orient yourself about the 5 C’s of Credit: character, capacity, capital, collateral, and conditions. The longer you are as a client, the better. However, if this is a new venture, you should expect them to require you a collateral (usually in the form of real estate title) to secure the loan. Of course, that’s their business. Just be careful about the interest rates and that you really understand what you are doing and whom you are dealing with.

Side Note: The Magna Carta for MSME or RA 9501 of 2008 required that banks in the Philippine allocate least 8% of their total loan portfolio for micro and small enterprises and 2% for medium enterprises.

Other Sources of Capital

The three sources of fund presented above may be the most common, especially here in the Philippines. But times have changed, these days, you have far more options available. You can explore the following:

  • Home Equity Loan — Ask your bank about it.
  • Credit Card — Yes, that plastic money that you keep in your wallet.
  • Venture Capital / Angel Investors — We have some here in the Philippines.
  • Small Business Loans from Government Agencies — visit DTI, and other similar business-oriented agencies

Finding a source of capital is one of the first roadblocks in starting up any business. That is expected as the first steps are always the hardest.