Entities, business structure, tax strategy, trusts, estate planning…Not necessarily the stuff you tend to look at on a day to day basis. A lot of real estate investors and entrepreneurs put the “legal” details of running a business on the back burner, and that can come back to bite you.
A seemingly “small” mistake or omission could jeopardize everything you’ve built, and you might not even notice until it’s too late. Our business prides ourselves on looking at every aspect of real estate AND running a business, especially details that may be easy to push to the side.
So, if you’re planning to make ANY amount of money as an entrepreneur, you think you might someday own even one rental property, or you want to be able to leave a legacy for your kids and grandkids, this is for you.
We brought in Tommy Thornburgh who runs a company called Prime Corporate Services and he is an expert at helping you put in place structures that will not only make your business run more smoothly now (yes, we’re talking about tax season), but will ensure it is protected and established for years to come. Tommy is the president of Prime Corporate Services, a company that has been in business for over 10 years and helped over 100,000 entrepreneurs structure their businesses.
There are 4 major areas entrepreneurs can struggle with that are absolutely crucial: asset protection, business credit, estate planning, and tax preparation and filing.
First it is important to understand where your business is currently and where it is headed.
A few great questions to ask yourself are: What properties do you own? What entities are in place? How is your business structured and what operating agreements are in place?
You have to understand the entities you put in place and how the business structure will impact you down the road. When you hire an external company like Prime Services, the first step is reviewing what you have and understanding how to protect what you have.
One of the biggest mistakes entrepreneurs make in the early days, is downplaying the importance of setting their business entity and structure in place thoroughly and with long term goals in mind.
Business Structure as Long-Term Asset Protection:
When you are setting up an LLC you have a few options; You can do it yourself, you can hire an attorney, or you can hire a company like Prime Corporate Services.
You may ask ‘Is it important to have my LLC legally prepared? Well, that depends on what you want to do in the future with your company. In real estate you might be doing all of your transactions under one entity: active investments wholesales fix and flips as well as long-term passive investments.
If this is the case you will want to separate the active from the passive for two reasons: the liabilities are different, and so are the tax rates. Depending on what you want to accomplish and the way you are investing, you can use an expert to make changes that will suit the short and long term goals of your vision. If you already have an LLC in place, it is important to look at what you have and get even more clear on what you already have in place while simplifying and improving on it. Hiring a professional can streamline this process for you.
There are 2 pieces of advice that are game-changers so start now and you will save yourself major headaches later.
1. Track your expenses. You can do this any way you want, an Excel spreadsheet, Quickbooks, receipts in a shoebox, or someone who keeps your books. The important thing is that it happens, and is maintained consistently.
2. Hire a professional and hire the right professional. When it comes to hiring the right CPA, interview them about their experience in your business and your industry, ask them hard questions that will let you know that they will be able to find all the answers to solve any problem that comes up for your business.
Preparation is key, so do quarterly or monthly reviews depending on your revenues. When you are going into the fourth quarter, have a meeting with your accountant and have them tell you what you need to do to not pay out massive money to the IRS. What is the projected payout right now and how can you shift that by reinvesting your money before the end of year? The real tax planning happens in the fourth quarter before you go into the next year. s is where the tax planning happens.
Pro-tip: There are benefits to working with a ‘team’ or corporate business service. You have an individual that handles your tax account, but if there is something that they don’t know, they have a team to access and help solve the problem. Because each state has different tax rules, it’s beneficial to have a team that understands the specific circumstances and perimeters of your business based on how and where you are operating.
How do you build a separate credit profile for your business? It will take a few months to build a credible score and then begin to get lower interest rates,and business lines of credit. However, when this begins to happen, the business begins to pay for itself, and you can pay yourself from the business.
Good business credit also feeds into smart investment. There are many ways to raise money.
Having great business credit and low interest rates can help you leverage financial institutions and be a part of ‘private’ money raised.
It is easy to let this one slip especially if you are in your prime and healthy. If you have kids however, and a strong desire to leave them the legacy you have worked so hard to build, it is important to keep all your paperwork updated. This is not something we generally like to talk about, but it is so important. If you don’t have your estate in order and the state steps in, everything can go belly up.
Your life is a living breathing organism that is constantly changing and evolving. Have something in place to protect it that you only need to go in and update once every three to five weeks.
If you have ever as a real estate investor dealt with a property in probate you know what a headache it can be. The easier and cleaner we can make our estate planning, the better we leave it for our loved ones we left behind.
What will this cost?
When you are in the early days of starting a business and you don’t want to pay other people to do what you think you can do yourself, it’s important to talk about the numbers.
What does it look like to hire someone to do all of these things? (We took these numbers based on our guest Tommy and the rates of Prime Corporate Services).
Every state is a little different. You will have to pay the state fee, the filing fee, and a few hundred dollars for legal fees. Usually you will pay a lawyer about fifteen hundred dollars, and a company like Prime Corporate Services charges between three and six hundred dollars.
Business Credit development:
We walk you through how to build it and how to maintain it. This runs $2,000 for a year.
This has the largest variable based on how many businesses you have and what the liability looks like. It is however a fixed rate and not an hourly one.
It has a slight variable but the rate is still primarily a one time fixed fee, generally between two and three thousand dollars. All of these are business expenses you can write off. There are unlimited amendments at least for 5 years. There is however an option for unlimited amendments.
At the end of the day as a business owner it is important to ask yourself, is the cost now going to save me money later? Is it worth it to pay an expert to do something really well, that I may not have all the knowledge to properly execute. We know that in the early days it can be easy to brush over some of these important details, slap down and LLC and forget about it all until something happens that forces you to look at it. We hope this gives you a reason to look closely at details of your business structure that will save you significant time and money in the future!