Of The Four Types of Business Entities: Which are youJul 15, 2022
Knowing the four types of business entities will help you to know whether you must incorporate or you can wait. You might run into someone who tells you that you must incorporate, like I did. I spent weeks worrying about whether I should invest all that money to incorporate or not. It would have been a waste in the beginning. Here are some simple guidelines to follow to know if you must now or can wait a while. I invite you to a free live training on the three steps to fill your calendar as a healer so you can support yourself and your family and still have time off, go to: https://www.highpaidhealers.com
Avoid costly business mistakes
Knowing more about business structures can help you avoid costly and time consuming mistakes with your healing practice or business. I spent two or three years doing things the wrong way and it got very expensive. I could have been in tax trouble if I didn't have a really awesome bookkeeper to help me out. A bookkeeper that is good to hire is one that deals with small business. To start with and you don't necessarily need a CPA, but it's helpful to have a CPA when you prepare taxes if they're complicated
Which of the the four kinds of main business entities are you? Should you incorporate in one of the two ways possible.
Here are the four main business entities and when to use them
1. When you're just starting out, you're going to find out that the first way is as a sole proprietorship. And so that means that one person is responsible for knowing all the aspects of your business, you’re financially responsible and don't answer to anyone else. You don't have partners, or bosses. You as healing practitioner or coach: That is usually where you start. That's before you start to grow a little bigger and for the most part, that is the ideal situation to start because it requires the least amount of input capital.
If you're going to sell something online or you're going to sell physical products, you are going to need something a little more. Okay, so sole proprietorship is basically an individual.
The first thing that you need to do if you live in the US (I don't know how it is in other countries), you need to get a business identification number or EIN. You could use an EIN for a trust, sole proprietorship or partnership. You have a separate tax identity for that business and when you file your taxes for example, and in the US you file a Schedule C you will be using that particular EIN number on this form.
2, The next kind of business entity is a partnership. That's when two people are financially responsible and share in decisions. And if you're going to form a partnership, make sure your roles are written out very clearly in a contract that you both sign.
In addition, make sure you both have a way to exit from it because sometimes it just doesn't work out. For example, one brother got into partnership with somebody he's known for a really long time. They each had different images of how the business was supposed to run and they needed to dissolve the partnership in order to stay friends. Likewise, my uncle had the same thing: he was forming a film studio in Athens. His business partner was all about show and no go and my uncle was all go and no show and so the show guy ran the business into the ground. They had to dissolve the partnership. Always make sure you've got all of those things in place.
Likewise, every business entity needs a special tax identifier, probably anywhere in the world.
3. Now that you've got these businesses started, and you are getting into more and larger sales, it includes more risk. Then, it's time to form some kind of corporation. Any corporation is a separate entity than you. A tax identifier only says your business has it and you put all the income into your personal income tax.
But a corporation is a separate entity and that separate entity allows you to separate your personal and professional financial responsibility. If somebody sues your business and your business doesn't have any money, they can't do very much about it. They cannot go after your personal assets. And likewise if someone sues you personally, they can't go after your business assets.
An LLC, limited liability corporation, is the next business entity. It has some tax advantages but there is more work involved. This includes having to file a separate tax return and you have to also file yearly LLC reports and pay a yearly fee, depending on which state you live in. I know that in California, an LLC is really expensive, about $800 a year just to have one. It depends on where you form the corporation and you must have an office or physical location in that state.
There are lots of rules that you have to follow. For example, we have an LLC as a charity. And every year we have to file a statement when we had our meetings, you know what was discussed in the meetings, the meeting minutes and so on and then all of the LLC owners have to sign for example.
4. And then you have two kinds of larger corporations. That's when you start having all those five different functions that happen in a business with different individuals that each have people working underneath them. That's when you start growing really big and that's when you start filing as a corporation. And there are two different kinds. There's an S-Corp, this is what they call pass through taxation. And then the C Corp. It is almost a double tax: it taxes your salaries. So you know you can sell physical products and then you take a salary. You're taxed on the profit of the goods through the company and then your salary is taxed separately as an individual on your individual tax return. So those are for really big companies where your labor isn’t directly involved in the profit of the company, unlike that for service providers.
Most healers and most people that have healing businesses, most of them will be sole proprietors. I know some partnerships. They can be very successful together compared to apart. For example, one person does all the marketing and the other person does the healing. And usually the marketer is totally into whatever that healer is doing and has experienced it and has enthusiastic and wants to sell it this is where a both people are passionate about it and when it works
As a solo-preneur, you with a healing practice, you will be a sole proprietor. Then later become an LLC as you grow and as your income grows and as the risk of you being out there grows.
In summary, this is when it is time to incorporate your healing business
The time to incorporate is
- when you want to limit your personal liability for business debts.
- When you are raising capital from investors. As an aside, I have self funded my whole business experience. That means that I used my own credit cards and paid them down to establish my business. I was investing in myself for example. Sometimes, other people will want to invest in you. One way would be to sponsor their products. There's many different ways: you selling instead of sponsoring their products. So you might be wanting to incorporate at that point.
- When it becomes advantageous for you to be taxed as a corporation, rather than taxed as an individual.
So here are instances in which this would happen.
- If you're selling food or supplements to others, like nutritional products or food bars, you could be liable for it in case somebody hasa bad reaction to an ingredient. Or something is tainted.
- You want to cover yourself if you are running events where people could get hurt, and it is at a place that doesn’t have the liability insurance like most hotels do. When you do an event at a hotel make sure that they do. If they don't and you're not incorporated, go to get some liability insurance for yourself. In fact, it is always a good idea to make sure
- In case you are in danger of being sued for any reason, . You have to make sure that you cover all your disclaimers, that you don't make any outrageous claims like you can cure cancer because it can't be cured.
And so these are basically in a nutshell what the four business entities are and why you would want to incorporate going from sole proprietorship or partnership to an LLC, or an S-corp or C-Corp.
Free online resources to help you grow your healing business
In the beginning, I mentioned that I'm going to talk a little bit about resources. So there's plenty of free resources online. Some of the resources that I have used basically forever as free. If you don't need beyond the bounds of what they have to offer for free, then you don't need to have the paid version.
A free online appointment booking system that coordinates with your calendar
And one such thing that I have used a lot is an online booking system. It's called calendly.com. There are several different free booking services. It allows people to click on the link that you get from them to book an appointment directly into your calendar.
You can put it on your card, you can put it on pamphlets, you can put it in on your Facebook page: you can put it everywhere you want people to make appointments with you.
It’s calendly.com It is completely free. It allows you one kind of appointment. It allows you to get an email with their information. So you know who's booked it and it puts it automatically in your calendar. I happen to use Google Calendar but it also coordinates with Apple calendar.
Zoom is a great resource for recording your own videos
Another resource is zoom.us. Now what's great about Zoom is you can do one to many meetings. They are changing the model, but up to now, you could do calls for up to 40 minutes for free. You can record them, you can download them, you can post them
So let's say that you want to record a video like this, and you don't have any other resources and you're at a place where you have a really ugly background. This happens to be my current live background. This is a room not a Zoom background.
But Zoom will provide a background when you go into your video settings. It will provide a nice background and will do automatic green screening for you. So if you're in a really messy room and you've got an ironing board propped up and you've got a bunch of books piled on the floor, or you’re visiting somewhere have the kitchen in the background, you won't have to see all that all that disorganization and mess. You can then create a green automatic green screen you can upload any image you want. For example, if I took a picture of this and uploaded that image into my Zoom account, I can use that as my background. You have lots of options.
These are the two resources that I'm going to mention today and next time I will mention more about creating images for offline and online marketing where you can do that for free and where you can find free resources online without getting into copyright trouble.
- "When and why you incorporate your healing business are important to consider."
- "It is not always a good idea to form a partnership in your healing business."
- "Many but not all healing practices are sole proprietorships."
- "Your healing practice can fall into one of 4 types of business entities. It’s a good idea to know which one best suits your needs."
- "If you're going to form a partnership in your healing practice, make sure your roles are written out very clearly in a contract that you both sign."
- "There are many amazing free resources for healers online to help you start your online client attraction."
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In addition, avoid these three mistakes when building your healing business.