As the U.S. and the world move toward a “gig economy” of self-employment, it’s becoming more common for entrepreneurs to have income streams from several sources. You may be a caterer who also does wedding photography or a computer programmer who also invests in real estate.
What’s the best way to set up these various projects? Arriving at the right answer for you and your businesses will involve three main considerations: legal, administrative, and marketing.
If your ventures are related, setting them up under one brand will give you more bang for your marketing buck. In the above example of the caterer/wedding photographer, having both businesses share a business name, website, and so on would offer more opportunities for cross-selling your services while reducing expenses.
On the other hand, the computer whiz/real estate pro is targeting two different audiences. In this case, separate brands would be easier to define and market.
Bear in mind that every company you set up will generate its own set of paperwork, from payroll to tax returns. Only you can decide whether the benefits outweigh the hassles.
There are three ways to legally structure multiple businesses. Here’s a brief overview of the pros and cons of each of them.
1. Separate corporations or LLCs
In this scenario, each business is a completely separate legal entity. This option will produce the most amount of paperwork and administrative labor.
On the other hand, for risky ventures such as real estate investing, it is a good way to limit your legal liability. If Company X gets sued, Company Y’s assets (as well as your personal assets) are not affected.
2. One corporation or LLC with multiple DBAs
You create one main company, then register a separate fictitious — DBA (doing business as) — the name for each of your ventures. This gives you the administrative ease and legal protection of having just one company, along with the marketing advantages of having the right brand name for each venture.
3. One main corporation or LLC with multiple subsidiaries
This is the most complex of the three options. You set up a holding company that will own the individual corporations or LLCs of each of your businesses. It’s often used by those who want to sell one of their subsidiaries and leave the others intact. Another reason to go this route is to start a new business and have it funded by the holding company.
The legal and tax ramifications are extensive for this option, so we suggest you consult a tax advisor or attorney before moving forward.
Deciding how to structure your multiple businesses is just the first step. You’ll also need smart solutions for accounting, bookkeeping, payroll, and tax planning. That’s where Xendoo comes in.