Why Should I Incorporate My Business
With so many people leaving the corporate world to go out on their own, many of them ask “why should I incorporate my business?” The costs associated with incorporation or LLC might make it seem like you need to be highly successful before considering taking this important step. Sometimes learning from other’s experience can be important when making these types of decisions.
One important consideration is the cash flow of the business. Once a business is netting greater than $60,000, incorporation makes a great deal of sense. One benefit of incorporation is tax savings. The tax savings are significant and some business owners will see a 50% reduction in their tax liability. Some of the savings are in self-employment taxes that business owners pay. Imagine being able to reinvest thousands of dollars each year back into the business. That is every small business owner’s dream!
“Incorporating Your Business for Dummies”
Another benefit to incorporation is liability risk and asset protection. Even a small business can be negatively impacted by a liability issue. One example would be a store owner who was barely making a profit and decided not to incorporate. Someone is shot and seriously wounded on his property. Because the store was not incorporated, the owner loses his store and all of life savings and other property in the settlement. The cost of incorporation would have been recouped immediately in that situation. While no one expects the worst to happen, small business owners need to plan for just that. If you are still undecided, ask yourself these two questions:
1) Are there significant personal assets at risk?
2) Is this a high liability business?
A yes to either of these questions answers “why should I incorporate my business?”
Protecting personal credit is another consideration for business owners. Obviously, most businesses are built on the good credit rating of the owner. Creating a credit profile in the name of the business, in addition to the individual owner, is a benefit that incorporation gives owners. Having a separate credit source for business expenses makes sense as the business grows.
Personal circumstances can change for both the better and the worse and the business needs to be its own entity. It can be easier to obtain loans and other investment sources once a business is incorporated. This is another example of hoping for the best but planning for the worst. Should tragedy befall a business owner, protecting personal assets is of paramount importance. The opposite is also true. The demise of a business can potentially spell personal financial ruin if the business was not incorporated.
Starting a business and being your own boss is a dream held by millions of people. It is a dream that many, many people realize each year. In order to be successful, business owners need to explore the options for giving their business the highest chance for success. Business owners need to take a serious look at their financial situation both from a business and personal standpoint and answer the question “why should I incorporate my business?”
“Incorporating Your Business for Dummies”
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