COVID Funding Tips for Small Businesses
It’s a safe bet that you started your business to succeed and make money, not add stress to your life and lose money.
To cut to the chase, operating as a sole proprietorship is NOT the fast track to success – in fact, it’s the shortest path to join the 95% of businesses that fail in the first 5 years.
You probably made this choice for one of three logical reasons; (1) you were looking for the easiest and cheapest way to get started, (2) you wanted to test the waters to see if your idea would make money, or (3) your tax advisor told you to keep it simple and go the sole proprietorship route until you earn more than $40K to $50K in profits.
Unfortunately, that decision sends a different message to the rest of the business world:
“I don’t believe in myself, my product or my service, or I don’t expect
to make $40K in profits.”
Forgoing on two decades now, I’ve helped over 6,000 entrepreneurs reverse that message, escape the sole proprietorship trap and make a fast start to profits.
Here are just a few of the strategic insights that woke my clients up to the money they were leaving on the table:
1.Sole proprietors file a schedule C with the 1040 form in April. Schedule C filers are 300% more likely to be audited (the IRS is leaning on small business owners to close a $300 BILLION tax gap). If your business lost money in 2020, you’re especially at risk if you plan to write those losses off against other income.
2. Sole proprietors pay the most in taxes. As the fiscal cliff continues to loom, you already know that your tax bill was going up in 2021. Now is the time to be proactive and help your business save on taxes by forming a separate legal entity.
3. Operating as a sole proprietorship and self-financing your business damages your personal credit score. Sole proprietors frequently turn to self-funding through personal credit cards or cash reserves because their business credit options are limited. The resulting damage to your personal credit score will severely limit your ability to build business credit when you finally get around to forming a separate legal entity.
4. A sole proprietorship sends a negative marketing message. The biggest potential customers, suppliers, and marketing partners all look at your company’s structure before deciding to work with you. Operating this way broadcasts the message that you don’t expect enough profits to incorporate. Why expose yourself to that kind of opportunity cost, especially at a time when you can least afford it.
5. You have unlimited personal liability. A sole proprietorship does not provide you or your family with even a minimal layer of protection in the all-too-frequent event of a lawsuit or other challenges to the assets that you’re working so hard to build.
ESCAPE THE SOLE PROPRIETORSHIP TRAP WITH CONFIDENCE
There’s a way out of ALL of these real-world risks (and others that we don’t even have time to talk about here). NCP has hassle-free solutions in place to quickly and affordably get them all handled – so you can start 2021 with complete confidence.
Go to NCP, my main brand, to help you launch with confidence for 2021. Learn more here.