Owning a business can be quite an adventure. With all that one must do to run a successful business, especially here in the State of New York, it is good to ask yourself is, “Will the business structure you have chosen protect your assets.”
I have owned countless businesses over the past 40 odd years. Some were great successes, and others were miserable failures. But, I can proudly boast that success or failure, I have learned something positive from each business opportunity that came across my desk.
One important lesson that I ‘wish” I would have learned much sooner was to “Protect My Assets.” Now, in the beginning, I like most twenty-somethings had little if any assets to protect, but at the same time, in hindsight, I now realize that you always have assets.
For instance, I owned a small pest control business. I was starting out, and I was lucky if I could afford to pay the electric bill. I did manage to have somewhat of a cash-flow, and I also had a tax liability—sales Tax, to be exact. In my busyness, I forgot to pay my quarterly sales tax bill, and since I was so busy trying to make some money, I never got around to opening the mail, unless it looked like a check.
A big opportunity came in one day that had the potential to increase my monthly sales by about $3000.00 a month. (That was a big deal back then) To complete the job, I need some special equipment which I had located and was in the process of paying for. That is when I learned that my credit card had declined.
So, I called the bank and explained that I knew for a fact that I had $700+ in the account, and my card declined for a $500.00 purchase. A moment or two later, my heart sunk into my stomach. I felt dizzy and almost passed out.
The bank’s representative informed me that my checking account was actually overdrawn by $18000.00 and that my card had been canceled. I know what you may be thinking, but no, it was not because of fraud!
Remember the sales tax liability I had mentioned earlier? Ignoring the tax collector’s letters and forgetting to pay or even file a sales tax return can undoubtedly bite you in the ” you know what!” Especially if you en the wrong business structure! So, before I go further, I ask you again, “will your business structure protect your assets?” Because my business structure failed to protect me!
For the sake of time, I’ll get to what happened in a shortened version. When you fail to file a sales tax return in NY, they base what you “might” owe based on other similar businesses. Then, just to be safe, they double that amount. Once they double the amount, they seize your assets until it is paid or until you prove otherwise.
Now, If I had a Corporation instead of a sole proprietorship, the only assets that would have been affected were the corporation’s assets and not my personal assets. Eventually and painfully, I had the whole mess cleared up. I paid the $300.00 in sales tax, a $50.00 fine for failing to file, and a penalty of $18.00 for filing late. The liens were removed, and so was the negative comments on my credit report seven-years later!
So, the main lesson here is you need to know if your business structure will protect your assets, and only you can answer that question. If you need to know more about filing the proper business forms to incorporate your business, check out this company, “We File For You.” So far, they seem to be the most inexpensive way I have found to legally protect your assets, starting at around $39.00 ( As of January 2020)
Until the next installment of your froggy, be safe, be well, and don’t forget to share!
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