Is it time to incorporate my business?
Starting out your own small business is an exciting and admirable task. So what should you do once you’re ready for the next step?
When most small business start out, they begin as sole traders or partnership, which means that they and their business are essentially one and the same. But once your business starts to take off, it is often worth rethinking your business structure.
Wanting to make the move to incorporate your small business can be an extremely daunting task. One that often small business owner would rather avoid. However, there are so many benefits to this next step that will make your life easier in the long run.
Still not sold? Well here are 5 reasons why we think that incorporate your small business should be your next move.
Personal Asset Protection
Turning your business into an incorporated small business compared to a sole tradership is really great when it comes to personal asset protection. In a properly structured and managed incorporation, owners should have much more limited liability for business debts and obligations. This does also mean that more formalities and paperwork are required, but it is well worth it to ensure that should anything go wrong, your personal assets aren’t at risk. If your business is starting to grow, then this is a really important factor to consider.
Additional Credibility & Name Protection
This may seem like a minor point, but it is one you definitely should not overlook when considering whether it’s time to incorporate your small business. Adding ‘inc’ after your business name instantly adds authority and legitimacy to your name. Consumers, vendors, and partners more often than not prefer to do business with an incorporated company. Incorporating your small business not only helps your business legally, but also helps with brand building and marketing.
Another often overlooked benefit of incorporating your small business is that it means that it will continue to exist, even if ownership or management changes. Should a sole trader decide to move on from a business, it will cease to exist. If you have started your own small business, it’s only natural for you to want it to continue, even if you personally decide to move on. Incorporating your small business is the best way to ensure this.
Have Easier Access to Capital
Raising capital is generally easier if your small business is incorporated as it means you can issue shared in return for cash. Having this as an option makes it a lot easier for your business to grow and develop. If you’re in the need for a bank loan, that is another reason why incorporating your small business is beneficial. In a lot of cases, banks prefer to lend money to legitimate, incorporated businesses. You will also have access to more alternative sources of capital through which they can pay off their debts.
As an incorporated small business, you are taxed on your profits. These taxable profits can then be reduced by qualified business expenses which includes marketing and advertising, operating, travel and entertainment expenses. You are also able to deduct employee salaries should you grow enough to hire, and contributions to qualified pensions and retirement plans for employees. This all being said, taxations can become a bit more complicated once transitioned from sole tradership to incorporated business, so it’s worth hiring an accountant to assist.
Incorporating your small business does mean in ways that there are more administration, more expenses and attention to detail. However, the benefits definitely outweigh the negatives if your business is succeeding and growing.
To get started you need to register your business, decide on shares and establish directors.
This can be an overwhelming task, although rewarding at the same time. Never hesitate reach out to professionals in order to make the transition smoother, earlier and avoid simple mistakes.
Please don’t hesitate to contact us if you have an questions or need assistance of any kind.