Pros and Cons of Registering Your Small Business

Networking can help your business.There is a lot of advice out there about whether or not you should register a small business with governmental agencies and trade organizations. Whether or not you choose to join organizations is mostly a personal decision that heavily depends on your current circumstances and preferences. Let’s look at some of the pros and cons.

Pros

The Small Business Administration (SBA) is the federal agency that serves as the primary governmental advocate for small business. From the SBA.gov web site, a small business owner can find links to registration requirements. If you are doing business as a sole proprietorship, you will be working in your own name and subject to personal liability related to your business. As a sole proprietor, you will still need to obtain local business licenses, too. If being personally liable for your business activities doesn’t sound appealing, register your business with a state as a corporation or LLC and obtain a federal tax ID. Don’t forget to find out if there are any business licenses required for your business at the county and city level, too.

Agencies and banks for small businesses might offer loans, perks, or training to small businesses. For example, the SBA is currently partnering with the W20 group, which is a group of digital communications companies, to offer a social media webinar series to help small businesses develop their web presence. The SBA also offers special loan programs to veterans, minorities, and women. The loans are actually backed by the SBA and issued by participating banks, so don’t think the SBA directly offers loans, though.

State business organizations provide venues for members to network and share resources. Members can help each other by referring customers, or providing mutually beneficial services. Being registered as a small business increases your chances of being invited to events you might otherwise not know about.

Business organizations also can be an effective political group. As with anything, the louder the voice, the more likely you are to be heard. Therefore, joining a small business organization can be a good way to promote policies that would benefit small business owners. These groups are not necessarily partisan, but rather they can work together to support common business interests.

Although there may be fees associated with joining some business organizations, the dues are usually tax deductible.

Many small business organizations offer group discounts for professional and personal services, which can be a very nice perk.

Cons

While the SBA is set up as the main advocate for small businesses in the US, the definition of “small business” is rather broad. For example, some of the business categories allow businesses with over 1,000 employees to be considered a small business. As you can see, the definition of “small business” is wide and often, a truly small business of less than 20 employees may find some SBA benefits are not useful.

SBA-backed bank loans sound good in concept, but the loan requirements make the loans out of reach for many early stage companies and very small companies. If you don’t have at least two years of operating history and a year’s worth of revenues, then you are unlikely to qualify for any SBA-backed bank loans.

Like everything in business, professional and trade associations cost money. Just about every small business organization has some kind of annual fee and many charge a fee for joining in the first place. Such fees can add up over time, especially for a new business. Additionally, participation in the events requires additional expenditures.

Being an active member of a business organization can be a big time-consumer, especially if you’re involved in more than one or at higher levels of an organization. Most organizations have a monthly meeting, but for members of several organizations, a few monthly meetings can turn into what is essentially a meeting every week. As a business owner, your time is extremely valuable so spending significant amounts of time on professional organizations can turn into a huge distraction.

If you don’t thrive on working with others or mixing business and social events, business organizations may not be for you. These organizations often combine social activities with things like networking or seminars, which is great for a lot of people, but there are many people who do not like to combine those aspects of their lives.

If you decide that registering your business is right for you, check out the US Small Business Administration for information about how to register a name for the business and find state agencies.

This has been a guest post by Angie Picardo, a writer for NerdWallet, a financial literacy website dedicated to helping consumers leverage their own business and set better personal financial goals.