Do I Need to Incorporate to Be Taken Seriously as a Coach? By Wendy Byford
Over the past fifteen-plus years, I have taught a variety of audiences about US business entities corporations, limited partnerships, and limited liability companies.
At one event, I ran across an individual who said he had to have a corporation set up immediately.
When I asked him what was going on, he explained that he was being hired as an independent contractor to consult with a major client.
But they wouldn’t hire him … only his company.
To get the job, he had to incorporate.
Why would his client care if he had a corporation or not?
Stay tuned. The answer may be important to the growth of your business.
Most Americans Are Not Incorporated
Of the 32.5M small businesses in the US today, most owners are sole proprietors or general partners; and coaches are among that number, just like consultants, hairstylists, realtors, handymen, and accountants.
They work hard to put food on the table and pay the bills.
And, more often than not, they never think about the need to incorporate.
However, there are many reasons why you may want to run your business in an entity, including
- Liability protection
- Asset protection
- Tax benefits
- Separation of personal and business life
- Going Public
To be clear, most of us will never need to think about reason #7 going public; and if you are in a business such as coaching, where you want people to know your name, reason #5 privacy won’t be an issue either.
Of the other reasons on the list, different business types will find different reasons the most important one to start with.
Then they will grow into the others. For coaching, let’s start with Credibility.
Coaching And Credibility
Coaching is a fast-growing industry, with an estimated global total revenue in 2019 of $2.849 billion U.S. dollars. (ICF)
Given that untrained individuals calling themselves coaches is one of the biggest challenges for professional coaching (CLO), establishing credibility is a key requirement for success for any coach.
However, credibility isn’t simply a matter of ensuring people believe you have the skills to do the job you’re being hired to perform.
It’s also ensuring people understand you intend to be around long enough not only to do the job, but also to follow up, answer questions, and fix problems.
Having a corporation does not automatically give you credibility.
It comes primarily from experience, training, and results.
What has the coach done in the past that makes them a good resource?
What kind of training or support system do they have to lean into?
Do people who follow the coach’s advice see positive results?
Even with these 3 boxes checked, though, people still want to know that the coach is a professional who intends to stay in practice.
And that is where the corporation or limited liability company comes in.
If a coach puts in the time, effort, and money to create a corporation or limited liability company, chances are good they intend to stay around; and that is especially important for referral and JV partners.
Referral and JV Partners
Referral or JV partners want to make sure that the person they are sending their clients to is not only skilled but also reliable.
Anyone can hang out a shingle stating they are now a coach, and take down that shingle a week later if they decide to do network marketing instead.
Anyone who values their clients wants to ensure that the person they are sending their folks to will be around for the long haul, and it is far more likely that someone who has taken the time and money to incorporate is serious about what he or she is doing.
Hiring Independent Contractors
Corporations and limited liability companies do not simply show intent to stay in business. They also differentiate the individual coach from the coach’s business.
When an employer hires a coach, the hiring business wants as much legal distance as possible between itself and the coach it is hiring.
The company is hiring an independent contractor, not an employee with all the associated costs; and hiring a company rather than an individual strengthens that position, particularly if the coach has only a small number of clients.
Why is this important? In recent years the IRS has increased the number of audits involving hiring classification.
If it can force a company to reclassify a hire from an independent contractor to a part-time employee, then the employer is responsible for reporting wages, withholding taxes, and remitting that withholding to the government during the year.
The chance of having the independent contractor under-report their earnings is eliminated and the government does not have to wait until tax time to get their share of the earnings.
Unfortunately for the company, though, the cost of hiring the coach rises dramatically. So, it will do whatever it can to ensure that hire will not be reclassified, including asking for the coach’s company name and company tax id.
Hiring goes both ways, of course. As the coach’s business expands, they may find themselves in a position to start hiring help.
If a coach has never owned a small business before, there is a good chance they aren’t thinking about being sued.
And if they do think about it, someone is quick to point out that a business entity like a corporation or limited liability company won’t protect them for work they themselves performed. So, they are better off just getting insurance.
However, things change once the coach begins hiring resources because, as the business owner, they can be sued not only for what they themselves did but also for what their employees and even independent contractors did.
To protect their personal assets from a business lawsuit, it is wise to put their coaching business into a business entity and sign documents as the manager of that company.
As a coach’s business grows, there may also come a time when they not only want to hire, but they also want the tax benefits that a coach in the US can derive from being taxed as a small business.
Unfortunately, this designation is given to corporations and limited liability companies only. Individuals do not qualify.
Since having a sub-chapter S tax designation can save a coach thousands of dollars in taxes, it is worth investigating once the coach has an established practice.
One More Thought …
Running a coaching practice is like running any other small business. It takes planning, discipline, and attention to detail.
However, often small business owners find it difficult to treat their business as a business if they are a sole proprietor.
As a consequence, they may appear unprofessional to their prospects and miss opportunities that would help them grow or reduce their taxes.
Running their business from a corporation or limited liability company often helps the business owner separate their business life from their personal life, and it encourages them to operate in a more businesslike manner.
Whether or not to incorporate is not a decision to jump into lightly.
There are a lot of factors to take into consideration.
Your tax professional and your attorney can help you make the right decision.
About Wendy Byford
I’m a corporate America escapee, who went on to build a 7-figure business of my own with 20,000 clients. Now my goal is to help small business owners get more clients, close more sales and start using their marketing tools more effectively. Visit our info listed here and get the details that will position you as the dominant force in your market.
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