Top 5 Reasons to Start Your LLC or Corporation Now
5. Liability Protection
Liability protection is probably the #1 reason people operate their business as an LLC or corporation and it still remains a pretty good one. The bottom line is that when you do business as a sole proprietor (i.e. without forming an LLC or corporation) all of your personal assets are at risk to satisfy the debts (or liabilities) of your business. With a properly operated LLC or corporation on the other hand, only the assets owned by your LLC or corporation can be used to satisfy the debts or liabilities of your business. This is a pretty big difference that can give you the peace of mind to run your business like it should be run.
It's easy to take a "wait and see" approach with liability especially when the sailing is smooth. I've heard people say things like "I'll think about it when I start doing higher risk transactions" or "that's for when we are much bigger." The fact is, no-one plans on getting sued - it usually just happens often when you least expect it. Operating your business as an LLC or corporation isn't the only way to reduce your exposure to liability. It is only one layer of protection in a comprehensive risk management plan. It is, however, a very important layer for many businesses.
The other day I was conducting due diligence for a client regarding a business they were dealing with that happened to be a local franchise of a very well known national hotel chain. When I checked on ownership information for the business, I was very surprised that the owner was operating this large, 100+ room hotel as a sole proprietor. In addition to the huge personal risks he was potentially exposed to with a business that caters to thousands of guests a year and employs dozens of people, I thought this also spoke to the business sophistication of the owner.
One benefit of operating your business as an LLC or corporation that is sometimes overlooked is what I call the "legitimacy factor." Especially when it comes to higher risk or larger business concerns, my belief is that more sophisticated partners or customers come to expect that you will be doing business as an LLC or corporation. If you don't, it can be seen as a sign of business immaturity - not something you want people thinking as they make the decision whether or not to do business with you.
Would you ever like to expand your business or cover for emergencies using credit? If so, would you want a way to access business credit that is not tied to your personal finances and assets? I'm hoping that if your answer to the first question is "yes," your answer to the second question is also a resounding "yes!"
Except under a limited, controlled basis when you are trying to build your business' own credit, here are few things as foolish as using your own assets as collateral to borrow money for your business. Regardless of how bulletproof you think your business is, bad things always can happen and when they do, I'm totally certain that you don't want your house, retirement accounts and college savings accounts to be on the chopping block. Furthermore, by including your personal credit information in business credit applications, the excessive number inquiries can substantially lower your personal credit score. Entrepreneur Magazine has a good article on the ins and outs of business credit.
Operating your business as an LLC or corporation complete with its own federal tax number (FEIN) is the best way to establish business credit that is completely separate from your own.
Well, unless you operate your business as an LLC or corporation, you will never be able to have business credit that is separate from your personal finances and assets. Even if you do operate your business as an LLC or corporation, it will take some time to build up credit for your business and you may have to personally guarantee small, controlled amounts of credit for your business (for example a credit card with a low limit used for purchasing supplies). If you do want your business to have its own credit eventually, though, it needs to be operated as its own entity (i.e. a LLC or corporation).
After working with many different clients over the years, I've found that the most successful businesses are the ones that are truly operated as a business instead of the ones that are operated just as a side hobby . The difference? Discipline.
When you operate your business as a side hobby, it is easy to take shortcuts that will be detrimental to your business' long-term success. Need to make a quick purchase at the grocery store but only have a business check? No problem - square it away later. Email domains too difficult to navigate? No problem - just get a gmail or hotmail account. The problem with these shortcuts is that you not only look less and less like a business, but as you operate your business, you start thinking less and less like a successful business owner.
There is something magical about business discipline. From the dedicated home office where you only do business related things to the dedicated email address with the proper domain to the proper banking and regular reporting (even if it is only to yourself) that you need to do when your business is operated as an LLC or corporation, discipline helps you think and act like a business owner. When you think and act like a business owner, your business will be more successful.
1. Build your Dream Promo!
OK, now on to a great reason to start your LLC or corporation during this particular month (November)! To celebrate National Entrepreneurship Month I want to help 10 entrepreneurial businesses start their LLC or corporation and save a bunch of money in the process. With my Launch your Dream Promotion, save over 40% on my Total Startup Package. This package includes everything you need to get your LLC or corporation started (except for fees charged by State and local government, which you need to pay directly) and comes with a customized professional services agreement template for you to use with clients. Ordinarily $850 (add $100 for multiple member LLCs or corporations), this is only $500 (add $100 for multiple member LLCs or corporations) this month only and I only have 10 packages to give away at this price.
Please see my Launch your Dream Promotion blog post for more information including important terms and conditions.
Let's take your business to the next level!