January 1, 2016 | Adrian Eskew
One of the unique things I did last year was establish a limited liability company to run all of my various business ventures through. This idea came from some great advice that I received from my accountant (if you don’t have a CPA, I highly recommend hiring one). There are a great many advantages and some disadvantages to running your adjusting business as a business and in this article, I’d like to take you through a few of those.
I’ve already talked to you about setting up a personal budget, but one of my favorite reasons for starting my business in 2015 was being able to keep my personal finances separate from the business.
If you came from a world of regular paychecks, tax withholdings and direct deposit you may still be experiencing some shock over the way your pay fluctuates as an independent adjuster, however, setting up your business and paying yourself as an employee will no doubt help you manage your finances as you will have a regular weekly or biweekly income. If you are married, your spouse is going to love the consistency, trust me.
Keeping personal and business finances separate is also a requirement of forming an LLC so it is not really an option. The added organization and ability to keep these expenses divided is not immediately apparent, but once you have to make the decision between using a business or personal debit for a purchase, it will click with you.
Professional accountants have recommended Quickbooks for a long time and have a borderline religious trust in this accounting software. Quickbooks as a company (Intuit) have also positioned themselves in a way to help you organize almost any business. You can use their online program to manage anything from your self-employed lawn service all the way up to a major corporation.
And it just works.
Connect your bank account and the program is smart enough to auto-categorize expenses, produce detailed P&L reports, generate payroll and even produce and track invoices. This program has been a huge game changer in the way I track income and receivables.
This was not obvious at first, but as I approached other businesses, as a business, I seemed to get more business. And if that sentence isn’t awkward enough for you, read on.
Think about it, when you sign on with a new client, do you ever really think about where all of you personal information is going?
There is a certain trust that is implied when you are doing business on the same level as your clients. Think about it, when you sign on with a new client, do you ever really think about where all of you personal information is going? How about how it is stored? What security measures are in place to protect your information? No. Of course not. This is a business, full of professional business people…why would I think about those horrible things.
Same goes with dealing with your clients as a business. Not only does it show professionalism on your part, but also your understanding of smart financial and organizational principles.
You also have the added benefit of credibility. Not everyone forms a business, but your commitment to being a professional adjuster, even to the point of forming a business around it, gives you amazing credibility. This accompanied with strong communication and a knockout resume may put you into a higher pay range!
Of course there is always the potential for an employer to see your business formation as a turn off, assuming that you have the same employee, building and corporate overhead that they do.
Okay. So maybe you’re convinced by the explanation above, or maybe you need to see some financial advantages.
Setting up an LLC is not difficult, depending on the state that you live in, but that is not really what this article is about. If you are interested in setting up any legal entity, especially one that deals with your finances, you should certainly speak to your attorney and/or accountant.
However, there is one BIG thing that you need to ensure you do if you are setting up an LLC, and that is asking your accountant or attorney about completing a S-Corp filing for your LLC.
Essentially, filing as an LLC with S-Corp status allows you certain tax benefits, chief among these is the avoidance of double taxation. Double Taxation as a company simply means that both the corporation and the individual shareholders (you) pay tax. With an LLC with S-Corp status you get to report the income and losses on your personal tax returns and are assessed tax at individual income tax rates. Through this, S corporations avoid double taxation.
One thing you must do in an LLC with S-Corp status is pay yourself a reasonable salary. This can be whatever you want as long as the IRS can look at it and say that you paid yourself reasonably. What reasonable means is likely dependent on your income. This is where careful conversations with your accountant can really narrow down what you are worth, at least in the eyes of the IRS, I know that you are worth every penny you can bring into your personal income!
Keep in mind that a single member LLC is treated as a sole-proprietor for tax purposes (which is why the s-corp filing is so beneficial), so don’t count on kissing those self-employment taxes goodbye without filing for S-corp status. Have I mentioned yet how important it is to file as an S-corp?
As an adjuster, you understand liability better than most of the general public. Yet you continue to run around unprotected (as a self-employed sole-propreiter), ready to be sued by almost anyone.
The most popular reason for forming a Limited Liability Company (LLC) is to separate personal and business related liabilities. Meaning that you don’t lose your house because someone decides to sue you. While nothing is guaranteed, the LLC will add an extra layer of protection that comes at a small price.
While nothing is guaranteed, the LLC will add an extra layer of protection that comes at a small price.
Independent adjusters can find themselves in fiduciary roles, often responsible for thousands or even millions of dollars, why put your personal assets at risk when dealing with such high exposures?
If you haven’t given consideration to why you would want to form a company to run your adjusting services through, maybe this year would be a good time to start. You may be thinking that it is too late, but most of the time you can form your LLC and elect S-Corp status and roll it back to the beginning of the calendar year. Just make sure that you file for S Corporation status early as there is a certain time period requirement to get it done when forming a new LLC.
Again, please keep in mind that this information comes from my own unique experience, you will definitely want to obtain legal and accounting advice before making any financial decisions.
So are you going to start an adjusting business in 2016? Share your thoughts with me in the comments or maybe over on LinkedIn or Facebook. Thanks for reading and best of luck in 2016!
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