Wondering how to structure multiple businesses? Our guest blogger Nellie Alkalp has some tips.
I’m always in awe of the many talents of today’s entrepreneur…the wedding photographer who also writes children’s books, the copy editor who sells homemade soap, and the stay-at-home mom who doubles as a part-time caterer and jewelry designer. Today’s creative professionals often find themselves making income through a creative patchwork of diverse interests and talents.
Take Sue as an example. She recently called into my office with no fewer than five ventures. She has been selling children’s clothing and handbags on Etsy, where she also has a craft supply shop on Etsy. After a few solid years on Etsy, Sue is ready to take the next step and launch her own websites, as well as expand into handmade paper goods and home décor.
Sue wondered about the proper way to structure these businesses–and here’s where it gets interesting, since there are both marketing and legal factors to take into account. And often, they’re at odds with one another.
Consider your markets, marketing strategy,and target customers for each venture. Are they synergistic? Are they relevant and will they appeal to the same customer? If so, it makes sense to market them under a shared brand — for example, event planning and personalized invitations. In other cases, your businesses might target different customer types, and your branding should reflect each unique market.
In Sue’s case, she’d prefer to keep each of her five businesses separate — different websites, business names and branding. However, dealing with the logistical headaches of separate business entities is another story. Sue wondered: Do I have to incorporate each business? Do I need to file separate tax statements for each business, or keep separate bookkeeping?
And Sue is hardly alone. Many entrepreneurs wonder what’s the best way to legally structure their varied business endeavors.
Technically, it’s possible to create a separate business entity for each venture. However, this can result in excess paperwork and legal filings. And in many cases, each business may not be earning a significant amount of revenue individually, making the paperwork seem especially tedious.
To save some headaches and paper, here is my recommendation:
- Establish one main company (i.e. Big Enterprises) as an LLC or corporation, depending on which entity structure is best for your business type and circumstances.
- Once the main company has been established, it files multiple fictitious business names (or DBA, doing business as, registrations) for each of the ventures.
- When filing your DBAs, consider if you will be doing business under any other names — for example, Sue’s Stationery and SuesStationery.com. This extra step is relatively easy and ensures you have all your legal ducks in a row.
- By structuring the smaller companies under a single umbrella company, you’re able to report your taxes all on one statement. As a result, you can take the income earned from each DBA and report this in the tax filing for the main LLC or corporation (as always, situations vary and you should consult with an attorney or tax advisor for individual advice regarding your own situation. )
Once you have your main umbrella company incorporated (or structured as an LLC) and the DBAs filed for each smaller company, you’re ready to go. You’re not legally required to disclose the parent company, meaning the website for Sue’s Stationery does not need to mention that it is part of Big Enterprises. However, as a general rule of thumb, this kind of public disclosure can enhance a small business’ legitimacy in the consumer’s eyes.
Taking the time to incorporate now will save you more than you know in the future. You’ll have great peace of mind knowing that your assets are protected. And you’ll reduce your paperwork and bookkeeping requirements by structuring your company as one single entity, with multiple brands operating inside it.
Nellie Akalp is the CEO and cofounder of CorpNet Inc., her second incorporation filing service company based on the simple philosophy of truth in business and her passion to assist small business owners and entrepreneurs in getting their businesses off the ground in a fast, reliable and affordable manner.The information in this post is not meant to substitute for legal advice; always consult an attorney and accountant before making decisions that affect your business’s tax and legal standing.