Incorporation Issues: Keeping Your Businesses Separate
For entrepreneurs with fertile business imaginations, the question often arises: What's the best way to set up and manage more than one business venture? Then other questions follow: Does it make sense to mimic large corporations by setting up subsidiaries? Or are there advantages to keeping the businesses separate?
For Fran Greene, an entrepreneur who has founded two companies in Orlando -- Cakes Across America and Sun State Electronics -- the advantages of keeping her businesses separate far outweigh the costs. But making that judgment takes some time and analysis.
Some owners might take their lead from the nature of the business ventures themselves. But not Greene. "If you just looked at strictly business issues, you could probably toss a coin and go either way," she says. "My companies are in different industries, but they've got similarities because sales orders come in by telephone. Then again, Cakes' customers are consumers, and Sun State handles mainly government business, which is about as different as you can get."
But, Greene emphasizes, there are other factors to consider besides strictly business ones. "As the founder of two growing businesses, I'm very conscious of their futures -- and of wanting my children to participate in those futures. Since I have six children, who range in age from 28 to 35, I hope that I'll eventually be able to have each one of them take over a different company that I've founded."
For people with less complicated estate-planning goals, there are other advantages, too. "It gives me the flexibility to let each company develop in whatever direction turns out to be right for it," Greene says. "That way, if I ever decide that I want to take one of my companies public, I can do it without affecting the future of any other."
There are other pluses, such as liability protection. "By keeping my companies separate, I protect each of them against the effects of any problem that might crop up in the other business line."
What about the higher costs of preparing two sets of financial reports, tax returns, and other documents? Greene is convinced that those costs are justified by two key benefits:
· Financial clarity. "When I look at each financial document, it's as though I operate only one business. Every financial trend is clear. If, instead, I were looking at the report of two subsidiaries that were merged into one corporate whole, I'd still require complete breakdowns of everything."
· Separate corporate identities. "Each of my businesses runs on a different mentality. With Sun State, we take advantage of opportunities open to us as a woman-owned business. With Cakes, we're focused on reaching the individual consumer. As a manager, it doesn't make sense to try to pretend that these businesses are really just two parts of one whole."