Recently, we’ve been going back to basics for all travel counselors—not only those who are just starting out but also for those who are refreshing their businesses. November is the perfect month to look ahead and set aside some time for forecasting, budgeting, and planning for the upcoming year.
Last month, we discussed creating a business plan. Another area you should examine carefully is the appropriate structure for your business. For specific steps to follow in starting your business, take a look at The Entrepreneur’s Checklist, which is part of The TRIPKITSM . This introductory program consists of three areas: Travel Agent 101, Geography, and, very importantly, Starting a Business. If you haven’t already done so, be sure to take advantage of the $80 tuition savings through November 30th.
And don’t miss Preparing for a Travel Career, presented by Patty Noonan, CTC on November 11 at 1:00 pm, in which she provides various tools and information for your first steps into your travel career.
Now it’s time to start planning for 2022. How should you structure your business?
Many people going into business for themselves start out as sole proprietors. But is this the best choice for YOU?
Maybe you recently started your new career as a travel advisor. Or maybe your business is experiencing a reboot, and you want to reconsider its current legal status. So, you must think about your business structure. There are DIY business formation templates available online for the nonlawyer, but it’s imperative that you confirm the forms are valid in your state. Information from online entities does not substitute for the advice of a lawyer or CPA, so we encourage you to consult a professional you trust.
There are several forms of business organizations, and no form is perfect for every person. How will you know which to choose? Here are four common structures, along with some of the characteristics of each:
- Sole proprietorship This consists of one individual or a married couple as the owner(s). This is the most common form of business in the United States. It is easy to create because there are few (if any) legal formalities required. This business structure also has flexible management and few legal controls. However, it is advisable to consult a CPA or attorney because sole proprietors are personally responsible for debts, and their personal assets can be exposed to liability. If you, as a sole proprietor, decide to hire independent contractors to work for you, you might want to consider restructuring your business to limit your liability.
- Limited Liability Company (LLC) This entity is created under state law by one or more individuals through a written agreement. Once created, it is a legal entity that is separate from its owners. It is relatively flexible in structure, organization, distribution of profits and losses, and transfer of ownership. It typically enjoys pass-through tax status, meaning no income taxes are paid at the business level. Business profit or loss is passed through and reported on the owners’ personal tax returns. Your personal liability can be limited or restricted to your investment in the company SO LONG AS you keep business records and assets separate from personal records. There also may be annual reports and fees owed to the state.
- Subchapter S Corporation (S Corp) This is an entity formed under, and restricted by, federal tax laws and regulations. It is governed by a board of directors and owned by shareholders. The federal government places more restrictions on S Corps than the state places on LLCs. There are formalities in formation and in ongoing reporting and compliance with the laws. It is an entity separate from its owners and, thus, offers the advantage of limited liability. It also enjoys pass-through tax status and limited liability, SO LONG AS business records and assets are kept separate from personal records, and all corporate requirements are followed.
- Subchapter C Corporation (C Corp) This also is formed under federal laws and has the most governmental restrictions of the four types. There are advantages in its ability to attract venture capital and in the distribution of assets to shareholders. It is an entity separate from its owners and, thus, offers the advantage of limited liability SO LONG AS business records and assets are kept separate from personal records, and all corporate requirements are followed. However, the biggest disadvantage is that it typically is burdened by double taxation, i.e., being taxed at both the corporate and personal levels.
There are important tax and legal differences among these and other business organizations. Before making a decision, you should consult an attorney or a CPA for a detailed explanation of all the nuances and how they affect you.