The most common business entity is Sole Proprietorship. The child on the roadside with the lemonade stand is a sole proprietor. Business is cash basis, and there is little thought for tax consequences and liability. Insurance may provide liability protection.
Profits and losses are reconciled on Form 1040 through financial analysis on Schedule C. Here losses may offset any income in coming to your bottom line. All decisions are up to the business owner. But then, so are the financing options.