Have you ever thought about incorporating your business? There are no doubt benefits to operating as a self employed sole trader. However, this may not be the ideal situation for everyone. With this thought in mind, we’re looking at some of the key things you should know about incorporating your business; namely, we’re also looking at the benefits this can provide to help you decide whether you should incorporate. Hopefully, this will allow you to make an informed choice for the future of your business!
10 Reasons Sole Traders Incorporate Their Self Employed Businesses
Sole traders may choose to incorporate their business for many different reasons. Just a few of the most common include the following.
#1 Enhance the Brand’s Reputation
One of the simplest benefits of incorporating your self employed business is that it can add credibility to the firm. Indeed, there’s nothing inherently untrustworthy about a sole trader model; however, customers are often more inclined to trust a limited or unlimited company. As a result, if you want to improve your business’s reputation, incorporating is a surprisingly simple option.
Of course, this doesn’t mean you can get away with dishonest trading by being a limited company. If you don’t provide great customer service, the word will invariably get around, damaging your brand’s credibility. So, while incorporating can be a great way to enhance your brand’s reputation, it can’t make up for poor trading practices.
#2 Protect Your Personal Assets
Another critical benefit of incorporating your business if you’re currently a sole trader is financial protection. Namely, when you incorporate, your brand receives limited liability. This differs significantly from how you’re currently operating when you have unlimited liability.
But what does this mean? Well, it’s relatively straightforward when you look at it. Unlimited liability, as the name would suggest, means that the business’s liability is not limited to just the brand itself. In other words, if the business is unable to pay its debts or receives lawsuits, you may also be liable for these as an individual.
Let’s take an example. If your business was £10,000 in debt (for example, for equipment purchases) and it went under, that debt won’t be written off. Instead, the debt will pass to you. As such, you would then have to pay the £10,000 debt from your personal savings.
Similarly, if your business was fined £2,000 and couldn’t pay it, you’d also be personally liable for this. In turn, this can put your personal finances at significant risk, especially if you don’t have insurance for the firm.
But this doesn’t apply to limited companies. Since incorporated businesses have limited liability, the money they owe is limited to the business only. Thus, if the brand can’t pay its debts or fines, these won’t roll over to you as the owner personally. This provides substantially greater financial protection; no wonder it’s one of the biggest draws for so many self employed small business owners.
#3 Raise Funds
Maybe your business has hit a rough patch in terms of cash flow. Or perhaps you’ve got an exciting new project but need more funds to finance it. Whatever the case might be, staying on top of finances as a sole trader can be tough. And, if the business needs more money put into it, you’ll need to dig into your own pockets.
But that’s not the case with incorporated companies. In fact, incorporated firms can raise capital much more easily than a self employed sole trader. Thus, this makes it way easier to stay afloat during difficult times.
#4 Loans Are Easier to Get
There’s never any guarantee that you’ll be able to get a loan if you need one. However, there are steps you can take to increase your chance of being successful. Incorporating is one such option.
Indeed, in many cases, incorporated companies can have better access to funding options. These may include business loans, lines of credit, or potentially even investments. The reason behind this is quite simple; they are often viewed as more stable entities, thus making them perceived to be less risky investments.
A loan is never guaranteed, and providers always want to reduce the risk of losing money through them. As such, enhancing your brand’s credibility can make them much more likely to invest. In turn, this allows you to get loans more easily when you need them.
#5 Tax Benefits
No one likes paying tax. However, operating as an incorporated company provides many great benefits, and tax advantages are just one such option. Indeed, firms can spread out losses over a longer duration while also deducting operational and startup costs. Employee benefits can also be deducted from taxes, potentially helping reduce the amount paid by the firm.
Of course, if you’re feeling unsure about how taxes work, there are plenty of people out there who can help. So, don’t chance it ; if you’re not sure, partner with a professional team of local accountants. If you choose an experienced brand, they should be able to help you find the most tax-efficient strategies.
#6 Protect Your Branding
One of the most powerful tools at your disposal as a business owner is your branding. However, protecting this as a sole trader can be exceptionally difficult. Fortunately, incorporating your firm allows you to protect your name and create a stronger brand overall.
How does this work? Well, you’ll be able to enjoy a few benefits, such as being able to register your business name and assign trademarks. You may even be able to protect brand recognition, such as any logos or slogans that apply to your brand.
#7 Easier Transfers
As a further benefit, it’s worth looking ahead to when your time as a business owner is up. After incorporating your company, transferring the business becomes substantially simpler. There are many reasons to do this, such as to transfer the company to your children once they’re old enough to run it.
Incorporating also allows the business to continue operating even after you’re gone. Thus, if you’ve developed a strong and lasting brand, you can keep things going for future generations of owners.
Sole Traders: Should You Incorporate? Final Thoughts
Working as a sole trader can be an incredibly simple structure. However, it’s also worth considering that incorporating can provide many perks, benefits, and opportunities. As such, this is often a vital step to consider for many firms.
The decision doesn’t have to feel overwhelming, though. If you’re still feeling unsure about whether incorporating might be the right step for your business, professional support can help. Fortunately, our team here at LiderTax are some of the leading local accountants for London and Chatham clients. So, if you feel stuck, give us a shout; one of our experts can help you understand more!