What’s the best thing you can do for yourself financially? Incorporate yourself! Put together a corporation that’s wrapped around your assets. This will enable you to reap great tax advantages and legal protections as well as to gain access to capital. It will also shift your thinking in important ways.
The best thing I ever did financially was to incorporate myself, long before I knew how to run a company or to make any money as a business owner. It took all of $40 and 40 minutes. I had to come up with a name and a statement of purpose or activities. That was the hard part. LifeTrek Coaching International probably took a day or two of conversation with my wife and business partner. The statement of purpose or activities was easier. I wanted it to be so general as to not exclude anything. I put down “consulting and coaching work with individuals, organizations, and corporations.” Other than making widgets, there’s not much we can’t do under that banner.
Why was this such a good thing to do financially? Because as soon as we had the vehicle, opportunities arose to use the vehicle. It immediately shifted our consciousness from what Robert Kiyosaki calls the “E” (Employee) quadrant to the “S” (Self-employed) quadrant. It then shifted our consciousness from the “S” (Self-employed) quadrant to the “B” (Business Owner) quadrant. And it passed along significant tax advantages all the way down the line.
Of the two shifts, in consciousness and in taxable income, the shift in consciousness was the most important. Breaking out of the “Earn–Tax–Spend” syndrome, which is part and parcel of being an Employee, starts in the mind. There is a tremendous sense of security that comes from having a paycheck every two weeks, not to mention the fringe benefits. And although no job is secure anymore, with the value of loyalty to employers and employees becoming little more than a distant memory, being an employee still has an aura of security that many people need in order to feel safe.
There is another way, however. And it starts the moment you incorporate yourself. Instead of working for the company, you are the company. How’s that for security! The trick, of course, is to make money. The money comes once the shift is made. Instead of thinking, “Where’s my next paycheck going to come from?” You start thinking, “Where’s my next customer or contract going to come from?” It totally changes the way you see the world. Once that shift is made, it’s a smaller step to start thinking, “How do I grow this company into a bigger operation that can run on its own, without my having to be responsible for every piece of the action?” That’s when you get involved with business plans, capitalization, and systems.
Long before that happens, however, you start to reap the benefits of owning a corporation. Although there are different types of corporations to own, we created an S-Corporation on the advice of our accountant. It has proven to be an exquisite decision. Between the payroll service and the accountant, we hardly have to think about reporting requirements. Income and expenses flow through the corporation, in accord with law and the policies established at board meetings. And at the end of the day, the earnings of the corporation • whatever is leftover after everything has come in and gone out • are simply added to our personal tax returns.
That may not seem like much of a benefit, and it’s certainly not complicated high-finance that’s hard to understand, but imbedded in that formula lies the key to great wealth: get the cash to flow before taxes. I’ve already mentioned the “Earn–Tax–Spend” syndrome. Once you incorporate yourself you immediately become eligible to participate in the “Earn–Spend–Tax” equation. And that’s a much more favorable equation. Plus you receive many added benefits such as protection from litigation and the ability to raise capital.
In his book Rich Dad, Poor Dad (Click), Robert Kiyosaki puts it quite plainly. “An individual with the knowledge of tax advantages and protection provided by a corporation can get rich so much faster than someone who is an employee or a small-business proprietor. It’s like the difference between someone walking and someone flying. The difference is profound when it comes to long-term wealth.”
So why don’t more people incorporate themselves? It may be a lack of understanding how profound the benefits can be. It may be laziness. It may be contentment with things being good enough. I know one person who teaches this stuff but has never gotten around to doing it! It may be internal conflicts over making the shift from the left to the right side of the cash-flow quadrant Let’s call that the fear of flying.
Coaches work with people to get over that fear and to take action. If you can find $40 and a name, it’s possible to keep your day job and to incorporate yourself at the same time. Then you gradually make the shift from “E” to “S” to “B” until you’re ready to leave the “E” behind. Let us know if you’d like to get to work on that life-changing project. We’d be happy to coach you through the process.
May you be filled with goodness, peace, and joy.
Bob Tschannen-Moran, MCC, BCC