Types of Businesses – Definition of Business Types

A man is known by the company he organizes. – Ambrose Bierce

[Types of Businesses] – Owning your own business is a major part of having great economic success in a capitalistic society. There are many types of businesses to choose from so one of the first decisions you’ll make is the type of business to open. There are several options to explore for the structure of your business. This article will give you the definition of three of the most popular business types. These types of businesses are: (1) Sole Proprietorship, (2) Corporation, and (3) Limited Liability Company.

(1) Sole Proprietorship – individual ownership and operation of a business.

A sole proprietorship is not a separate organization and does not have any formal requirements for formation. The individual simply begins doing business. Most sole proprietorships are small businesses, and initially their business capital needs are small. Typically, the individual provides the funds. In order to get financing, a sole proprietor takes personal financial risk. The income of the business is the income of the sole proprietor and is reported on the individual’s income tax return. The proprietor is the manager of the business. The business can be transferred only if the owner allows it.

(2) Corporation – any entity formed by statue that has rights of a legal person along with limited liability for its shareholder owners.

Formal public filing is required to form a corporation. A corporation may use short-term financing or debt and equity financing. Limited liability for shareholders is one of the advantages of corporate organization. Corporations have the tax consequences of double taxation. Many shareholders may own a corporation but the board of directors controls the operations. Shareholders have the opportunity to express their views at the annual meeting by electing directors who represent their interests. A corporation can be dissolved voluntarily or involuntarily.

(3) Limited Liability Company – newer form of business organization in which liability is limited except for conduct that is illegal.

An LLC is formed by filing the articles of organization with a centralized state agency. Members of an LLC make capital contributions in much the same way as partners make capital contributions. Members of an LLC have limited liability; the most they can lose is their capital contributions. The LLC does not pay taxes; income and losses are passed through to the members to be reported on their individual returns. Members of an LLC adopt an operating agreement that specifies the voting rights, withdrawal rights and issues. A member’s LLC interest is personal property and is transferrable. Most LLC statues provide that the LLC dissolves upon the withdrawal, death, or expulsion of a member.

The definition of these business types is just the beginning of understanding how to fully utilize each structure. Because there are several types of businesses it is important to know the advantage and disadvantage of each. The type of business you organize will determine a lot about how you reduce liability, protect your assets and pay your taxes. Defining the business type for you is important in “Creating Your Own Lane” in business success.

Mobile Oil Change Businesses Are Very Hard to Succeed In

There have been many people who have come and gone in the mobile oil change business. It always looks easy from the surface and is relatively inexpensive to start with minimum investment compared to most other businesses. But most mobile oil change operators rarely make it past the first year. In fact most do not make it past the first several months. One has to wonder why such a good idea ultimately ends in failure. Lets take a closer look.

First the profit generated from oil changes is not enough to sustain a healthy business. After you calculate the cost of goods from the total bill there is rarely is more than twenty five dollars net profit made from your typical oil change. And that figure does not include the gas used driving to the actual location. You have to be doing a lot of oil changes per day for you to make a decent profit to support your business and your personal expenses. Most quick lubes make even less due to their substantially higher overhead yet make up for it in large volume. Most successful fixed locations are doing 60 oil changes on a bad day. A mobile oil change company, with most of the time one or perhaps two people working it, does not have that luxury. The most your typical mobile oil change van can do is ten oil changes per day and after that the operator is exhausted. And even if a person could consistently do ten oil changes per day he still has to generate those oil changes from somewhere. They do not magically appear. Do you have a plan how to do that? Most start out thinking corporate campuses will provide tons of business especially if its marketed by the companies there. In reality that rarely works as advertised and you will be lucky if you get 10 customers in one year from a huge corporate campus. The end conclusion is that the net per oil change is just too low to make a viable business from it without a massive amount of volume.

Second, many mobile oil change operators are not very good salesmen. They are usually very honest people and ones who are very passionate about what they do and you gotta love that but I have found that most owners of mobile oil changes are terrible at the sales end. They are usually the type who try to charge way less than the going market rate and think they can tell a few people about their “awesome service” and wait by the phone. That never works. You have to go out and get them. You have to do a copious amount of cold calling. You have to talk to a lot of fleet managers and sale yourself first and then your service. Most in the mobile oil change business do not fully understand this or never really apply themselves to this side of business. Its probably the most important part not just in the mobile oil change business but any business for that matter. I will go out on a limb and say that if you are a great salesmen you will do well running a mobile oil change business or franchise. If you know about cars but not sales then I recommend working for a new or used car dealer for 2-3 months and get the experience. It will be tough and gruesome but that is the quickest way to get good a pure hard core sales without a lot of the “fluff.” Then open your mobile oil change company.

Third, the weather cannot be understated in limiting what mobile oil change operators can do. There are few states that have decent weather throughout the year. Half the states get really cold several months out of the years and the other half get really hot throughout 3/4 of the year. Both are equally discouraging. A fixed location can turn on the air or turn on the heat. Their operators work in a controlled environment. You do not have that luxury. You may have several fleets planned for one day and it can be pouring down rain that day. Have you thought about changing oil in 0 degrees. Your hands will not be able to grip that oil filter or wretch its as hard as a rock or you cannot feel them. Or changing hot 150 degree motor oil in 100 degree humid weather on a vehicle where it’s oil filter is in the middle of a hot engine manifold and you have to burn yourself to get to it? Do you clean it off and skip it or burn yourself to get to it? That will happen.

Having mentioned these three major hurdles, and there are more, I will say that it is not impossible. I have made a success of it. But I wish that someone would have been straightforward with me before me and my partner spent over $80,000 getting into the mobile oil change business. We were sold on a lot of unreal hopes and dreams from Jet Set Life Technologies about great wealth using a flawed model involving oil extreme. They set us up with a nice van and their product is good but their whole system is flawed from the bottom to the top. We found a way to make it work but sadly 90% of the mobile oil change business operators do not. The success rate is very small. Understand whats really involved and if you think you can grind it out and not make any money for 2-3 years, go for it.