“Life is murky; only death is not“says Zorba the Greek in Nikos Katzanzakis’ novel. I have heard many business owners boast about the lack of hassle that sole proprietorship brings them. No messy property deals, no separate returns or taxes, complete freedom and flexibility to do what you want when you want And if it’s “just me” working as a contractor / consultant for other companies, why get so involved in meeting structure and minutes?

Well, it is a law of nature and balance that for every yin, there is a yang; every action generates a reaction; Every ray of light has a cloud. And the “clouds” that hang over a sole proprietor can create a deluge of catastrophic proportions.

Cloud # 1: You risk the entire ball of wax.

One of the benefits of doing business as a limited liability entity (such as a corporation or limited liability company) is that the structure (which is so difficult for the sole proprietor to manage) acts as a protective fortress against personal liability. Sole proprietors don’t have that shield of protection. As a result, all of your personal assets are at risk in the event of a lawsuit or lawsuit. Personal assets, like your house, bank accounts, savings, car, jewelry (that can be sold to pay a judgment). How remote is a trial against you? For the IT consultant whose network configuration inadvertently locks up the server? The graphic designer whose design may have infringed someone else’s? The independent sales representative accused of misusing the company’s contact list? The marketing consultant whose plan didn’t produce the promised results? In a lawsuit-happy society, sole proprietors often don’t have the “war chest” to finance a lawsuit or pay a judgment. So why put Grandma’s engagement ring or life savings at risk? It’s like jumping into a pool of hungry sharks – they might not eat you, but why would you want to put yourself in such danger in the first place?

Cloud # 2: A house of cards falls apart easily.

Erratic economies, slow paying (or not paying) customers, or lawsuits flagged in Cloud # 1 can all contribute to the demise of a business. Limited liability entities have the option of taking the business through bankruptcy without affecting the business owners. But with sole proprietorships, the business is the owner. The two are inseparable, rather, identical. Therefore, the damage to the business equates to the damage to the sole proprietor. If a sole proprietor seeks a way out through bankruptcy, he must file for personal bankruptcy. Bankruptcies can stay on your credit history for 10 years and even longer, so the fresh start the bankruptcy process is supposed to provide can become a millstone around your neck … for more than a decade. .

Cloud n. # 3: You may miss out on business opportunities.

Larger companies like to use independent contractors because they don’t have to pay Social Security and Medicare taxes on their behalf. However, consulting assignments, even temporary positions, can last for months or even years. If that happens, a consultant / contractor could dangerously look like a part-time (or even full-time) employee. As a result, an increasing number of companies will only do business with consultants who operate their businesses as limited liability entities, as the limited liability form gives some presumption that the company is truly independent. Is this form about substance? Not if sole proprietors are missing out on attracting bigger, more prosperous customers.

Cloud n. # 4: reduce business expansion opportunities.

One of the most important ways for a small business to expand is to attract other business owners because they can contribute capital, connections, and cheap labor. But you can’t have more than one owner in a sole proprietorship – by definition, it’s “just you.” So bringing in a business owner essentially means that you have to create a new business … literally, as a new entity will have to be established. However, if you already have a limited liability entity, you can control who joins you and on what terms. In short, it can still be your business, only bigger and better.

Cloud # 5: You risk thinking small.

There is no law that says you must want to be a millionaire if you are going to start a business on your own. You may be quite content to remain a one-man operation. But just as putting on a suit to go to that important client meeting (or special date) makes you feel and act differently, having a limited liability entity can also help you formalize your thinking and allow you to run your business smoothly. instead of making it work. from pillar to post. There is a lot to know about running a business well, much of which has to do with understanding financial statements and what makes your business profitable. For the same 168 hours a week, wouldn’t you rather earn more money than less?

As you can see, there are many important factors that can cloud the life of a sole proprietorship. But you also have options to protect yourself against your risks. Don’t make this decision alone – be smart and find the right people (like a lawyer and small business accountant) to help you. Avoiding sole proprietorship can be a smart move to bring your business to Cloud 9!