Spinning Plates: How to Structure Multiple Business VenturesAre you a serial entrepreneur? Here’s how to keep your business empire organized.
If you’ve been bitten by the entrepreneurial bug, chances are you won’t be satisfied once you’ve got one enterprise up and running successfully. You’ll likely get the itch to do it again and again — and again.
Many small business owners are “serial entrepreneurs,” meaning they build a company, get things operating like clockwork, then move on to their next great idea. But running multiple business ventures simultaneously can get complicated. Each company has it’s own legal paperwork, taxes and more.
So how should you structure your expanding business empire? According to small business attorney Mindy Wolf, there are three main options a business owner has for structuring multiple business ventures: keep them separate, merge them into a single entity or consolidate under a holding company.
Keep them as separate entities
The first option is to maintain each company separately, having an individual corporation or LLC for each business. Wolf suggests this strategy for high-risk businesses, such as bars, restaurants and real estate investments.
The biggest thing to be aware of when using this approach, is the amount of paperwork involved, she said. Each entity requires its own full set of legal documentation to be filed annually, licenses renewed and individual tax returns, which “makes tax time less pleasant for the accountant and more expensive for the business owner.”
But on the upside, maintaining each business individually provides you with greater risk protection. If one business entity gets sued or faces a liability issue, explained Wolf, “it can’t bleed into your other business interests.”
Different types of businesses also have different needs, which is another reason some owners may want to keep them separate, said serial entrepreneur Pramod Raheja, who has experience managing multiple business holdings from franchises to tech startups.
For instance, imagine you own a restaurant but also do some consulting work on the side. As a higher risk business, your restaurant will require additional insurance, licenses and permits that your consultancy wouldn’t need, such as workers’ compensation insurance and food handler’s permits. By maintaining the two businesses individually, you can make sure you’re only paying for the coverage you need.
Merge them into one company
The next option would to be merging several similar companies into a single LLC or corporation, said Wolf. This route gives you the benefit of only dealing with paperwork for a single legal entity, while using DBA (doing business as) registrations to operate the different aspects of your business.
Merging multiple companies into a single organization can help cut costs for legal and accounting services, as well as create a larger customer base. This can be especially helpful if your different businesses are targeting the same audience because you’re able to combine your marketing efforts.
Using a single entity with DBAs “allows the business owner to still keep separate accounts for each business and use separate branding, but the liability from one company could sink them all,” Wolf said.
Create a holding company
“The last structure would be creating an umbrella, or holding, company,” said Wolf. “LLCs and corporations can own other businesses, so business structures can be quite complex, depending on the goals of the business owner.”
Holding companies offer a great deal more liability protection than having a single company with multiple DBAs, and offers tremendous flexibility, she said. “This structure is popular for the really ambitious and sophisticated, because it lends itself better to an initial public offering and selling one company from the others owned by the holding company.”
Raheja said he used this model for managing multiple franchises. As his business grew and he began opening additional locations, each was created as its own unique LLC, “but they were wholly owned subsidiaries of the main LLC of our company, which served as a holding company.”
From a business management perspective, he said, a holding company is basically paid a management fee to manage each of those subsidiary businesses. So when tax time rolls around, there’s only one return to file.
“The negative is you’re going to pay a little more in corporate fees,” said Raheja, “but that’s minimal compared to having to pay thousands of dollars more in taxes.”
Because each company remains an individual entity, the holding company approach provides you with the same liability protection as managing all the businesses separately.
“Don’t forget, as businesses grow and change, the company’s structure can also change,” said Wolf. “There are rules about how to make changes to a company’s structure and how it impacts taxes, so be sure to consult a good CPA in conjunction with your business attorney for guidance.”