It’s a story common to many people running an online business: Your venture started as just a way of earning extra money on the side, providing a few extra luxuries, and maybe funding a modest improvement in lifestyle. Over time, as the business expanded, it started to provide a larger and larger chunk of your income, until the point came to put your venture on a more stable basis for the long term.
This may or may not involve giving up your day job to concentrate fully on your online entrepreneurial activities, but one move relatively few people consider this early in the game is incorporating. This is a major step in the life of any small business person, especially when the business has grown somewhat unexpectedly without a formal long-term plan.
Incorporation offers several key benefits once a venture has reached a certain level of success. A professional accountant or business adviser will be able to give you full advice on the pros and cons of incorporating, but here are just four of the main benefits of putting your online business on legally established footing.
This first benefit is the least tangible, but is nonetheless important. When you’re incorporated, you cease to become some random guy or gal on the web, and become a fully fledged company. No matter how big or small you are in reality, having ” Inc.” after your trading name can add a large amount of perceived value and trust to your company. Of course, this also can easily translate into greater sales, which is a benefit no business would want to turn down.
No one likes to think of their business failing, but once larger sums of money become involved, making provision for this unfortunate result can save a lot of future heartache. Most failing business build up debts and liabilities, which can put the owner’s personal assets — including their home — at risk of loss or seizure to clear the debts. When a business is incorporated, its liabilities can only be set against the business’s assets, not the owner’s. This gives a powerful and welcome layer of financial protection to a small or large business owner.
Likewise, by incorporating, you set up a financial firewall between your company’s creditworthiness and your own. If your business fails, it won’t drag your credit rating down with it; if the worst happens, your company’s damaged credit rating will die with it and won’t be a burden in your future personal life.
Conversely, if you’ve had personal financial difficulties in the past, you might find that this counts against your chances of raising funds for your business as a sole proprietorship. Incorporating removes this link and gives your venture a clean financial slate from which to start building.
This final advantage is a more positive one. For as long as you’re operating as a sole proprietorship, your business has little worth outside its real-world assets such as stock, order books, and so on. You may be able to sell it as a concern, based on historical turnover, but a single-person operation only has substantial value while that person continues to be involved.
An incorporated company, on the other hand, has an intrinsic worth that can be sold on at a future date. Because of this, all the time and money you spend building up your business can pay back in two ways: increased profits in the short term, and development of a real salable value in the longer term. Your business thus becomes an investment, or even a potential retirement plan, as well as an income in the present.
Incorporating your small online business might seem like overkill or a step too far for the current size of your concern. However, the potential benefits can reduce your personal risk and free you as an entrepreneur to push on and take your business to the next level.