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!
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:
Are there significant personal assets at risk?
Is this a high liability business?
A yes to either of these questions answers “why should I
incorporate my business?”
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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?”
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