Have you ever sold old items to your loved ones or anyone else? If your answer is ‘Yes, then that was a financial transaction. Did you need a registration to do that? Probably no.
But, if you sell things or render service more frequently for a profit, you are running a business. And you should get it registered.
Many of us start running small businesses, make money but never think about registering the business. Why bother if you are making sales and your profit?
Well, apart from the fact that it may be illegal to run a business without a license, there are several benefits to having legal recognition.
Let us discuss the various aspects of your business that benefit from legal registration.
If your customers know that you are unregistered, they may begin to have doubts about your competence or your ethics. You may even lose clients to the competition.
People who do not know you need assurance that you are not a crook. A registered business gives this guarantee and puts your clients at ease.
Clients also become more comfortable recommending your services to friends and family when they know your business has legal backing.
Also, imagine if your business was a success and someone beats you to register the name? There is little to nothing you can do about it. Your competitor will ride on the reputation you have worked so hard to build.
The first rule of running a successful small business is separating your personal finances from those of the business. The best way to go about it is to open a bank account for your business.
Without business registration, you cannot open a bank account. Banks request registration numbers when opening bank accounts for commercial purposes.
Bank loans are another reason to open bank accounts. In the future, you may need loan facilities from the bank. Therefore, your business must have a good relationship with the bank. Building a good relationship takes time. The bank needs your financial records before it can give you a loan. The sooner you have an account up and running, the sooner you can start building that reputation.
Businesses pay taxes after deducting all allowable expenses. In contrast, individuals pay taxes before deducting expenses.
If you do not register your business, the income from your unregistered business will get taxed like your personal income.
Taxes may take a large chunk of your business earnings. You protect your income from over-taxation when you register your business.
Also, if you have employees, you are obligated by the law to deduct and remit taxes from their earnings. It’s not possible to deduct the taxes if you are operating an unregistered business as it lacks the unique pin identifiers for taxpayers. The bad news is, you are breaking the law, and Uncle Sam will be unto you sooner or later.
After registering your business, I recommend getting an accountant. They will help you to help you structure and manage your tax payments.
As time goes by, you may need funding from investors to expand. Investors will only agree to give you money only if your business is registered. No investor will hand over their money to unknown persons.
Registration guarantees that the government recognizes your business and it is legitimate. As a result, investors have more confidence when dealing with you.
Grants and reliefs
A lot of entrepreneurs experienced financial difficulties during the 2020 COVID-19 lockdown. Some had outstanding loans which they could not repay since they made no sales.
Other establishments like cinemas could not run because of the social distancing rule. Their financial difficulties put them in great need of government assistance.
As a result of these difficulties, some governments offered help to SMEs affected by COVID-19. They provided low-interest loans, debt relief, and grants. As a result, a lot of startups and entrepreneurs benefitted from these grants.
Now, imagine if such relief came up to provide some cushioning to your small business and it was not registered?
Some businesses require special permits before you can carry them out. One of such businesses is the operation of a car wash. Most jurisdictions have laws to prevent contamination of land water and water bodies by detergent.
Therefore, before you set up such a business, you need special permits. If you do not have such permission, you would be breaking the law.
Wholesalers do not give trade discounts or credit facilities to unregistered businesses. Suppliers also like to know the businesses redistributing their products. Being unregistered may create unnecessary problems for your business.
With some business types, you can protect yourself against any liabilities of the business. Once you register the business as limited liability, you become different entities. That means no one can come after your personal assets due to any liabilities from your business.
Registering a business comes with several benefits, but it also gives you a sense of accomplishment. However, choosing the proper form of registration is even better. If you need more guidance about how to register your business, contact a lawyer and an accountant. The lawyer will help you with the legal requirements of setting up the business. The accountant will advise you about the business structure.