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Should I Incorporate My Business? 3 Questions to Ask Yourself.

By Sean M. Hugo, CPA

As a small business grows and flourishes, so do the challenges associated. Once there seems to be clear growth opportunities, and revenue and operations have become stable, it becomes time to strategize on how best to keep this sustained growth. One question many small business owners ask themselves is "Should I Incorporate My Business?" 

There are definitely pros and cons to this question, and they must be unpacked a great deal before answering. A lot of the answer will depend on circumstances, financial operations, projected business growth. Here are some questions to ask yourself as you consider if the incorporation process is right for you.

1) How will this affect my business?

The first, and most obvious question tends to be along these lines. How will incorporation really impact your business, and how will it fit into any long-term strategies you have.

icon - exclamation alert warning placeholder - yellow.pngOne of the biggest benefits of incorporation is that it separates your life from your business in a very tangible way. Incorporation essentially makes it its own entity, separate from you and untethered.

This is essential as a means to separate finances personally and professionally, and letting your business grow and thrive even if you are not always in the picture. There will not be any personal ramifications down the line if you choose to pursue other avenues, since the business will have a life of its own through incorporation and your personal assets will be protected.

2) How much will this cost?

That is another important consideration when it comes to incorporation. Although your business may have stable revenue streams, it might be worth considering if this is the right time and if your finances are in good shape. The true answer is that it differs from state to state depending on incorporation fees.

icon - exclamation alert warning placeholder - yellow.pngHowever, disregard the short-term costs of incorporating and think about what you would like to achieve from this in the long-term.

Incorporation provides a layer of authority and legitimacy to small businesses, which is incredibly helpful as you continue to establish your business. Incorporation will also be able to provide the layer of flexibility within ownership that you need, and if that is something you need, then it outweighs the short-term cost.

3) Will incorporation affect my taxes?

Asking how incorporation will affect your taxes is a good question, and should definitely be part of your thought process as you consider incorporating.

icon - exclamation alert warning placeholder - yellow.pngThere are certain protections and tax benefits that offered for corporations that your small business could take advantage of. There is also far more flexibility within taxes that can become a good incentive for incorporating.

Some of these flexibilities may come in the form of deductions - such as "fringe benefits" that include daily business expenses, as well as other expenses such as travel and medical. Also, a business enterprise is taxed lower than self-ownership, so you might likely see some reduction in taxes in that area as well.

However, you must be incredibly thorough in your research to ensure that you will get maximum tax benefits by taking this step. Confer with your financial advisors, and get their opinion on whether this is the right move.

TIP: Seek Outside Financial Help

It might be also worth engaging outside financial help, whether through consultants or other CPAs to get their view on whether this is the right step. Since they are able to see your business from the inside out, as well as their view of the overall market, your financial team and consultants will be incredibly valuable in this process.

These are just some overarching questions to keep in mind as you think through this process to see if it is right for your business. To learn more about the incorporation process, and what would work best for your business, please contact us.