My wife and I are looking to start 3 seperate businesses, all with different products and services


3

Should I form a parent company to keep it simple with administrative and taxes? One business is an online retailer, another is a niche sports studio, and another is a media agency. My train of thought is paying all the bills by the parent, and lessen the administrative/tax burden of the 3 individual businesses. Am I off base here?

Beginning Startup Costs Tax Business Plan Business

asked Jul 1 '13 at 02:40
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Ohio Johnny
16 points
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  • Which jurisdiction are you in? – Steve Jones 6 years ago
  • It's often hard enough to manage one product, let alone multiple products. What you're talking about here is three *lines* of products. I know your question is really about lowering administration costs, but as a side note, my gut tells me you're spreading yourself too thin. Perhaps if you just focused on one until it got off the ground (or failed), the administrative complexities wouldn't be overwhelming, and this question would be moot. – rbwhitaker 6 years ago

1 Answer


3

NO!

By far the biggest mistake you could do is put your eggs in one basket. This is poor financial planning, business organization and will lead to nightmare secnarios if one business is rockets in success or one fails.

The right approach:

  1. Create a corporation for each business. There is no excuse not to. An S-corp in the state of DE will cost you the costs of a UPS Store subscription, state filing fees, and registered agent service. All of which can be done for less than $500 bucks if you do your homework. The S election with the IRS gives you great tax advantages when you dont have too many shareholders but protect you from liablity if you get sued. If you are in Ohio, you might have to also file with the state of Ohio if you have a physical nexus (ie an office in ohio) for your online ventures DE by itself is usually fine but check with a CPA for your state (as in CA its a bit more complex).
  2. Grow each business one at a time, organically. I am guessing based your question that this is your first time owning a business? Its important to keep in mind how much work a successful business really is. For the first few years its really an 80+ hour a week job. Its great fun for the right person, but its a bit like a marriage. It takes full dedication. So my advice is to take the "closest to the money" idea of your 3 and focus on that first. You will learn alot from your first business (marketing, accoutning, employees, etc. ) which you can apply towards the next one.
  3. Wind down to employees. When a business is mature and established and if you have done a good job, you can usually hand off responsibilites to employees. Remember this will have the employee cost and probably a 20% loss in revenue (my personal rule) because an employee will not care as much as you do yourself. Say you do the online venture and it makes you 200k net per year. Expect to make 160k if you hire someone else to manage them and another xxx dollars for that persons slary. When you wind down, you can go from your 80 hours a week to perhaps 10. Enough to keep an eye, but free time up for your 2nd venture.
  4. You can use the profits from your first success to fund your future ventures. Its kind of a snowball effect as you have more capital and experience it will be easier for you to ramp up the 2nd business and take it to a point where you can have it too be employee driver. Remember when you setup this second business set it up as an S corp also .
  5. When you have two or more corporations talk to your CPA (by then you will have one on speed dial) about setting up a C-Corp. The C Corp has tax disadvantages but they tend to go away when you are making big money. The main reason to have a parenent corporation is that your businesses each will file an annual tax return (each with their own accoutning), but the it can flow up to a parent coropration (c corp) which you and your wife can hold 100% share of. This putting your eggs in different baskets approach, and then those baskets into a bigger basket (s corps owned by c corp owned by you) gives you privacy, protection from law suits, and a unified tax return (parent corp) which a creative CPA can use to offset your ramp up costs for startups against your successful ventures. This is a trick many property developers use, where they setup a c corp called XXX Properties, and then an S corp (or LLC) for each individual property. When you go to the bank to borrow money you can either use a return from an S corp or the C corp. It just opens up a ton of doors.

what i have outlined takes years if not decades to achieve. The most important advice i can give you is to start with one business, and make sure its incorporated for the get go. I would recommend the online ventures as they are least effected by local market conditions and the expertise you gain from running an e-commerce venture can easily be adapted to any brick and mortar operation.

BOL

answered Aug 7 '13 at 14:49
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Frank
2,079 points

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