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Behind every business is the story of an owner who wanted to change something. Some of these stories are personal. Some are inspiring. And others are brand stories inspired by an unfortunate event or tragedy, which is the case in each of the following cases. 

SIDS Leads to a Product for Prevention

One of the best-known stories of a company created in tragedy’s wake is Halo, which specializes in safe bedding for newborns. In 1991, Bill Schmid lost his firstborn to sudden infant death syndrome (SIDS), otherwise known as crib death. He wanted to prevent any other parent from experiencing the same tragedy. This led to the development of the SleepSack—the very first wearable blanket. 

Today, the SleepSack is available in more than 1,700 hospitals nationwide. Their educational safe-sleep materials are distributed to over 10,000 new parents annually, and the company’s products are also created even for babies that fall into smaller sizes—like those spending the first weeks of their lives in the NICU. 

Schmid and Halo continue to develop products that help new parents protect their newborns and guide them to sleep safely. The company thrives because it was built on the values of protecting kids and preventing tragedies. Since 2010, they have donated more than $9 million to hospitals to support healthy births.    

Cancer Remission Leads to a Fresh Start

Sarah Fonteyne is the founder of Halcyon Naturals, a company focused on self-care. Before starting her business, said Fonteyne when she shared its brand story with The Real Life, Fonteyne worked in music as a tour manager and promoter—careers not known for a low-key lifestyle. The idea to create scents and candles without harmful toxins emerged from Fonteyne’s own recovery from cancer and subsequent remission. 

Fonteyne hopes her candles and other scented products will help others live the way she does now: mindfully and in the moment. Halcyon Naturals’ motto—to “create freedom through the power of aromachology”—mirrors this goal. Still, she cautions against confusing her brand story with her personal experience: “I have always been an entrepreneur,” Fonteyne previously told the Enterprise League. “Cancer was a moment in my life, but it in no way defines who I am as a person or…an entrepreneur.” 

Business Closing Leads to Another Opening

In December 2020, NPR’s Planet Money interviewed Roberto Ortiz, a veteran software designer who had just moved to San Francisco to launch a business that connected restaurants to wholesale food providers. The idea was sound—until COVID hit and shut down restaurants across the country.  

Ortiz and his partners debated for a while how they would make their business work. They spent so much time on Zoom calls doing so, in fact, that they decided to start their own video conferencing experience. They wanted to make the “Ritz Carlton of virtual events,” targeting business professionals who needed better features than Zoom or Microsoft Teams could offer. They called it Welcome. 

As of the end of 2020, their business had 30 employees and has raised $12 million. The pandemic brought many entrepreneurs down, but some saw inspiring ideas that made surviving this past year easier. 

Moving Forward—Even after a Hurricane

For some entrepreneurs, a tragedy doesn’t inspire new business ideas but rather lights a fire to move their existing company forward. Lorenzo Marquez—founder of Marqet Group, a full-service marketing agency—had grown his team to 10 employees in just 5 months. His business was growing, and he was feeling confident. 

Then Hurricane Harvey devastated Houston. Marquez and his family lost their home. At the same time, the Marqet Group’s employees were scattered across the city (and country, as some evacuated) and tried to pick up the pieces of their lives.   

However, Marquez built back. His office building was flooded, but he fought his fears and kept moving forward. Little by little, he regrew his business—and today, it’s stronger than ever. 

"Looking back on that horrific experience, I can honestly say that the most beneficial thing that I did for both my family and business was to develop the courage to take action despite all the fear that was attacking me,” Marquez tells Entrepreneur. 

The Value of Your Brand’s Origin Story

A brand's origin story is an important part of connecting with an audience. Notes marketer Neil Patel, “Before you sell anything, you need to connect, and not just with a handshake or sending out one email. You need to emotionally connect with the people you want to be your customers now, and for the rest of their lives.” One of the best ways to do this is by peeling back to curtain so the audience sees what drove you to start your business, the hurdles you overcame, and what inspired you.

However, it’s worth mentioning that the stories retold here are not intended as a roadmap to success—they were selected to illustrate how unforeseen circumstances can sometimes become the catalyst to making a positive difference in a life, outlook, or world, too. Entrepreneurship is merely one way to turn a tragedy into a reason to give your own life new meaning or even to help others.

The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice. All information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their attorney, business advisor, or tax advisor to obtain advice with respect to any particular matter.

If you pay attention at all to your financial situation, you’re probably aware of your credit score, which is assigned to you by nationwide credit bureaus and impacted by your credit activity. Did you know another agency also pays attention to your banking activity and assigns you a score?

ChexSystems garners information about your banking activity—especially if it is suboptimal—from major banks across the country, much like how credit bureaus take in information from lenders. You can run into trouble if you are blacklisted by ChexSystems—you might not even be able to open a bank account for years.

Here are some things to know if you receive bad marks from ChexSystems.

What Is ChexSystems?

ChexSystems is an agency that tracks your banking behavior and provides this data to banks. According to recent estimates, some 80% of American banks use ChexSystems or a similar agency. Founded in 1971, ChexSystems is operated by FIS, formerly known as Fidelity National Information Services. Through the ChexSystems subsidiary, FIS maintains records on millions of Americans.

ChexSystems is similar to the 3 credit bureaus that assign you credit scores, but it looks at your banking risk instead of your creditworthiness. ChexSystems isn’t discussed as much as the credit bureaus—you might never hear of the agency unless you’re blacklisted by it.

Also like your credit score, your ChexSystems report follows you around. Any bank that utilizes the agency has access to your report, which can make it difficult to even open a checking account if you run afoul of ChexSystems.

Why Were You Blacklisted by ChexSystems?

You can be blacklisted by ChexSystems for a variety of reasons, but they all relate to your record of handling, or mishandling, a bank account. Commonly, people are blacklisted by ChexSystems for writing bad checks, failing to pay overdraft fees, or rating suspicion of fraudulent behavior. Generally, there needs to be a pattern of behavior for ChexSystems to blacklist you—you aren’t going to be on their radar if you overdraft once. But if your bank closes your account for bad behavior, ChexSystems will likely find out, and it will severely impact your record.

Once blacklisted by ChexSystems, it becomes very difficult to be approved for a traditional checking or savings account from most banks.

Bad records typically stay on your ChexSystems report for 5 years. However, there are some actions you can take to repair your situation.

How to Repair Your ChexSystems Report

If you discover you’ve been blacklisted by ChexSystems, you can take some steps to repair your report and get back into the banking system. These steps are especially useful if you believe that you’ve been the victim of identity theft or some sort of error was made. If you know your banking record is spotty, you’ll have fewer options to dispute your report—you might need to seek out bank account alternatives or wait until the records fall off in 5 years.

To repair your ChexSystems report, follow these steps:

1. Obtain your report from ChexSystems. You can obtain a free copy of your report online, call them, or contact them through the mail. By law, ChexSystems has to give you a free report every 12 months.
2. If you find errors on your ChexSystems report, dispute them with the agency. It is best if you have supporting documentation, like bank statements, but you can dispute errors without them. Through their process, ChexSystems will contact the banks that made the errors, but you might be able to speed the process along by contacting the erroneous bank yourself and alerting them to the situation.
3. If your ChexSystems report is bad but there aren’t any errors, you can improve it by paying down debts and fees reported by banks. Once you repay a debt, ask the bank or other creditor to update your ChexSystems report.
4. If all else fails, you can wait 5 years for your report to clear—and keep requesting ChexSystems reports every year to stay current. If you can’t go unbanked for that long, there are some alternatives out there.

Opening Bank Accounts While Blacklisted by ChexSystems

Some banks have so-called “second chance” checking accounts for people with bad ChexSystem reports.

“If your name ends up on the list of people with bad banking histories, you’re not locked out of the banking system forever,” writes Ben Gran for Forbes. “Be ready to review your ChexSystems report and file a dispute if you find any inaccurate information. And consider applying for a second chance checking account to rebuild your reputation as a responsible bank customer.”

These types of accounts usually have lower limits and fewer features. Some credit unions might not use ChexSystems, so you might have luck with your local credit union—or else you can apply for prepaid debit cards. 

Pop quiz: What do Twitter’s active users, the ratio of US households with a microwave, and streams for the song “Despacito” all have in common? 

The answer is non-linear growth. When they exploded in popularity, their metrics didn’t head in a straight upward line—the growth was exponential. 

While we might think of these events as quick spikes that should look like straight lines moving upward, the real world tends to work in curves. A pattern we see over and over again in business is essential to understand for your business planning. It’s known as the s-curve. 

What Is the S-Curve?

A company often grows slowly, then all at once. 

The s-curve is an exponential phenomenon in which your growth, charted chronologically, achieves cumulative results. After a burst of exponential growth, you then taper to a “new normal” at a higher plateau. The result is a chart that looks vaguely like an “s.” In math, you might call it a logistic function, which looks like this:

Source: “Building S-Curves for Projects in Excel Using Functions on Dates and Expected Completion Percentages,” Superuser.com.

Why is this important? Because an s-curve is a more accurate representation of real-world growth. As the Harvard Business Review notes, “There are time-delayed and time-dependent relationships in which huge effort may yield little in the near-term or in which high output today may be the result of actions taken a long time ago. The s-curve decodes these systems…”

In simpler words, by plotting an s-curve, you can form a more accurate projection of your business. This method lets you set more realistic milestones along the way. And these milestones may guide you to greater growth—even if it seems your business is hardly moving in the initial stages.

Why Use an S-Curve?

According to HBR, Facebook was a prime example of s-curve growth in action. It took the company about 4 years to reach a market penetration of 10%. Once it hit a certain threshold of users, “hypergrowth” took off. It doubled its total users within less than 2 years, eventually reaching maturation in the billions.

With an s-curve, these results made sense. Investors could set their watches by it, and Facebook could determine milestones accordingly. If they had plotted a strictly linear approach to growth? Their results might have utterly baffled them.

If you’re generating a business plan, the simplest reason to use an s-curve is that it’s a more accurate picture of how real growth works—as long as you know how to use it.

How to Incorporate the S-Curve Into Your Business Plan 

• Learn the key milestones along the way. The start, for example, is the point of the lowest momentum. Think of this as rolling a snowball down the hill—it takes a lot of snow packing and pushing before it rolls on its own momentum. At the points of growth and scale, the exponential growth begins to feel like it’s taking on a life of its own. By the time you’ve identified your business as being in a position of growth, it’s already time to plan for scaling. Eventually, plan on maturity—more on that later.
• Plot your key milestones along an s-curve. If you expect to grow 10% every year, that growth accumulates. 10% growth in 2022 won’t be the same number as 10% in 2021. This applies to every aspect of your growth: total users, total employees, and more. You can only create accurate milestones for growth if you anticipate the s-curve and build it into your projections. Doing so will help you to avoid being surprised when the cumulative returns catch up with you.
• Prepare for success. Most people don’t have to be told to prepare for failure—they’re well aware of what happens if a business fails to take off. But what if you hit a threshold that begins to lift your company in an s-curve? You don’t want it to feel like—for lack of a better term—a curveball. Using the s-curve helps you to understand when success is kicking into high gear, giving you ample time to plan for new employees, new systems, and scaling.
• Avoid overheating. This isn’t a “j-curve.” Even the world’s largest companies don’t grow to infinity: the s-curve eventually settles at the point of maturity. Avoid overheating by understanding your market and projections for market share and observing your results. This is a key insight in the s-curve that will help you set realistic milestones before you set new plans for growth.

But if you plan accordingly, you can be another example of the adage that “overnight” successes take time. They’re businesses that put in their hours, projected the right way, and stuck to a realistic plan for growth.

Social and emotional learning (SEL) is finally getting the attention it needs. An essential skill in children and adults, recent events—the pandemic, racial unrest, and increased screen time—have pushed it to the forefront for educators, parents, and even employers.

The Collaborative for Academic, Social, and Emotional Learning (CASEL) says, “SEL is the process through which all young people and adults acquire and apply the knowledge, skills, and attitudes to develop healthy identities, manage emotions and achieve personal and collective goals, feel and show empathy for others, establish and maintain supportive relationships, and make responsible and caring decisions.”

And it’s definitely a growth market projected to increase from $1.2 billion in 2019 to $3.7 billion by 2024. Any industry that’ll more than double in size is an opportunity for entrepreneurs.

Let’s take a look at what’s driving the growth of the SEL market and what that means for small business possibilities in the industry.

Why Is SEL Important?

SEL skills, similar to math or reading skills, don’t just happen. They need to be taught, modeled, and practiced regularly for both children and adults.

SEL core competencies include:

• Self-awareness
• Self-management
• Social awareness
• Relationship skills
• Responsible decision-making

Source: “CASEL’s SEL Framework,” CASEL.

Looking at those competencies, it seems like we might have all benefited from SEL training before the pandemic-related lockdowns.

That said, there is a need to teach or boost those skills as children transition back into physical or hybrid school models. Distance learning was a survival mode for parents, students, and teachers. Thus, SEL skills were among the skill sets that took a hit.

Kids need to be taught or reminded how to build relationships and relate to other people in person as there is no more video-off option. There aren't firm guidelines on what constitutes "too much" screen time for children's mental health. But it must impact them—after all, adults routinely suffer from Zoom fatigue. It’s time to help kids reset their brains for in-person and potentially maskless interactions.

SEL skills also set the foundation for additional learning. As Deb Meyer, a professor of education at Elmhurst University, says, “Academic goals cannot be fully achieved without social emotional knowledge and skills.”

That’s critical, given that many students are believed to have a learning deficit after a year or more of virtual learning. According to a Horace Mann Educators Corporation survey, respondents believe 85% of their students will have at least 1 month or more of academic progress to regain.

Source: “Closing the Learning Gap,” Horace Mann.

Who Needs Ongoing SEL Training?

The short answer to who could benefit from SEL training? Everyone.

This year wasn’t typical, so both adults and children could benefit from refresher courses on using SEL skills in day-to-day life. Like any other skill—CPR, martial arts, communication—SEL skills should be periodically reassessed to ensure bad habits haven’t replaced good intentions.

Let’s review children’s needs first. SEL programs may not have been strong in school systems before the pandemic. Still, virtual learning, as mentioned above, definitely left a significant gap in that training.

As kids return to school, they need coaching and supervision to learn and practice their SEL skills. As Ms. Meyers says, “When left to their choices, students do not always benefit from partner or group work because they do not know how to interact effectively.” In other words, we can’t expect them to magically demonstrate the same level of SEL competencies that they may have had a year ago.

Similarly, EducationWeek advocated that SEL skills need to be emphasized as “Children can’t process and retain new information if their brains are overwhelmed with anxiety.” Returning to school is a welcome change for many children, but it's a transition that will be stressful, even if it's joyful. There’ll be similarities to remote employees who have to return to the office. Suddenly, there’s commute time, mandated lunchtimes, and no dog to pet when you need a break.

Adults could also benefit from routine SEL training. Employers value workers with solid SEL skills. Those competencies permit employees to demonstrate the “soft skills” needed in the business world. As we all recover from various pandemic-related griefs, employers would do well to include SEL training as part of their workplace education offerings.

Business Opportunities in the SEL Market

Given the tremendous importance of SEL skills and the market's projected growth, plenty of business opportunities in this area target educators, families, or communities.

Business opportunities include:

• Join the ranks of e-learning businesses by creating content or administering e-learning that is focused on SEL training.
• Create an app. Some popular apps include SuperBetter and Calm, but there’s always room for another app on the market.
• Provide tutoring services focused on building SEL skills.
• If you have knowledge in the AI field, invent new ways to use AI in SEL learning.
• Build lesson plans or learning curriculums for teachers.
• Offer SEL-focused community services, including after-school programs or family workshops.
• Provide SEL-related employee training to other businesses. Perhaps it could support a business’s mental health coverage benefit to promote positive mental health.
• Start a consulting business to help schools or businesses evaluate SEL offerings and program effectiveness.

Tips for an SEL-related Business

Fundamentally, starting an education-related business includes the same steps as any other industry—know your customers, perform a SWOT analysis, create a business plan, and find and secure funding. But you’ll also have to navigate some education-specific items such as figuring out school calendars and adhering to student-related policies (e.g., FERPA).

As you pitch your business idea, remember to use your own SEL skills, including relationship-building and social awareness. The pandemic is fueling the growth of the SEL market. Speak from the heart about how your product or service can help—you don't want to be viewed as taking advantage of a bad situation.

If you have a unique idea and are ready to launch your new business, a startup business loan can give you the capital you need. But don't forget that there may also be opportunities to buy a franchise or an existing small business that already has a foothold in the SEL market. 

Whichever path you choose, know that you are providing a solution that could have a positive long-term impact on your customer’s lives.

Business operations refers to the processes you put in place to run your company. From the development of your products to their marketing and sales, your teams use operations to execute ideas. 

There are 2 key parts of business operations: process development and optimization. When a business first forms, teams will focus on operations development, which addresses who does what within the company. Then, as the company grows, teams will optimize the operations processes to save money and grow sales. 

Your business operations have a big impact on your business. Learn more about this aspect of your company and how to improve it over time. 

Why Are Processes Important?

Processes are a key aspect of your business operations. Anything that needs to get done in your company follows a set process. Your processes range from making key deliveries to establishing office best practices. There are multiple reasons why you need to develop clear processes—and why these processes need to documented. 

1. Processes allow for standardization. When everyone does the same thing the same way, you and your customers will always know what to expect.
2. Processes prevent burnout. Your team members can know what is expected of them and won’t feel pressured to take on tasks outside of their set roles.   
3. Processes can streamline your onboarding. New team members can quickly learn their roles and requirements by following existing processes. 
4. Processes promote fairness. This way, one team member doesn’t follow a set of rules while other employees ignore them. 
5. Processes create opportunities for improvement. Rules are meant to be broken and improved upon. Once you have a process in place, you can start optimizing it. 

For example, say a startup e-commerce retailer wants to create a weekly newsletter with items that are on sale. However, without a clear process, there are no guidelines for which items are promoted and which ones aren’t.

There isn’t a template for sending out the newsletter, so creating it is time-consuming—and if an employee sends out the newsletter and quits before documenting the process, no one knows how to keep it running. There never was a clear process, so a potential revenue driver is forgotten or ignored.

What Happens During Business Optimization?

The first year of your business is often spent on process development. You want to add a new feature to your company, so you create a process to grow your business operations. However, as your company grows, you may want to change these processes through optimization. In large companies, there are entire departments dedicated to optimizing business operations. 

During the optimization process, teams review business processes to see how they can be improved. These employees are looking for ways to save time, money, and energy while also looking to reduce risk. 

For example, Amazon’s site speed plays a significant role in its revenue. If the website slows by even 100 milliseconds, sales will drop by 1%. When Google’s pages take an extra half-second to load, search traffic drops 20%. By keeping the business operations for Amazon and Google running at their best, the 2 companies can keep customers happy and increase sales. 

There are multiple reasons why a company will look at a specific process to improve business operations. However, one of the most common reasons is that something isn’t working: 

• A process that should take a few hours is taking weeks. 
• A system that is meant to help customers is frustrating them. 
• Employees are making more mistakes or experiencing injuries after a new tool is introduced.

All of these factors alert operations managers that something is wrong. By intervening to address weaknesses in the systems, managers can improve business operations to help employees—and the company’s bottom line. 

How Can You Audit Your Business Operations? 

There are multiple ways to audit your business operations—and multiple reasons to do so. Some managers start with a full business operations audit whenever they are hired to a new company or department. They want to know how everything works and what can be improved. Other leaders conduct operational audits when developing their annual budgets or when an employee leaves. 

Follow these steps to audit your business operations: 

1. Make a list of key processes within the organization. Each employee can make a note of their specific processes. 
2. Talk to employees about how processes are completed. Focus on how long each process takes and the number of people who are involved. 
3. Ask for feedback on these processes. Do your employees have any ideas for how they can be improved? What might help them to complete their work faster—or better?   
4. Remove steps or change how processes are done. Clearly create instructions documenting the new processes and ask your employees to follow them. 
5. Track the progress of the new processes. Make sure they make sense and aren’t affecting your team members or other operations methods in any way. 

These steps may seem simple in theory, but they’re more complicated in practice. While 1 change might benefit the company and help you save money, it could also hurt your brand or employee morale in multiple ways. 

For example, to save time, a company might cancel its weekly team meetings and opt for an internal email instead. This might seem like it saves an hour; however, it could cost team members in other ways.

One employee might lose 2–3 hours collecting updates from managers and sending out that email. Other employees might ignore the email and miss important messages that they would hear in an in-person meeting. As a result, business operations suffer even though the change was designed to improve them. 

You Constantly Need to Improve Your Business Operations 

There will always be room to improve your business operations. New tools can help you to automate processes or save employees’ time. Your staff can keep coming up with ideas that improve their workflow.

However, if you’re dedicated to understanding your processes thoroughly and finding ways to do them better, you can stay involved in your operations—and lead your company toward growth. 

If you want to run your own business, you have basically 2 options: start your own or take over an existing company. Operating an existing small business, either through purchase, franchising, or inheritance, can take the pain out of many of the challenges new businesses face, like building a customer base or having data on seasonal sales patterns.

Of course, the business you buy may not be running at an optimal level. Before buying a business, you should understand how to scrutinize existing businesses and how to strategize and leverage the strong elements of a business toward more growth.

In researching how to buy businesses, you’ve probably come across the concept of a “turnkey business.” This refers to a type of business for sale that’s ready for a new owner right away. Read more to learn what’s involved with turnkey businesses, why you might want to buy one, and what you should look for when comparing your options.

Understanding Turnkey Businesses

To be considered a turnkey business, a company must be fully functional and operating at full capacity. This doesn’t necessarily mean the business is profitable, but it can’t be majorly hindered by problems like broken equipment or missing infrastructure.

Of course, not every turnkey business exists in a physical space like an office or strip mall, but all are ready to continue operations upon purchase. Examples could include a restaurant under new management or a laundromat looking for a new owner. In some cases, the new owner might not change anything—one day, the business was making money for its previous owner, and today it’s turning a profit for you.

In many cases, though, there’s a reason that a business is put up for sale. Sales could be flagging, the seller might not want to run a business anymore, or the seller might need cash. Additionally, you might sense that there are ways you could expand the business better than the previous owner.

What Are the Benefits of a Turnkey Business?

Alongside this, another advantage of a turnkey business is that the company’s proof of concept usually works. There could be issues with profitability, management, and sales, but you typically aren’t reinventing the wheel when you buy a turnkey business—most turnkey businesses are either running well in the moment or in the very recent past, or else you might have a plan about how you can make the company profitable.

A disadvantage to turnkey businesses, especially franchise situations, is that the business might already be locked into contracts and obligations that you aren’t interested in maintaining. However, if you buy the business, you’ll then be a party to these pre-existing agreements.

How Do You Find a Turnkey Business?

Purchasing a franchise location is another common way to buy turnkey businesses, although it’s also one that comes with some major restrictions imposed by a corporate entity—which is both an advantage and a disadvantage. Franchises are known among the small business crowd for their lower failure rate compared to small businesses overall.

You might also consider multi-level marketing (MLM) businesses, where you sign some agreements and pay for inventory—a type of turnkey business—but these types of companies remain controversial and have a shaky rate of success.

Like with all other forms of shopping, a very popular way to find turnkey businesses is to browse online. A quick Google search will pull up several platforms with businesses for sale in your city, state, or region. In this situation, all the due diligence is on you to make sure the purchase is worth the investment.

“Look at the existing infrastructure and make sure you understand everything that comes along with the purchase,” the Small Business Administration recommends. “Don’t be afraid to ask questions about contracts, leases, existing cash flow, and inventory. The more you know, the better equipped you’ll be to make a sound decision.”

How Do You Buy a Turnkey Business?

When looking for a turnkey business, you should consider 3 key aspects: customer fulfillment, marketing, and sales ability. You should measure how well the company serves its customers so they’ll return with future business. Pay attention to how the company markets itself and how well its brand penetrates the marketplace. Finally, you should look at the sales ability of the company—how does it leverage its marketing toward actual sales?

Once you find a seller, you should hire a financial expert to do an appraisal so you get an accurate price for the company and its various assets, talent, customer networks, and other valuable elements. To make the sale, you will probably have to explore your funding options unless you have all the cash on hand. Online lending platforms like Lendio make finding loan options easy, so you can take your business to the next level. 

Choosing your business structure is one of the most important decisions you’ll make for your business. And—for better or for worse—it’s also one of the first decisions you’ll make. While it’s possible to adjust your business entity down the road, it’s easiest for you to start things off on the right foot.

The entity type you choose doesn’t just add fun professional-sounding designations to your name, like LLC or Inc. Your business structure also impacts how you manage your business, pay taxes, keep records, find financing, and mitigate risk.

To put it in perspective, choosing a specific entity type could lower your taxes and reduce complexities. However, it could also open up your personal life to harmful debts and expensive lawsuits. These are the kinds of opportunities and consequences you’ll need to consider.

While we can’t make the hard decisions for you, we can give you all the information you need to make confident, educated choices regarding your business type.

However, due to the legal and tax ramifications surrounding choosing a business type, it’s always a good idea to involve an attorney and tax professional. These professionals will be familiar with your state’s specific legal nuances and help you make the best decision for your particular business.

This guide will walk you through the 6 types of business entities you should consider. We’ll talk pros, cons, and who benefits most from each entity type. First, let’s get on the same page with a brief overview of business entities and why they matter—then, we’ll get into the details behind each type.

What is a business entity?

There’s no “best” type of business entity. The right entity for your business will depend on your structure, size, scale, industry, comfort with risk, and personal preference. 

Before we dive into deeper terms, let’s define a business entity.

A business entity is an organization formed by 1 or more persons to facilitate business activities or to engage in trade (buying and selling). Businesses are created at the state level, meaning that you’ll need to register your organization with your state and comply with the laws, regulations, and fees required.

Pass-through entities.

Pass-through entities (or flow-through entities) are business types that treat business income as the owners’ personal income. Common pass-through entities include:

• Sole Proprietorships
• Partnerships
• Limited Liability Companies (LLCs)
• S Corporations

Most small businesses (around 95%) opt for the pass-through entity structure to reduce tax obligations and for their easy setup. However, owners will have to pay taxes on income they may never receive as individuals—for example, if the business’s profits remain in the business.

Why does your entity type matter?

Your entity type impacts everything from your business’s name to your tax obligations to your legal liabilities. Here’s what to consider when making your choice:

• Structure: Some types of businesses are structured for solo operations (sole proprietorships), while others are formatted for 2 owners (partnerships) or many more shareholders (corporations).
• Taxes: Pass-through entities pay income taxes for the business on their personal tax return, while corporations pay business taxes separately. However, corporation shareholders often face “double taxation“—first, the company must pay tax on profits distributed to shareholders, and shareholders must then pay dividend tax on their personal tax returns.
• Regulations: Government regulations at the federal, state, and local level vary based on your entity.
• Scale: Some entities are meant to be run by a single individual, while others support more owners and employees. If you plan on being the sole owner and operator of your business forever, a sole proprietorship is all you’ll likely need to consider. However, if you plan on scaling, you’ll
• need to weigh other entity types down the road.
• Financing: Your entity type impacts the way lenders consider and process your loan applications. For example, if you’re looking to sell shares (which is essentially ownership) of your business to raise capital, you’ll need to be a corporation.
• Legal risk: Different entity types limit your personal liability from business debts and lawsuits. This helps protect your personal assets.

The 6 types of business entities.

There are a variety of business entity types to consider: everything from sole proprietorships to corporations to nonprofits and beyond. It’s a lot to weigh, so we’re going to limit our coverage to the 6 most common (and likely most suitable for small businesses) entity types:

• Sole Proprietorship
• General Partnership
• Limited Partnership
• Limited Liability Company 
• S Corporation
• C Corporation

Below, we’ll break down the nuances of each entity type—the good, the bad, and the ugly.

Sole proprietorship

A sole proprietorship is the simplest and most popular business structure in the United States, with over 23 million currently in existence. It’s an unincorporated business owned by a single person (or a married couple). Because a single person owns it, you get complete control over every aspect of your business—you call all the shots. 

However, with this complete control also comes total liability. That means you and your personal assets are at risk for any debt or lawsuit issues. It’s scary, but some industries and natures of work are less risky than others.

New business owners who work in an industry with little-to-no liability and who don’t own significant assets that could be claimed in a legal dispute should consider a sole proprietorship. If you’re looking to launch a solo-operated business, consider starting as a sole proprietor and changing your business entity down the road.

Examples of sole proprietors often include:

• Freelancers
• Amazon businesses
• Consultants
• Accountants
• Bakers
• Tutors
• Fitness instructors

If you never register your business, then you’re considered a sole proprietorship. As a sole proprietorship, there’s no distinction between you (the owner) and the business—they are one and the same for all intents and purposes. You’ll report your business’s profit and losses on your personal tax return.

If you choose to remain a sole proprietor, you’ll never need to register your company unless you want to set up a retirement account or begin hiring employees. In that case, you’ll need to apply to the IRS for an Employee Identification Number (EIN)—the Small Business Administration (SBA) says “you need [your EIN] to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.”

Pros of a sole proprietorship:

• Easy to set up—you may never need to register with your state
• Complete ownership
• Simple to report your business profit and loss on your personal tax return

Cons of a sole proprietorship:

• Personally liable for business debts and lawsuits
• Can be challenging to raise capital
• Business lives and dies with you—literally

General partnership

There are 2 main kinds of partnerships: general partnerships (GPs) and limited partnerships (LPs). A general partnership is essentially the same thing as a sole proprietorship, just with 2 or more owners. Each owner shares the business’s profits, debts, and liabilities.

As with a sole proprietorship, it’s not necessary to register a partnership—it’s the default entity type when multiple owners begin doing business together. This simplicity is often a big reason general partnerships form.

Business owners who trust each other and feel confident sharing profits, losses, control, and liabilities should consider a general partnership. If your business is young and you don’t have major personal assets to lose, a general partnership may make sense at the beginning. As you grow, you may want to consider changing your entity type in order to scale your business, reduce personal liability, and access equity financing.

All partners share a general partnership’s profit or loss and report them on their personal tax returns. They also share responsibility for debts and legal liabilities—this is known as joint liability. Joint liability means that each owner is responsible for the actions the partnership takes. For example, if your partner engages in illegal, criminal, or fraudulent activity within the business, you may be held responsible—even if you’re innocent and ignorant of the behavior.

Because each partner is considered equal in the relationship, they each have the authority to enter into contracts or deals on the business’s behalf. For this reason (and many others you may be imagining now), it’s crucial to choose a reliable partner you can trust.

Pros of a general partnership:

• Easy to set up—you may never need to register with your state
• Partners share ownership and control
• Simple to share the business’s profits and losses and then report them on your personal tax return
• Shared liability in the case of business debt or lawsuits (this could be a pro or a con)

Cons of a general partnership:

• Can’t raise equity financing
• Personal disputes can lead to business dissolution or failure
• Shared liability in the case of business debt or lawsuits (this could be a pro or a con)

Limited partnership

A limited partnership is a more secure version of a partnership, and it requires you to register your business entity with the state. Limited partnerships have 2 types of partners: general partners and limited partners.

• General partners: General partners are the partners who own and operate the business. They also share liability for the partnership.
• Limited partners: Limited partners (also known as “passive investors” or “silent partners”) are investors in the business who typically don’t manage day-to-day tasks, responsibilities, and decision-making. Consequently, limited partners lack control of the business operations, affording them significantly fewer liabilities.

Because limited partnerships are a more formal business entity, you’ll need to register your business, hold annual meetings, and create a partnership agreement.

If you’re looking for equity financing and don’t want to form a corporation, a limited partnership can help you maintain more control of your business while also enabling you to pool resources and raise capital. This makes limited partnerships a great option for family-owned businesses or real estate companies that need combined resources but whose investors may not want to share liability with the company.

A limited partnership is still a pass-through entity, so it doesn’t pay taxes on business income. Instead, each partner claims a share of the business’s profit and losses that they report on their personal tax return.

Pros of a limited partnership:

• Limited partners don’t have to pay self-employment taxes
• Raising capital for your business is easier since your investors have limited liability
• Simple to share the business’s profits and/or losses and then report them on your personal tax return

Cons of a limited partnership:

• Requires more paperwork than a sole proprietorship or general partnership
• General partners still have shared personal liability in the case of business debt or lawsuits

LLC (limited liability company).

The LLC business type was created with small businesses in mind. It gives owners the option to become a little bit more official and protect their personal liability in the process.

An LLC is a hybrid business type that combines elements of general partnerships and corporations. With an LLC, you separate your business identity from you and any other owners. This means you’re no longer personally liable if any financial or legal issues arise.

Plus, registering your business as an LLC gives your business an air of professionalism. The abbreviation “LLC” will now be included in the legal title of your business—pretty cool, huh?

While an LLC is a little bit more complicated than a sole proprietorship or partnership, it’s certainly less complex than corporations. You’ll still need to register your business and fill out some basic paperwork for your LLC, but you won’t have to maintain the intensive record-keeping and meeting-heavy regulations that C corporations and S corporations have.

LLCs are taxed as pass-through entities, meaning the owners will split their share of the profits and losses to report them on their personal tax returns. You get to choose whichever tax method is most advantageous (and applicable) to your business: sole proprietorship, partnership, or even corporation. On the downside, the LLC members will have to pay taxes on the business’s earnings, even if they never personally receive them. 

Pros of an LLC:

• Owners no longer have personal liability for business debts and lawsuits
• You can choose to be taxed as a sole proprietorship, partnership, or corporation
• Fewer regulations than corporations

Cons of an LLC:

• Must register with the state, which requires a fee
• Owners of the LLC will have to pay taxes on business profits, even if the business keeps the money as retained earnings

C corporation (C-corp)

Now, we enter the realm of corporations. A C-corp is a separate entity apart from the owners, and stockholders share business ownership.

Each stockholder has limited liability in the business, but they also have limited control. Stockholders elect a board of directors, and this board is responsible for making key business decisions (including choosing leadership). Corporations are legally required to have board and shareholder meetings, keep meeting minutes, and maintain more intensive bookkeeping records.

As a separate entity, C-corps must pay their own business taxes (owners do not report business profits and losses on their personal tax returns). As of 2018, all C-corps pay a flat 21% federal income tax. Corporations offer additional tax deductions—and you also mitigate self-employment taxes—but you will face double taxation if you provide dividends.

Consider registering as a C-corp if you want to sell ownership of the company in exchange for capital and want to reduce personal liability.

Pros of a C-corp:

• Limited liability for business owners
• More available tax deductions and lower self-employment taxes
• You can sell shares to raise capital
• No limit to the number of shareholders

Cons of a C-corp:

• Control of the business is shared among stockholders
• More expensive business registration fees
• Business losses can’t be deducted from your personal tax return
• Must comply with additional regulations (meetings, minutes, bookkeeping, etc.)
• Double taxation

S Corporation (S-Corp)

An S-corp is similar to a C-corp except for a few tax and regulation nuances. S-corps have the same limited liability as C-corps, but they’re taxed as pass-through entities, meaning you’ll report business income and losses on your personal tax return.

If you want the protection, structure, and available equity financing of a corporation with the taxation of a pass-through entity, an S-corp is the right entity type for you.

Pros of an S-corp:

• Owners don’t have personal liability for business debts and lawsuits
• You can sell shares to raise capital
• No double taxation

Cons of an S-corp:

• Expensive to start
• Must comply with corporate rules (like board and shareholder meetings and bookkeeping standards)
• Limit to the number of shareholders—no more than 100

Choose the right entity type for your business.

There’s no best business entity. You’ll need to examine the types, evaluate the pros and cons, and make the most advantageous decision for your business.

If you’re struggling to choose, consult a legal or financial professional. The money they can save you now by making the right decision is worth much more than their consultation fees—a lot more.

And remember—you can always change later. It’s generally easy and straightforward to progress from a sole proprietorship or partnership into an LLC or corporation—although the inverse can be a bit more tricky—but don’t let choosing your entity type slow you down from starting your business!