Choosing the proper business entity is a lot like buying a home. Does it allow your business enough potential to grow? Does it offer you the right amount of protection? Is it high maintenance? These are all questions you must ask yourself when researching how you want to structure your small business. Whether you want to conquer the market or simply your bills, choosing the right entity can have a profound effect on your success in doing either. For world domination, most would suggest an S- or C-corporation.
But for makeup artist and eyebrow expert Suzie Moldavon, the reason she chose to operate as a sole proprietor was simple: taxes. Suzie spoke with her accountant and bookkeeper about the possibility of forming a corporation, but the requirements associated with creating one outweighed any advantage she saw for her business. For instance, she would have to pay herself a conventional salary as an employee of the corporation. This is in contrast to being a sole proprietor, where anything Suzie earns is automatically treated as personal income, with no complication from things like double-taxation or annual filing. In Suzie’s case, a sole proprietorship keeps her finances clean and simple.
Choosing the right business entity a foundational step to building your financial future. If you’re unsure of how to go about structuring your business, speak with your bookkeeper, lawyer or accountant for their recommendations. Additionally, pick the brains of any friends or family you may have that run their own businesses for their advice. Research is always a huge part of any business planning. So, as long as you do your homework up front and track your cash flow as you go, you can rest assured that the entity you choose will enable you to grow your business to your expectations.