Want to build a Credit Repair business that lasts?
Well, on this week's Podcast, I'm gonna show you how to choose the perfect business structure to minimize risk and maximize your potential for future success!
A business structure is a legal framework that defines how a business is organized and operates. Choosing the right structure might not seem like the most exciting part of owning a business, but it's one of the most important decisions an entrepreneur will ever make.
It's the point where the dream of owning a business becomes a reality.
It's a decision that establishes the ownership hierarchy, registration requirements, legal liability, and tax obligations, including perks like business expense deductions for startup costs, equipment, and software.
Now, this step can be intimidating but don't worry. I didn't go to a business school. I didn't even graduate from High School. But I learned how to bootstrap a business from nothing, and I promise it's easier than you think.
HOW THIS RELATES TO US
The most common structures for Credit Repair businesses are Sole Proprietorships, Partnerships, Limited Liability Companys (LLCs), S-Corporations, and C-Corporations.
A Sole Proprietorship is a structure where one person is fully responsible for all parts of the business. There is no legal distinction between the company and the owner. The owner literally files their business income on their personal tax returns. This is the simplest, least expensive, and most common structure in America, accounting for 73% of all businesses.
A Partnership structure is similar to a Sole Proprietorship, but it's not as common for Credit Repair. This is where two or more owners create a business, split the profits, debts, losses, and liabilities, and each pays their share of business income on their tax returns.
A Limited Liability Company (LLC) is a hybrid structure that combines the benefits of Sole Proprietorships, Partnerships, and Corporations. An LLC provides limited liability protection for the owners (who are called members), meaning their personal assets are safe if the business experiences financial difficulties or lawsuits. In this structure, profits and losses pass through the owner's income without facing corporate taxes.
Now, Corporations are the most complex and expensive business structures to set up and run. Corporations are legal entities separate from their owners, aka shareholders, which means the owners are protected against legal liability. The downside is they're heavily taxed and regulated.
A C-Corporation has an unlimited number of owners, aka shareholders. They take profits through dividends and pay corporate taxes, often called double taxation. This gets tricky because all corporations start as C-Corporations. If, for example, you wanted an S-Corporation, you would have to file a status change with the IRS.
An S-Corporation is the most unique structure because it combines elements of Sole Proprietorships, Partnerships, LLCs, and Corporations.
S-Corps have the same liability protection as LLCs and the same tax benefits as Sole Proprietorships or Partnerships. This means S-Corps allow profits and losses to pass directly to owners' personal income without being subject to the high corporate tax rates of various states.
I know S-Corps sound like the best option, but there are many compliance hurdles when setting up and running them.
THE THING TO REMEMBER
Choosing the right business structure is a personal decision based on the circumstances and goals of the owner. Each structure has positives and negatives, which must align with your situation and vision.
No one else can choose it for you. I'm not an attorney or a financial advisor. I can't tell you which type is best for your Credit Repair business.
I can tell you that if you choose the most simple structure for your Credit Repair business, the registration process only takes a few minutes, it costs almost nothing, and you can always change your mind.
That's right. Your business structure is flexible!
WHY THIS IS IMPORTANT
If you start with a simple business structure, like a Sole Proprietorship, the more successful you become, the more likely you'll eventually shift to a more complex structure, like a Corporation.
Disney, Coca-Cola, Mattel, and Walmart all started as Sole Proprietors.
Some entrepreneurs change their structure to lower their personal liability or tax burden. Others do it to grow their business, take on investors, merge, or make acquisitions.
So take the time to learn each type of business structure. The one you don't choose today might be the one you need in a few years. Just remember to base your choice on your circumstances and goals right now.
Most Credit Repair businesses start with a simple structure because it saves time and money during the early years when the company doesn't need the added benefits of an LLC or Corporation.
So how do you set up one of these simple business structures?
WHAT YOU NEED TO KNOW
A Sole Proprietorship is the definition of "being your own boss" and "taking control of your life." If you start conducting business on your own, congratulations, you're automatically a Sole Proprietor.
In most cases, you don't need to file paperwork or take specific Federal, State, or Local action to form a Sole Proprietorship. You don't need an Employer Identification Number if you don't have employees. You just need a business name, social security number, address, and a business bank account.
The only real requirement involves using your name as the business's legal name. For example, if I call my business "Daniel Rosen Credit Repair," it doesn't cost me anything in California. In most states, I don't even have to register it because it's clear who the owner is and the type of business.
Now, if you want to be a Sole Proprietor but give your business a unique name like "Credit Booster Squad," then you'll need to register it and file "Doing Business As" paperwork, called a DBA.
In California, the filing fee for a DBA ranges from $10 to $100. The last time I checked, it was about $30 in Los Angeles County. But, again, rules and fees change, so double-check the requirements in your state.
Remember, a Sole Proprietorship is definitely the easiest and least expensive option, but it is not a legal entity. There's no legal separation between the business and the owner. You and the business are one.
Your profits must be reported as self-employment income on your tax return by filing a Schedule C with your annual 1040 Form.
If you pass away, the business dies with you. If the company is sued, you're sued, and your personal assets can be in danger.
For some entrepreneurs, this risk is worth the reward of freedom and total control. For others, they choose a slightly more complicated business structure with more protections, like an LLC. The important thing is you choose the perfect business structure that's right for you!
If you already have a Sole Proprietorship and want to convert to a different business structure, go register for our Masterclass!
The Masterclass was built by a team of Credit Heroes with decades of experience, serving thousands of clients. It comes with six months of Software, in-depth Marketing, Sales, and Business lessons, plus our Advanced Disputing, Affiliates, and Automations training courses.
MY FINAL POINT
Choosing a structure may not seem like the most important decision a business owner will make, but it turns your dream into a reality and puts your Credit Repair business in the best position for long-term success.
I'LL END BY SAYING
If you still need a Credit Repair Cloud account, check it out. It's the software that most Credit Repair businesses in America run on. Sign up here for a Free Trial!
And if you'd like to change lives and grow your very own Credit Repair business, check out our Credit Hero Challenge!
It's an amazing program, and we've got another challenge starting in a few days, so grab your spot right now at CreditHeroChallenge.com!
So take care, Credit Hero!
And Keep Changing Lives!