Registration is a crucial step for any small business owner. It establishes the business as a legal entity and ensures compliance with bookkeeping, accounting and tax regulations. It also protects personal assets and makes it easier for small businesses to secure funding from investors. This article explores why your small business should be registered and how to start.
Credibility is one of the most important factors in attracting customers and establishing a business. After all, you can have the best product or service on the market, but people need to trust your business to purchase it. However, building credibility comes from having a great product or service and requires consistent actions and communication. You must register your business as a corporation, partnership, or sole proprietorship. The registration process requires a legal verification of your company, which can prove that you are operating a legitimate and reliable business. Many lenders and investors are also more likely to lend or invest money in registered companies.
Additionally, registering your business can make it easier to open a bank account for your company and separate the inflow and outflow of cash from your reserves. As a result, you can avoid paying taxes on the money coming in and out of your business, saving you a lot of money in the long run. Furthermore, registering your business can help you qualify for tax breaks unavailable to unregistered companies. It would help if you discussed it with a qualified accountant to learn more about it.
Establishes Your Company as a Legal Entity
Your small business might be registered under a variety of legal structures. The one you choose should be based on your goals and financial circumstances. For example, a registered corporation is taxed differently from a sole proprietorship. You and your family are taxed on your income in a sole proprietorship. Registering your company gives you an Employer Identification Number (EIN), establishing your business as a separate entity. It also shows that your company is complying with bookkeeping and accounting regulations.
As a registered business, you can open a bank account and keep track of your company’s inflows and outflows. It makes it easier to expand your business in the future. Additionally, you may be eligible for certain supplier discounts only offered to registered companies. Regardless of whether you are a corporation, partnership, or single proprietorship, you must register with local and state authorities. Your registration status reflects that your small business is a legitimate competitor in the market, which can help build consumer trust and confidence. It also shows that your company is here to stay and you are committed to the longevity of your business. The opposite is true of a fly-by-night operation that needs to be properly registered. Customers and clients often prefer to do business with a registered company.
Protects Your Assets
Many small business owners invest personal assets into their businesses to help get them off the ground. It can include everything from a home to cash savings and investments like stocks and bonds. Unfortunately, if you’re running a sole proprietorship or general partnership and are not properly protected, your assets could be at risk in case of a lawsuit against your company. When a company is registered, it becomes a legal entity treated separately from its owner. It means that if your company is sued or experiences financial difficulties, creditors can only go after the assets of the registered entity—not your assets. It is a huge benefit that can protect you from hefty debts or lawsuits that may cause your business to fail.
Incorporating is one of the best ways to protect your assets. However, if you aren’t able to integrate or don’t want to, there are other things that you can do to separate your personal and business finances further. It includes having your business bank account, maintaining separate records, and using formal contracts and procedures for interactions with customers and clients. Ultimately, the more you can do to demonstrate that your personal and business finances are kept completely separated, the better. It will prevent mishaps or errors that might hurt your business’s credibility or lead to costly legal issues.
Establishes a Business Bank Account
A business bank account separate from your funds is crucial for various reasons. Even for sole proprietors who aren’t legally required to keep their personal and business finances apart, this move makes it much easier to manage expenses and track income. It also demonstrates a more professional image to customers and clients. A dedicated bank account can make tax season a breeze by separating your company’s expenses and income. Commingling personal and business expenses can complicate matters come tax time and could lead to problems if you decide to sell your business down the road or apply for financing. A business bank account also allows you to set up various real-time business transaction alerts to stay on top of cash flow, payments and balances. It makes it easy to create reports for financial projections and other documents you may need to submit for loans or investors. Some lenders require small businesses to have a business bank account before receiving funding. And if you plan to grow your company in the future, you’ll want to open a statement sooner rather than later to ensure you have enough funds to meet your growth goals. A business bank account can also be required for certain point-of-sale financing programs offered by banks, car dealerships and large retail stores.