Obviously the simple answer is “no,” because others have gone on to run highly successful businesses without a formal education. However, the fact still remains that those people tend to be the exception; not the rule.

Some industries not only highly benefit from formal education, but it can be required for licensing (medical and legal fields for example). Others don’t require a formal education to be an expert in the industry (such as craft-related businesses).

What I hear a lot of people say (usually kids who start businesses at home online, and who haven’t even finished high school yet) is that if so-and-so could do it without college (insert any ridiculously successful dropout entrepreneur here), so can anyone else. What they neglect completely is that the cases they cite are actually extremely rare.

Banking on being the exception to the rule is very likely a large contributing factor to the overwhelming number of small businesses that fail within their first one to three years.

I won’t argue that absolutely every entrepreneur should receive a formal education and work towards a degree. However, I’d say that doing so couldn’t possibly hurt them in any way (whether it’s an education in their niche or industry, or even a general business education to teach them about the day to day running of a successful business).

What are your thoughts on formal education for entrepreneurs?

LLCs are a popular legal business form for small businesses. Discover what LLCs are, and what their advantages and disadvantages as a business model are.
What is an LLC?

LLC stands for “limited liability company.” LLCs have become the legal business structure of choice for many small business owners, because they combine some of the advantages of various other legal business forms.
Pros of LLCs

• Owners of an LLC get the benefit of limited personal liability, just as owners of a corporation do.
• LLC owners can take advantage of pass-through taxation, like sole proprietors and owners in a partnership, instead of double taxation as a corporation.
• LLCs can be less expensive to start, and involves less paperwork, than corporations.
• LLCs can have a single owner or multiple owners, depending on its location.

Cons of Sole Proprietorships

• Some states don’t allow single owners of an LLC.
• LLC income can be subject to self-employment tax.
• LLCs can be more expensive to launch as opposed to sole proprietorships or partnerships.

If you plan to operate your business on your own, a sole proprietorship may be an acceptable and appropriate legal business form for your needs. Find out what sole proprietorships are, and whether or not that legal business form would suit your small business.

What is a Sole Proprietorship?

A sole proprietorship is a business with only one owner, that’s not a corporation of any kind. Many business owners automatically start a business as a sole proprietor when they launch their small business.

Pros of Sole Proprietorships

• Sole proprietorships are easy to set up.
• Sole proprietorships are inexpensive to set up.
• Sole proprietors don’t have to keep as many records for the IRS as corporations do.
• Sole proprietors control their business finances and profits exclusively.
• Taxes are simpler for sole proprietors, as income is declared on their personal income tax forms.

Cons of Sole Proprietorships

• The business owner will be held personally liable for debts of the business.
• It can be harder to raise startup capital and financing for a sole proprietorship as opposed to corporations and other legal business structures.
• It can be easier for the IRS to declare a sole proprietorship is a hobby rather than a business for tax purposes as opposed to other business structures.
• All business losses are on the shoulders of the business owner alone.

Most areas of business accounting would be difficult to understand without first grasping the concepts of assets and liabilities. Essentially, all money going in and out of a business will fall into different “accounts.” Those accounts are classified as asset accounts, liability accounts, or equity accounts (such as owner’s equity or shareholder equity, basically meaning what’s invested into a business). Assets and liabilities are the most common classifications between accounts.

What are Assets?

An asset is anything a person or company actually owns that has some kind of future value. Something fluid like cash is an asset for a business, as are property, equipment, accounts receivable (money owed to the company), investments, and even intellectual property rights such as copyrights, trademarks, and patents.

Here’s an example when thinking of a wholesaler: Some of their assets would include their products, any money owed to them by retailers ordering in bulk but paying later, and their vehicles for transporting goods to buyers, assuming they do that independently.

What are Liabilities?

On the other side of the spectrum, a company has liabilities, or things owed. Some examples of common liabilities include accounts payable (essentially cash owed from purchases made on credit or payment terms), or yearly payroll and building lease costs.

Using the same example of a wholesaler, the company’s liabilities would include things such as their yearly lease total for warehouse space and the yearly salaries of their employees and contractors.

How Assets and Liabilities are Related

Assets and liabilities are two sides of the financial spectrum for a business, and are vital in being able to balance a company’s financial records (in addition to owner’s equity). Understanding assets and liabilities can help a business owner to better gauge the financial health of their company, similar to the way an individual’s financial situation is determined by comparing what they have of value personally as opposed to what they owe to others.