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Chapter 17: Your career in Business

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Chapter 16: Understanding Financial Management and Securities Markets

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Financial markets refer broadly to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others. Financial markets are vital to the smooth operation of capitalist economies. Financial markets play a vital role in facilitating the smooth operation of capitalist economies by allocating resources and creating liquidity for businesses and entrepreneurs.

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Chapter 14: Using Financial Information and Accounting

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Become a Master of Finance with Harvard Professor Mihir Desai (with Lewis Howes)

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Become a Master of Finance with Harvard Professor Mihir Desai (with Lewis Howes)

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Chapter 12: Distributing and Promoting Products and Services

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How To Sell A Product - 5 Practical Strategies To Sell Anything

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Chapter 11: Creating Products and Pricing Strategies to Meet Customers Needs

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Figuring out how much the customer values your product or service and pricing it accordingly is called value-based pricing. It's a technique Dolansky believes more entrepreneurs should use.

5 common pricing strategies

Pricing a product is one of the most important aspects of your marketing strategy. Generally, pricing strategies include the following five strategies.

1. Cost-plus pricing-simply calculating your costs and adding a mark-up

2. Competitive pricing-setting a price based on what the competition charges

3. Value-based pricing-setting a price based on how much the customer believes what you're selling is worth

4. Price skimming-setting a high price and lowering it as the market evolves

5. Penetration pricing-setting a low price to enter a competitive market and raising it later

How do you arrive at a value-based price?

Dolansky provides the following advice for entrepreneurs who want to determine a value-based price.

Pick a product that is comparable to yours and find out what the customer pays for it.

Find all of the ways that your product is different from the comparable product.

Place a financial value on all of these differences, add everything that is positive about your product and subtract any negatives to come up with a potential price.

Make sure the value to the customer is higher than your costs.

Demonstrate to customers why the price will be acceptable, which includes talking to them.

If there is an established market, the current price range will help educate you about the customers' price expectations.

Value-based pricing: Best for differentiated businesses

Dolansky says entrepreneurs often used cost-based pricing because it's easier. They may also copy the prices of their competitors, which, while not ideal, is a slightly better strategy.

In an ideal world, all entrepreneurs should use value-based pricing, Dolansky says. But entrepreneurs who sell a commodity-like service or product, for example warehousing or plain white t-shirts, are more likely to compete on low costs and low prices.

For entrepreneurs offering products that stand out in the market-for example artisanal goods, high-tech products or unique services-value-based pricing will help better convey the value they offer.

3 ways value-based pricing can provide an advantage

In value-based pricing, the perceived value to the customer is primarily based on how well it's suited to the needs and wants of each customer. Dolansky says a company can gain an advantage over its competitors in the following ways.

1. The price is a better fit with the customer's perspective.

2. Value-based pricing allows you to be more profitable, meaning you can acquire more resources and grow your business.

3. When a price doesn't work, the answer isn't just to lower it, but to determine how it can better match customer value. That may mean adapting the product to better suit the market.

Pricing needs to match your target market

To sum up, pricing is one of the most important aspects of your market strategy, which also includes promotion, placement (or distribution) and people.

"It's important when you are considering your price that you realize it is not for yourself, but for your target customers," says Dolansky.

All pricing strategies are two-edge swords. What attracts some customers will turn off others. You cannot be all things to all people. But, remember you want the customer to buy your product, which is why you must use a strategy that's appropriate to your target market.

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Figuring out how much the customer values your product or service and pricing it accordingly is called value-based pricing. It's a technique Dolansky believes more entrepreneurs should use. Pricing a product is one of the most important aspects of your marketing strategy. Generally, pricing strategies include the following five strategies.

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Chapter 10: Achieving World Class-Operations Management

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The 5 P's of Production and Operations Management.

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Chapter 8: Human Resources

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Chapter 6: Making a Good Leader

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6 Qualities and Characteristics of Effective Leadership

Successful companies have numerous attributes in common with each other. Great leadership is one of the prevailing characteristics. Not only is this feature a crucial element for long-term business prosperity, but it also contributes to a highly productive and engaging work environment.

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6 Qualities and Characteristics of Effective Leadership Successful companies have numerous attributes in common with each other. Great leadership is one of the prevailing characteristics. Not only is this feature a crucial element for long-term business prosperity, but it also contributes to a highly productive and engaging work environment.

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Chapter 5: Entrepreneurship

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What makes an entrepreneur? | Sahar Hashemi | TEDxYouth@Bath

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Chapter 4: Different Types of Business Entities

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In simplest terms, a business entity is an organization created by an individual or individuals to conduct business, engage in a trade or partake in similar activities. There are various types of business entities - sole proprietorship, partnership, LLC, corporation, etc. - and a business's entity type dictates both the structure of that organization and how that company is taxed.

When starting a business, one of the first things you want to do is choose the structure of your company - in other words, choose a business entity type.

State governments in the U.S. recognize more than a dozen different types of business entities, but the average small business owner chooses between these six: sole proprietorship, general partnership, limited partnership, limited liability company, C corporation and S corporation.

Which business entity is right for you? This guide is here to help you make that decision. We'll explain the types of business entities and the pros and cons of each so that you have all of the information you need to determine what's best for your company.

Types of business entities: An overview

As we mentioned above, at a very basic level, a business entity simply means an organization that has been formed to conduct business. However, the type of entity you choose for your business determines how your company is structured and taxed. For example, by definition, a sole proprietorship must be owned and operated by a single owner. If your business entity type is a partnership, on the other hand, this means there are two or more owners.

Similarly, if you establish a business as a sole proprietorship, this means for tax purposes, you're a pass-through entity (the taxes are passed onto the business owner). Conversely, if you establish your business as a corporation, this means the business exists separately from its owners, and therefore, pays separate taxes.

Freelancers, consultants and other service professionals commonly work as sole proprietors, but it's also a viable option for more established businesses, such as retail stores, with one person at the helm.

Pros of sole proprietorship

Cons of sole proprietorship

Sole proprietorships are by far the most popular type of business structure in the U.S. because of how easy they are to set up. There's a lot of overlap between your personal and business finances, which makes it easy to launch and file taxes. The problem is that this same lack of separation can also land you in legal trouble. If a customer, employee or another third party successfully sues your business, they can take your personal assets. Due to this risk, most sole proprietors eventually convert their business to an LLC or corporation.

Partnerships share many similarities with sole proprietorships - the key difference is that the business has two or more owners. There are two kinds of partnerships: general partnerships, or GPs, and limited partnerships, or LPs. In a general partnership, all partners actively manage the business and share in the profits and losses.

Pros of general partnership

Cons of general partnership

Most people form partnerships to lower the risk of starting a business. Instead of going all-in on your own, having multiple people sharing the struggles and successes can be very helpful, especially in the early years.

If you do go this route, it's very important to choose the right partner or partners. Disputes can seriously limit a business's growth, and many state laws hold each partner fully responsible for the actions of the others. For example, if one partner enters into a contract and then violates one of the terms, the third party can personally sue any or all of the partners.

Limited partners don't have control over business operations and have fewer liabilities. They typically act as investors in the business and also pay fewer taxes because they have a more tangential role in the company.

Pros of limited partnership

Cons of limited partnership

Multi-owner businesses that want to raise money from investors often do well as LPs because investors can avoid liability.

You might come across yet another business entity structure called a limited liability partnership, or LLP. In an LLP, none of the partners have personal liability for the business, but most states only allow law firms, accounting firms, doctor's offices and other professional service firms to organize as LLPs. These types of businesses can organize as an LLP to avoid each partner being liable for the other's actions. For example, if one doctor in a medical practice commits malpractice, having an LLP lets the other doctors avoid liability.

With this type of business entity, there are many more regulations and tax laws that the company must comply with. Methods for incorporating, fees, and required forms vary by state.

Most small businesses pass over C corps when deciding how to structure their business, but they can be a good choice as your business grows and you find yourself needing more legal protections. The biggest benefit of a C corp is limited liability. If someone sues the business, they are limited to taking business assets to cover the judgment - they can't come after your home, car or other personal assets.

Corporations are a mixed bag from a tax perspective - there are more tax deductions and fewer self-employment taxes, but there's the possibility of double taxation if you plan to offer dividends. Owners who invest profits back into the business as opposed to taking dividends are more likely to benefit under a corporate structure. Corporation formation and maintenance can be complicated, but online legal services can help with these things.

In order to organize as an S corporation or convert your business to an S corporation, you have to file IRS form 2553. S corporations can be a good choice for businesses that want a corporate structure but like the tax flexibility of a sole proprietorship or partnership.

Limited liability company

Another big benefit is that you can choose how you want the IRS to tax your LLC. You can elect to have the IRS treat it as a corporation or as a pass-through entity on your taxes.

LLCs are popular among small business owners, including freelancers, because they combine the best of many worlds: the ease of a sole proprietorship or partnership with the legal protections of a corporation.

How to choose the best business entity type

With a better understanding of how the common business entity types work and their respective pros and cons, you can now determine which type works best for your small business. The best course of action, if you can afford it, is to consult a business lawyer and tax professional on which structure is optimal for you, given where your business is currently and where you hope to take it.

As a starting point, however, there are three general factors to consider when choosing among business entity types: legal protection, tax treatment and paperwork requirements. In the section below, you can see how the entities stack up with regard to each of these factors.

Business entity summary

Limited Liability Protections? No. Tax Treatment: Taxed at personal tax rate. Level of Government Requirements: Low.

Limited Liability Protections? No. Tax Treatment: Taxed at personal tax rate. Level of Government Requirements: Low.

Limited Liability Protections? For limited partners only. Tax Treatment: General partners taxed at personal tax rate. Level of Government Requirements: Medium.

Limited Liability Protections? Yes. Tax Treatment: Taxed at personal tax rate. Level of Government Requirements: High.

Limited Liability Protections? Yes. Tax Treatment: Must pay corporate taxes (but beware of double taxation on dividends). Level of Government Requirements: High.

Limited Liability Protections? Yes. Tax Treatment: Can choose how you want to be taxed. Level of Government Requirements: Medium.

As you can see, sole proprietorships and GPs are light on liability protections, so they expose you to greater legal risk if someone sues your business. But, taxation is simple when you have a sole proprietorships or GP, and you don't have nearly as many government regulations to comply with. That means more time to do what you love - running your business.

The simplicity of a sole proprietorship or a partnership makes either of these business entity structures a good starting point for freelancers and consultants, particularly if the industry they're in brings little legal risk with it.

Along these lines, fashion and beauty influencer Joanna Faith Williams said: "Being a sole proprietor now seems most appropriate as there is not much that I am liable for at this time. I keep well-written contracts to protect myself, but as I begin to dive more into creating content such as ebooks... or things that my audience will have to pay for, I will definitely consider registering as an LLC."

If your business is in a more litigious industry, on the other hand, such as food service, child care or professional services, that's a strong reason to create an LLC or corporation right off the bat. And regardless of industry, as your business grows and more dollars are at stake, that can be the ideal time to "graduate" to an LLC or corporation. What works for a freelancer or hobbyist likely won't work for someone who is trying to hire employees, bring on additional owners, or expand.

Brett Helling, owner of ridesharing blog Ridester.com, found this to be true. "Initially, I started this blog as a part-time thing. However, once the site began to experience growth at a very rapid pace and began making money, I realized it was turning into an actual business. I quickly realized that I should register an LLC... to shield myself from liability in case something went wrong," he explains.

Although it's certainly possible to change business structures at any point in your business's journey, some changes are easier to make than others. For instance, it's relatively simple to convert from a sole prop or partnership to an LLC by filing the right paperwork with your state.

Converting to a corporation, however, is more difficult, particularly if you plan to issue stock. Additionally, converting from a C corp to an S corp can bring unexpected taxes. Therefore, before changing your business structure, you'll want to think through the possible advantages and potential problems associated with doing so and consult a business attorney for professional advice.

Moreover, you'll want to keep in mind that the IRS places certain limits and deadlines on how often you can change your business's entity type. Plus, it's also worth remembering that different government tax plans can change how business entity types are taxed, and this may contribute to how taxes factor into your ultimate decision.

Your choice of business entity is a very important one. The entity you choose can affect how people perceive your business, and more importantly, it has a big impact on your legal exposure and finances.

All in all, you'll want to keep the following in mind when deciding among the different types of business entities:

Ultimately, although there's not a single best business entity choice for all small businesses, by referring to this guide and consulting legal or financial professionals, you'll be able to determine which type is right for your business.

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In simplest terms, a business entity is an organization created by an individual or individuals to conduct business, engage in a trade or partake in similar activities. There are various types of business entities - sole proprietorship, partnership, LLC, corporation, etc.

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Chapter 3: How Global Trade Works

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Global Trade & Logistics - What is Global Trade?

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Chapter 2: Business Ethics

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Business Ethics: Corporate Social Responsibility

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Chapter 1: The Nature of Business

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Business Economics: Definitions and Types

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Business economics applies economic theory and quantitative methods to the study of organizations and the relationships that organizations have with labor, capital, and markets.