Business is a Game. What Game are You Playing?
I love helping people solve problems, I REALLY do. That’s fun for me - that’s MY GAME.
However, to quote the lead character in one of the greatest sports movies ever, Jerry Maguire, I often end up saying “Help Me Help You!”
Why? Let’s stick with sports since this is a simple way to describe the issue. If business is a game (which it is) you have to know what game you’re playing since each game has its own set of rules. If you don’t you may suffer a “career-ending injury” (shout out to my son for that analogy!) and may even lose the game altogether.
EXAMPLE
Think about the three major sports: football, basketball, and baseball. Each of these sports uses a ball but that is where the similarities end. Each sport has a different playing field, different rules, and even different types of players.
Elite basketball players doing what they do best (say Steph Curry and his 3 point shooting) would absolutely fail, and suffer that “career-ending injury” if he were on the line of scrimmage in the middle of an NFL game.
THE PROBLEM
This applies to your business as well. One of the most important things you MUST know is what game you're playing (aka your business entity) so that you can play by the rules and win.
As in sports, there are three major entities: Sole Proprietorship, Corporation, and Limited Liability Company (LLC). There are more, but let’s focus on these three.
Do you know what game you’re playing?
From my experience, most business owners, especially newer ones, have NO IDEA what game they're playing and what the rules are. This can have “career-ending” consequences, such as litigation and partnership disputes, severe tax penalties, and overall financial mismanagement.
The rules are very different for each entity. I cover this in detail in the “Understanding Your Entity” lesson in my Passion to Profit: Business Master Course. Here are a few highlights:
Sole Proprietorship: This is your default legal/tax entity type unless you have formally chosen another. It is the simplest in terms of record-keeping, accounting and taxes, but the most risky in terms of legal liability. This type also has one of the highest tax and audit rates.
Corporation: There are many types, but the most common are “C” Corporations and “S” Corporations. The rules and tax accounting for these are very different. The most common mistake I see is a business organized as a “C” Corporation when it absolutely should have been an “S” Corporation. The taxation is drastically different and very expensive if you get it wrong. Another error is taking money out of a corporation but not paying yourself a “reasonable” salary, or withholding payroll taxes. This is a huge oversight and can incur significant tax penalties.
Limited Liability Company (LLC) This is one of the most popular entities, mainly because new business owners hear that term thrown around quite a bit. But did you know there are actually four different types of LLC’s and depending upon which one you choose your liability and taxes will be affected?
WHAT YOU SHOULD DO NOW
If you have a business of any type, you need to know what your game is, and if that game is the best one for you and your goals. Here’s what you can do now:
Check Your Form W-9. If you’ve ever filed a form W-9 (for example if you had to give it to a client or customer), your entity will be on that.
Check Your Tax Returns. Each entity files a different type of tax return. You will be able to determine your entity based upon the last return you filed. Speak to your tax preparer for further clarity.
Consult With Your Advisor. Now that you KNOW your entity, are you sure this is the best one for you? In my course, I walk you through a series of questions to help with the decision.
I hope this has been helpful for you! My goal is to always share real-life tips you need, and that will give you more clarity, confidence and control with your business!