Entrepreneurs, freelancers and fresh starters might hear a thousand different ways in which they can register as a business, but we rarely go over why you should register your business.
Most such conversations don’t go very far from the obvious reasons like; it helps you with acquiring a legal name for operating your business, or, opening an account with a bank will give your business a formal structure, or, you’ll be better prepared to face failure. You will find below some of the more obvious – but less addressed reasons and some that you will only come to know if/when you have had the opportunity to work in a specialist department within a large company.
1. Brand Identity/Image
A business or a company, once legalised, with a clear operating structure in place is committed to responsible management practices. It uses a business bank account for processing financial transaction, pays its taxes, either using internal finance officer and accountant or by outsourcing the operation to an accounting firm. All such activities add an element of security, trust, a feeling of permanence – something proper. This enhances the appeal of your business and encourages potential customers, contractors and suppliers to consider engaging with you in business.
A few examples of this can be seen in Pakistan with the ever growing retail industry. Brands such as Khaadi, Nishat Linen, Ideas by Gul Ahmed have gained recognition and acclaim locally and internationally. These businesses grew and carried their unique identity with them to UAE, UK, USA, Canada and Europe – reaching out to Pakistani and Asian diaspora. The key being their identity that people can see, instantly recognize and associate with their products.
2. Reputation With Customers
The core concern of any person, client, in short, anyone you’ve never worked with before, will be your reputation. The question: ‘if you are running a legitimate business operation?’. Customers and especially potential clients, may suspect your business of being umbrous if your company isn’t properly registered. When a business is on file with the regulatory authority, it could put your potential clients at ease when making a decision about whether to go into business with your company.
3. Separate Legal Entity
Once incorporated, your business is treated as a separate legal entity in the eyes of the law. It has its own exclusive rights and privileges, like any other person, your business can legally own properties, carry out its business operations under its common seal, it can also incur liabilities. A registered business, as a legal entity, can and be sued in its own identity. This allows for you to take calculated business risks all the while protecting your private assets from any financial and legal obligation.
4. Tax incentive
One of the biggest advantages of registering your business and adding yourself to the taxpaying ranks is that you may become eligible to pay lower taxes than you would in general. You can do business as an individual or a registered business. When you trade as an individual, you pay tax on the additional income you receive from your business. Unfortunately you don’t get any tax deductions on the expenses you incur in running the business e.g. internet costs, telephone costs, transport, rents, etc. These are all regarded as personal expenses more or less. One of the more appealing reasons for registering a business, as opposed to simply reporting your additional income, is the extra money you have left over.
5. Protection from Liabilities
Lets get this clear, mixing personal and business finance is the ultimate recipe for disaster! Once registered, a business is considered a separate entity and your personal assets are not considered part of the company assets. As stated earlier, a business bank account, will help this process of separation of finances. This then helps the company evolve independently and be responsible for its own financial liabilities. Hence registering helps secure your and your family’s future, too.
One must remember though, as per The Sarbanes-Oxley (SOX) act, an owner (CEO/MD) of the company shall be responsible for true and fair figures of the financial statements. In short, cooking the books will not get you very far.
6. Getting Loans
Every business may need a loan to start a new unit or for expansion, they may need a loan in order to invest in research and development for a new product. They may benefit from a financial lifeline if they are suffering from unplanned financial constraints. However, for such financial services, when you apply, as part of assessment and approval process, the lenders will require you to share your company registration documents among other requirements.
Startups and new businesses can take advantage of a variety of loan options made available to them. Some of those are: Habib Bank limited’s product for small businesses – HBL small business finance. Bank Alfalah’s SME loans product – Alfalah Karobar Finance. FINCA micro finance bank limited has Finca Karobari Karza (SME).
7. Supplier Discounts
One of the most common business relation practices that has been around for a while is the provision of priority access or discounted rates for trusted clients. Suppliers commonly offer wholesale rates for long-standing and/or new businesses to solidify their customer relation. Operating a registered business will help you receive supplier discounts that you may never receive working as an unregistered business. General Motors (GM) has one of the most robust supplier discounts. It offers them to personnel of the businesses that are linked with GM and is referred to as Preferred Pricing. (Do check this GM wala part, I am not a bit uncertain about it relevance)
8. Tender Processes
In order to participate or compete in tenders – government or commercial – being a registered, legalised, company is one of the fundamental requirements. Most tenders are advertised for big contracts or for big companies and landing any contract, especially with bigger companies, helps you get a foothold in the market against your competitors. Competitive edge is the gold if not just the currency that speaks volume of a company’s capability to deliver – but not being legally incorporated would mean you won’t even be allowed a look into the playing field, let alone be a competitor. You can have a look at the Public Procurement Regulatory Authority(PPRA)‘website for more details or could jump to the much detailed section of its governing rules.
9. Business Operation Expansion
With the knowledge that yours is a registered company with legal safeguards put in place with the protection of the law of the land. You can then start branching out your operations to other parts of the country. Whether it is a physical office or a remote services extension. In the current business environment, companies, large and small, are working on hybrid models whereby they employ not just internal staff but also outsource some operations to other companies, local or offshore.
One of the biggest, most successful example of such an operation can be S&P Global. The company that in its original form started back in 1888. James H. McGraw‘s acquisition of the American Journal of Railway Appliances started what has morphed and evolved, through various transitions into its current state of a business intelligence behemoth. With products such as Standard and Poor’s indices, S&P Global Platts, S&P Dow Jones indices and S&P Global Market Intelligence. Its operations are spread across the world including regional office in Islamabad boasts a significant workforce presence.
10. Sub-contracting opportunities
Increasingly, businesses are sub-contracting smaller businesses for some of their operations and parts of their product development. Majorly, to avoid having to pay employee benefits and saving on overall Human Resource (HR) costs, but, as well to keep cost of operations down. That way they get themselves an overall cheaper alternative to internal staff which saves them not only the cost of employee benefits, but also the cost of hiring, maintaining and contribution to pension funds – making their’s a lean operation. What, however, these businesses don’t want to do, is to engage individual consultants in a long term contract as the distinguishing lines can get blurred when the individual isn’t an actual registered company.
11. Business Longevity
Registering your business aids the longevity. How you ask? well, you would be surprised at the response. It is one of the most common reasons hidden in plain sight. Name a business, any business. Let me help you there, because you may ask why do I have to name ‘a’ business. Levi’s Jeans, set up by – an immigrant into the US from Bavaria, started off as in importer of dry goods. One of the biggest clothing groups, Levi Strauss & Co. has been in business since over 130 Years. It’s retail outlets and boutiques sprawling across the globe carrying the same moniker. That is the kind of impact a name has, the reputation and the history – instant recognition.
Marks and Spencer, a group of companies that today deals in fresh produce, banking, insurance and energy in addition to Clothing and home products. It was set up by Michael Marks, a Polish-British entrepreneur and businessman and Thomas Spencer, a cashier and businessman, in 1884. They started off as merely two stalls in a market, it was a Penny Bazaar. Marks and Spencer grew to become the first retailer in British retail history to earn a pre-tax profit of over £1 billion in 1998. Outlasting both its co-founders, evolving, diversifying its product range and still going strong. And because these individuals registered their companies this means their businesses are able to continue without them. They are now separate entities from their person. That’s the power of registering a business. It ensures the continuity of your business beyond just you. Customers have a vested interest in your company’s future, if the company is able to continue serving them long after.