MBA1360 Q&A Wednesday: Do I need to have a registered business as a solopreneur?

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Hey O. Welcome to the $100 MBA Show Business Tips and strategies for striving entrepreneurs every day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of $100 MBA, a complete business training and community online and today's episode is a Q and A Wednesday episode. On our Q and A Wednesday episodes, I answer a question from one of you, one of our listeners. If you have a question you want to ask, just email me over@omar100mba.net Today's question is from Hank and Hank asks, do I need to have a registered business as a solopreneur? Thanks for the question, Hank. In today's Q and A Wednesday, I'll be answering this question, but I'll also be answering the question should you, even if you don't have to, well, maybe you should consider having a registered business, a separate entity from yourself. Are there advantages to this? What kind of advantages and how to know if you should just remain solo or register a business? Of course there's going to be a few things I'll be discussing today that depends on the country that you live in. I'm going to speak broadly. If you live in a western country like the us, Canada, Australia, the uk, New Zealand, but even so, check your local laws and I'll show you how you can make sure you could do that properly. So let's get into it. Let's get down to business. So Hank asks in today's Q and A Wednesday if he should register his business as a separate entity, or should he be a solopreneur and operate as what it's called in the US A sole proprietor. I'm going to use the US for example. If you're a sole proprietor, what you're doing here is you're operating under your own Social Security number. This is like a tax ID for those who are outside the US and when you're doing your taxes, you're going to have to make sure you claim your revenue and of course your expenses come tax time. The alternative is to register a business, whether it's an LLC or C Corp, and have a totally separate entity from yourself. This means you'll have a separate tax ID for the company and you'd file taxes for the company separately. So to answer the question point blank, you don't have to ask at the start in the US at least, and in most Western countries you have this option. Again, check with your local laws. But if you're unsure, I highly recommend you speak to an accountant, a registered accountant in your country, in your area, in your state, a quick conversation, a one hour meeting may cost you $100, $150, but it's going to clarify a whole lot of things and get you set up properly. It's going to save you a lot of headaches in the long run. Now, the reason why you want to speak to an accountant is because they're going to tell you what one, which option you should take legally and then two, which one is more advantageous for you and your business. In my personal opinion, there are no downsides to registering your business as a separate entity because in most cases, in most countries, there are more tax advantages and opportunities for businesses that operate as a business. Again, speaking to an accountant is going to help you understand that clearly what that means. How much of an advantage, how much are you going to be taxed based on what you expect to make in your business if you operate as a sole proprietor versus a business? And of course, when is the threshold of when you absolutely should operate as a single business, as a registered business with its own tax id, because after that point you're making a certain amount of money where it just doesn't make any financial sense. Many people operate as a coach or a freelancer, as a solopreneur, as a sole proprietor, using their own tax id, and they do this at the start because they're not making so much money, maybe under $20,000 a year, and they kind of don't think that starting a business or registering a business is worth it. I would not guess I would speak to an accountant again. One hour of their time is going to be so valuable because there's a good chance even if you're making, you know, 10, $20,000 a year with your side hustle, with your freelancing, you could probably save some money in taxes and there might be some incentives and grants that you're eligible for as a new small business. Now, registering a business is different in every country. And some countries it's a lot easier than others. But that shouldn't deter you from doing the best thing for the long run. The other thing about registering a business is that it opens up a lot of doors that make your life easier. It makes your business easier, like opening up your own business bank account. You need to have a registered business to do that. This is something I highly recommend you do because you definitely want to separate your business expenses and revenue versus your personal revenue and expenses. If you're in a job and you're trying to figure out is your business doing well enough to leave your job. Now, I know it sounds like a cop out. Hey, just speak to your accountant. That's the answer of today's question. But it's the best advice I can give you because when I did this, I started to see the advantages of that I was neglecting. A lot of us kind of shy away from doing this because we're in this gray area or we just don't know. We're not experts at this. So speak to an expert. It's going to be well worth the money that you spend. Many chartered accountants will even have a free consultation. So it may not cost you anything to get this advice. And often these accountants will be able to guide you and point you in the right direction or refer you to somebody who can help you register your business. It doesn't have to be super complicated or expensive. Again, depends on your country. But I know in the U.S. legalZoom is a service that will register your business for you. You fill out some forms, they do all the hard work, and they send you back everything done with your business, tax ID and everything. So speak to an accountant. I do also want to mention that there is a mindset here that's hidden in this situation. Separating your business from your own personal finances is something you really should have in your head and really be convinced of early on. Your business is its own entity. Your business is its own thing, really. It's its own person has its needs, it has its wants, it needs financing, it has expenses, it generates income. And you need to see it as a standalone thing to make sure it operates on its own, not with the help of your own finances. Even if you take some of your savings and you pump it into your business, this is something I learned from our accountant. This has to be seen as a director loan. Like you're the director of the company, you're loaning the company a certain amount of money and the business needs to pay you back. I know this sounds weird, like hey, I am the business. No, it's its own thing and you need to make sure that the finances are separate so you can have a healthy business that actually earns enough money to run on its own and then some. Also, your own personal finances and lifestyle doesn't suffer as well as your credit. And at the start of my entrepreneurial journey, I totally didn't get this. So glad I did eventually. So the mindset behind this is just as important. Your business is separate from you and to legally separate it from you, you have to register it as its own thing, its own business, and operate under that business license.

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To wrap up today's Q and A Wednesday's question from Hank Do I need to register a business as a solopreneur? Speak to an accountant. Find out what's the best choice for you with where you are right now. If this is something you're doing for the long run, it's always going to be a good investment to register as a separate entity and it's my recommendation. But again, I am not an accountant. I'm not a lawyer. So please consult your lawyer or accountant to make sure you're doing the right thing for for your situation in your location, for your business. Thank you so much for listening to the 100 MBA show. If you have a question you want to ask on Q and A Wednesday, go ahead and ask it by emailing me over@omar00mba.net. We'll make sure we answer the question right here on Q and A Wednesday. If you love the show, make sure you hit subscribe right now so you don't miss a beat. By hitting subscribe, you tell the podcasting app you use, hey, I love the show. When the next episode is available, make sure it's ready on my device. Also, by hitting subscribe, you have access to our feed. With over 1300 episodes. So much to dig into and you can only have access to it by hitting subscribe. Before I go, I want to leave you with this. The mentality of separating yourself from your business is something I highly encourage you do early on. Yes, your business is your baby and is a big part of your life and your lifestyle, but always see yourself as employee number one. If you are an employee at a company, what kind of relationships do you want to have with that company that you're creating? I know it's kind of meta, but it's a good foundation to start with because you're not going to be alone forever. Maybe you'll hire a virtual assistant. Maybe you'll hire some freelancers and grow beyond just you. Thank you so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care. Of. USAA knows dynamic duos can save the day, like superheroes and sidekicks or auto and home insurance. With usaa, you can bundle your auto and home and save up to 10%. Tap the banner to learn more and get a'@usaa.com bundle restrictions apply.