I've got news for you - you're not the only one who's thought about starting a small business. Please understand that's a good thing. Why? Because there is lots of information around like this to help you get it right the first time around rather than shoot yourself in the foot every few days while you're getting it up and running.

There are a number of things to think about before you decide to rock and role. There are many different ways to start a small business, and the method you choose can make a big difference not only in how your business will work, but also in what kind of impact your business will have on your financial situation.

Firstly let me point out the types of small business entities that you can start. These include sole proprietorships, partnerships, corporations, and limited liability companies.

In This Case We'll Focus On Sole Proprietorships

Statistics released by the Small Business Administration, sole proprietorships -- businesses run and managed by the owner directly, without any separate business entity -- (at the time of writing) represent between 70 - 75% of all businesses in the United States of America. Sole proprietorships are easy to set up. In most cases, people who start up their business without any additional formalities end up as sole proprietorships by default.

Sole proprietorship usually equates to simplicity, its primary disadvantage is its inability to protect the vendor from business liabilities. If there is a claim against the business, and its assets are insufficient to pay the claim, then the person making the claim can collect from the owner's personal assets. Although business liability insurance is available in many industries to provide additional protection against claims, the sole proprietorship's lack of additional business protection makes it unattractive to certain types of businesses where liability is a major concern, such as medical and legal areas.

Also, sole proprietorships are not treated as separate entities for tax purposes. Taxpayers who own a sole proprietorship must add Schedule C to their regular 1040 tax return. It's important to remember that sole proprietors must generally pay self-employment taxes on their earnings, typically at a rate of around 15%.