You’ve made up your mind that it’s time to open your own private career coaching practice. Congratulations! If you have been researching how to set up your business online, one of the steps that is always on the list is to register your business and choose a legal structure.
However, for most career coaches thinking about transitioning to private practice or starting a side gig, it is hard to find guidance that fits this business model and services. You aren’t a budding entrepreneur or small business owner who plans to sell a product. You are likely going to be working on your own and can’t afford a lot of out-of-pocket costs.
The honest truth is, you don’t need to jump through a lot of expensive legal hoops to start a career coaching business, you just need to lay a solid foundation so your business can grow. In this article, we are going to share our experience with this process and offer a checklist to help you in your decision-making about your business setup.
DISCLAIMER: Be the Change Solutions, LLC does not provide legal advice, and this article is not a prescription of what you should do. It is a good idea to consult legal counsel to dive in further to what you read here and remember that you are responsible for your actions as a business owner.
I am just seeing a few clients on the side, so why should I register my business??
Most career coaches we know often start out by seeing a few clients outside of work. A colleague or friend refers people to them because of their valuable career expertise. They really enjoy the freedom of offering coaching according to their own values and style and they enjoy a little bit of extra income. As a result, this side gig inspires many to start building their own little business on the side with the hope of eventually launching into it full-time.
However, some questions begin to surface as you think about doing this:
How do I account for this extra income on my taxes?
Can I give my business any name I want?
How do I protect myself and my business from liability?
Don’t fret. Unless you plan to hire a team or offer multiple services, there are simple, low-cost ways of getting your private practice off the ground with a solid foundation for growth.
1. Make Your Private Practice Business Official – Start with a Sole Proprietorship
Making use of legal entities and contracts can protect you from personal liability, help you save on taxes, and help you present a professional image to clients and the general public.
The simplest and most cost-effective business entity to start with is the sole proprietorship. You don’t have to take any formal action to form it, so it doesn’t cost you anything. Your name is the business name and any income earned by the business is considered income earned by you as the owner. A sole proprietor owner just needs to keep track of all their business income and expenses and report it on a Schedule C with their personal tax return.
If you decide you want your business to have a different name than your own, then you will need to file for a DBA (doing business as) name (which is still a type of sole proprietorship) but it legally allows you to conduct business under a different name. For example, if Joan Doe wants to open a sole proprietor cake business called “Cakes by Joan,” she needs to file a DBA for “Cakes by Joan.” This DBA becomes a public record letting everyone know what individual(s) are behind the business. The cost for this paperwork filing ranges from $10-$100. Again, because there is no separation between the DBA and the owner, any income earned by the business is considered income earned by the owner.
2. Set up a business bank account
While you aren’t required to separate your personal and business finances as a sole proprietor, doing so allows you to track the components involved in managing your business throughout the year, and it makes it easier to spot any potential tax deductions your business might have. Also, as your business grows and you are ready to shift to a Limited Liability Company (LLC), this step of protecting your assets is already in place.
To set up a business account, we would recommend you obtain a federal Employer Identification Number (EIN) for your business. It is free and like having a social security number just for your business. As a sole proprietor you aren’t required to have an EIN if you don’t plan on hiring any employees, however, if you plan to hire contractors to help you build your business (i.e. a web designer, blogger, etc.) then you will be required to have one. Also, there are many other benefits to having an EIN. Many banks require it to open a business checking account, apply for loans and business credit cards.
3. Invest in liability insurance
While the chances of getting sued as a career coach are relatively low, it is a good idea to protect yourself with some cost-effective liability insurance. Not only will it help protect your assets, there will be opportunities to contract with organizations that you find require proof of this type of insurance.
When to apply for a Limited Liability Company (LLC)
The career coaches we know typically start with the sole proprietorship and then as their business grows and becomes more complicated, they invest in obtaining a Limited Liability Company (LLC) status. An LLC offers a legal separation between your personal and business finances and it is optimal for private practitioners because it offers the benefits of sole proprietorship along with many of the protections of a corporation.
This business entity does require some research to find out what documents need to be completed in your state or municipality. You can choose to hire a local lawyer to help you with this process, or you can do it yourself through an online legal service. The cost typically ranges from $100-$800.
As you can see there are many things to consider when launching your career coaching practice but it doesn’t need to be a scary overwhelming process. You can take the three steps outlined above as a starting point and build from there. Whether you start your practice as a side gig, or jump into it feet first, you can begin with low-cost options that give you flexibility as you grow. Starting your own career coaching practice is a rewarding endeavor and you are now one step (or three) closer to making your dream a reality!