Whether you’ve already bought a business or you are in the process of buying a business, one thing you should take into consideration is what kind of business owner you will be. You may have already given this some thought, but if you haven’t, this is the perfect time to do so.
If you haven’t already checked out our guide to buying a business, you may wish to do so here.
Kinds of owners who buy a business
Before you can determine what kind of owner you will be after you buy a business, you must understand the different kinds there are. Some business owners are artists, which means they can create something out of nothing. One of the most famous and successful business owners who was an artist was Steve Jobs.
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Other business owners are managers or leaders, which means they are great at working with people, getting a strong team together, and driving positive results from the team they have created. In the tech world, it’s common for artists to pair with a manager or leader because they need each other.
An artist needs a manager to help them create the team that will make their vision a reality, while a manager needs an artist to create proprietary technology or products that will set standards in their industry. Some examples of manager are Paul Allen, who cofounded Microsoft with Bill Gates, and Steve Ballmer, who served as CEO of Microsoft between 2000 and 2014. Gates created Microsoft’s technology, while he partnered with Allen and Ballmer for their management expertise.
Some business owners are entrepreneurs, meaning that they look for opportunities and may or may not be involved in the day-to-day operations. Tesla CEO Elon Musk is a serial entrepreneur who has been involved closely with co-founding several big-name companies. He founded SpaceX and co-founded Tesla and Zip2, which they later sold to Compaq, and X.com, which later became PayPal. Musk became a billionaire when eBay acquired PayPal for $1.5 billion in stock.
Quiz to determine what kind of owner you will be after you buy a business
When you’re trying to determine what kind of owner you will be after you buy a business, you’ll have to take some time to really think about yourself and your management style. Here are some questions to ask yourself:
- Are you a risk taker who aims big, or do you play things safe?
- Are you a careful, methodical planner, or is there always a big of chaos in your decision making?
- What does your office look like? Is it neat and organized, or are there piles of work and papers everywhere?
- Do you spend a lot of time daydreaming, or are you always focused on the task at hand?
- What kind of role do you play in a group setting? Are you always the leader organizing ideas, or are you the one who comes up with the ideas?
- Do you want to spend the rest of your life working at the business you bought, or do you see yourself working at other businesses as well?
- Do you work well in a team, or are you more of a loner?
- Do you see your business as an investment or just a replacement for your job?
- If you see it as an investment, are you planning on adding more businesses to your investment portfolio?
- How involved are you planning to be in the day-to-day operations?
- Do you want to be the one with all the ideas, or are you open to allowing other team members’ ideas blossom?
- Are you happier spending time planning, or would you rather create something out of nothing?
- Do you tend to build on the ideas of others, or do you come up with entirely new ideas no one has thought of?
In addition to knowing what kind of business owner you will be after you buy a business, you should also know what kind of business formation you should have. Knowing the type of business owner you are could inform the type of business structure you use.
Types of business formations
If you want to have all the power of the business in your own hand, and you are the only owner, then you might consider a sole proprietorship, which is the most basic type of business structure. Sole proprietorships aren’t legal entities, and they don’t provide any protection for their owners. The owner is personally responsible for the business’ debts. Unlike the other business structures on this list, sole proprietors don’t file any paperwork with their state to formally create their business on paper.
One of the best types of business formations is the limited liability company or LLC. The benefit of this business structure is that it protects you and your personal assets from liabilities encountered by the business. If you want to be very involved in the business after you buy it, an LLC is a great option because it puts all the power in the hands of you and the other owners.
If you want the benefits of a sole proprietorship with the legal protections of an LLC, you might consider a single-member LLC. For tax purposes, a single-member LLC is treated like a sole proprietorship and designated as a “disregarded entity.” Owners of single-member LLCs report their business income on their personal income tax returns instead of filing a separate tax return for the business.
Business structures with boards of directors
On the other hand, if you have a C corporation, you will have a board of directors, which means all the decisions will not be your own. Like an LLC, a C corporation also provides a legal separation between your personal assets and those of the business.
If you want to have more oversight in place besides yourself and your co-owners, then a C corporation might be the ideal business structure for you. One thing to keep in mind with C corporations is that they pay taxes on their earnings before distributing dividends to shareholders. Then you and the other shareholders pay personal taxes on the dividends you receive form the business.
S corporations differ from C corporations because they pass their corporate income, losses and credits to their shareholders for tax purposes, which means they don’t pay any income taxes on their own. The shareholders report the company’s losses or income on their personal income tax returns.
Like C corporations, S corporations have a board of directors that oversees their operations. Sometimes you may elect to treat an LLC as an S corporation if it makes sense to do so. If you have a single-member LLC, but you elect to treat it as a corporation, you are not a sole proprietor. Instead, you will have shareholders who will be involved in the operation of the business.
Are you ready to buy a business?
Now that you’ve determined what kind of business owner you will be after you buy a business and have chosen the appropriate business structure, you’re ready to hit the ground running. Knowing what kind of business owner you are will enable you to build a solid team that will find great success in virtually all it does. You will be able to look for team members whose skills fill in the gaps left by your own.
Allowing the type of business owner you will be to inform the type of business structure you choose will provide some additional input when it comes to choosing the best structure for you. After all, you will have many decisions to make as a business owner, so it’s best to get off on the right foot by understanding the requirements associated with each type of business structure.