Entrepreneurs often find that once they're bitten by the bug of business ownership, they can't stop at just one. In fact, nearly one-third of all business owners actually own and operate multiple businesses, according to FreshBooks.
And according to Guidant Financial, 61% of business owners said they made the move to entrepreneurship because of their dissatisfaction with the corporate world, and 75% say they're happy they gave up that life. This is a fantastic reflection of the stability of small businesses in the U.S. today.
If you've already been running an LLC or corporation (or two...or more), you're ready to join the ranks of serial entrepreneurs. And if you're wondering how to manage multiple businesses, we've got the tips and insights you need right here.
Haven't Formed a Legal Business Entity Yet? What Is the Best Structure for Multiple Businesses?
If you're still running your businesses as a sole proprietor or general partnership, you might be wondering if/when/why you should form a legal entity and which business structure type is best.
As you already know, there's no legal mandate to form a structure for any business. However, we highly recommend going for the liability protection of a legal entity such as an LLC.
There are multiple factors you need to consider when it comes to deciding which business structure type is the best for multiple businesses. Let's review the different types of business structures available to you.
Create Multiple DBAs Under a Single LLC
If you already have an LLC or are looking to form one, DBAs — often called "fictitious business names," "assumed names," or "trade names" — can be a great choice. A DBA, or "doing business as," is a legal filing that allows you to conduct business under a name that's different from the one you registered while forming your business.
While it is not a legal business entity in and of itself, it can still be an excellent option for owners who want to have multiple businesses running under one LLC.
In this situation, instead of creating an entirely new business entity for each location or service line, you would instead create a single LLC and then file a DBA for each different business. This arrangement works well for many business owners, but it does come with some considerations:
- DBAs are simple and cost-effective, with less paperwork than starting a new business entity.
- DBAs allow you to conduct business legally under the approved assumed name(s).
- You only need to file one tax return for your LLC.
- A DBA is not a legal business entity, so in and of itself, it offers no liability protection.
- If one DBA is the subject of legal action, all service lines and the LLC as a whole could be at risk.
DBAs offer a lot of flexibility. You can add as many DBAs as you like, allowing you to expand and grow the various service lines or service locations of your businesses. If you are planning to operate your business under a DBA in different states, you'll need to register the DBA in that state and also file a foreign qualification, which will allow you to legally conduct business in that state.
Also remember that, as noted above, if you have multiple DBAs and one becomes compromised by a legal dispute, you jeopardize all of the other DBAs within your LLC. If you want to ensure that each business has its own distinct liability protection, you may want to opt for the next structure choice.
Form Multiple LLCs or Corporations
Your next option is to form entirely separate entities for each business. This can include forming individual LLCs, S Corps, or C Corps, which might be great if you have businesses in substantially different industries or markets.
If you decide this is the best route for your businesses, you'll first select a business entity for each individual business and then complete the formation process for each one. When you're done, you'll have totally separate entities for each of your businesses — a great option for many serial entrepreneurs. Before you decide, there are some things you'll want to keep in mind:
- Each business is its own legal entity, so legal action taken against one wouldn't affect any of the others.
- If one business fails, you can easily carry on operating the others without putting them at risk.
- This can be an expensive and time-consuming choice, particularly if you choose to form corporations, which can cost more and require more paperwork.
- You would be required to file a tax return for each individual business — for C Corps, this can be a more complicated process.
LLCs offer quite a bit of flexibility and cost savings, and they're a popular choice for most businesses. But if you're planning to launch larger businesses, you may opt for incorporation (with a C Corp or S Corp) instead.
Create a Holding Company
Perhaps you would benefit by starting a holding company. In this scenario, you'd have one central holding company with multiple businesses listed as subsidiaries.
A holding company acts as the "owner" of all of the other assets, which are the subsidiaries themselves. However, keep the following in mind:
- Holding companies protect the subsidiaries by keeping their assets separate, so if something goes wrong with one, the others won't be impacted.
- You'll only need to file taxes once for the holding company and all its subsidiaries.
- This can be a costly choice and involve a complex process.
- Some business entities can't own other business types and structures, so it won't work for all businesses.
One option that's very similar to forming a holding company is forming a series LLC, which works in pretty much the same way. However, instead of a holding company, you would start a parent LLC, and then your series LLCs, called cells, would be formed beneath it. While only some states offer series LLCs, you should still be able to start a holding company no matter where you are.
Tips From the Experts: How to Manage Multiple Businesses Successfully
We polled the experts — serial entrepreneurs themselves — to get their best advice for managing multiple businesses. Here are their top tips:
Put the Right People in Charge
Kam Taleb, CEO and owner of Kaskaid Hospitality, which runs multiple restaurants across the U.S., says the first and most critical step in successfully operating multiple businesses is to make sure you have the right support and leadership.
"The key for any entrepreneur is developing the ability to find capable, loyal management for your ventures. Without having General Managers that are amazing at their jobs and able to work autonomously, I'd be running a single restaurant."
Taleb recommends that once you reach that level of trust with your manager, you begin the process again with the next business, and then the next, and so on. He says building this trust is the best way to get through downturns where you have multiple revenue streams being impacted in different ways. This increases the chances of at least one of them continuing to drive a profit.
Prioritize One Business at a Time
While it's tempting to go all-in on all of your businesses at once, Chelsea Clarke, founder of HerPaperRoute Media, says it's better to fight the urge to take on too much at one time. "Focus on growing one business at a time, as pouring all your resources into multiple businesses means that your funds won't go as far, given that you'll be stretched too thin."
Instead, Clarke advocates for keeping costs low and going digital. "This is why online businesses are so valuable," she says, "as they don't cost as much to run as brick-and-mortar businesses, so you can keep a few on the back burner while you focus on one or two."
Explore Complementary Businesses...
William Scott Goldman of Goldman Law Group says running multiple businesses can be a harmonious effort when you look for opportunities to run operations that complement one another. "Owning multiple, complementary businesses is something every entrepreneur should consider," he says.
Goldman expanded his law firm business by looking for ways to serve the same market with new and needed services. "Better serving the needs of our clients also sets us apart from other law firms as few offer the same," he says, but this has another major benefit as well.
"It provides another source of cashflow and has a synergistic effect, further boosting the law firm itself as our core business, leading to countless referrals and repeat work from our loyal and appreciative client base."
...But Also Strive to Diversify
Complementary businesses might be right for some entrepreneurs, but others may choose to take the advice of Shri Ganeshram, CEO and founder of Awning.com.
"Diversify your portfolio of businesses," he says, "so that you're not overly reliant on any one industry or market." This is sage advice in any economic climate, but Ganeshram says it might be even more valuable during a volatile time. "This can help to reduce risk and provide a cushion if one of your businesses is impacted by an economic downturn."
One thing to consider, no matter what the current status of the economy is, is how owning multiple businesses will affect your tax burden.
Tax Benefits of Owning Multiple Businesses
The way your businesses are taxed will depend first on which business entity you've selected and the structure (multiple DBAs, separate entities, etc.). Here's what you should know about the tax benefits of owning multiple businesses:
For businesses with one LLC and multiple DBAs: You'll save some money in accounting services (and some headaches) because you'll only need to file a single tax return.
For businesses with separate LLCs or corporations: Tax benefits depend on the entity type. If you run an S Corp or file taxes on your individual LLCs as an S Corp, you may well reap the benefits of this tax designation. Either way, both S Corps and LLCs are pass-through entities, which means your income "passes through" to your personal income tax.
For holding companies or series LLCs: Just like the LLC with multiple DBAs, you'll only file taxes once, but you'll also reap the rewards of having liability protection for all of your subsidiaries or cells.
So, now you know all about the different business structures for multiple businesses, the tax benefits, and how to get started with tips from the experts. Remember that you'll likely need a foreign qualification if you're planning to operate any of your businesses — whether via a DBA or a legal business structure — in a different state. Incfile can help.