Starting a lawn maintenance business involves some nitty-gritty details.

Hey, Clippers! Dave Tucker here.

Today we’re going to go over some of the serious stuff – the important legal steps you need to take to protect your beautiful business.

This may not be the most exciting material we cover in the series, but it’s information that could prevent a great deal of hardship for you down the road. Take it from someone who could share with you a horror story or two.

Don’t be intimidated by the legal language or jargon that follows; these things are not complicated. But they are necessary to consider.

Protect your personal assets: form a legal entity

Here’s an important fact to know: A business has its own identity under the law, kind of like individuals do. And just as you have a social security number, businesses have a Federal Employer Identification Number (FEIN). You can apply for a FEIN online, which is the first step to creating a legal entity for your business.

Creating a separate legal identity for your business is extremely important for you as a business owner because it separates your personal assets from the business’s assets.

We like to keep things positive around here, but let me share a very serious example: Let’s say something goes awry, and one of your employees damages someone’s property, or someone gets hurt. Assuming you haven’t been negligent, any lawsuits that follow will be brought against the company, not you.

Any money your business has paid to you as an individual is safe from the lawsuit since it is no longer an asset of your company.

Choose the right type of legal entity for your lawn maintenance business

Once you have your FEIN number, you can choose between four different types of legal entities for your business:

  • C-Corp. This is usually used for large companies with thousands of stockholders.
  • S-Corp. An S-Corp is usually a smaller company with fewer stockholders.
  • Limited Liability Company (LLC). An LLC has members instead of stockholders.
  • Sole proprietor. This refers to a single person, not a company, being paid for services.

Each option has its pros and cons. When I started my lawn maintenance business, I set it up as an LLC, and this may be a good option for you too.

I recommend consulting with an attorney or a CPA to help you decide. I also recommend using www.legalzoom.com to complete your paperwork.

Take advantage of tax advantages

Here’s another thing to know about business: Businesses only pay taxes on profits. If your business earns $100,000 in one year but pays $90,000 in expenses, your business has only made a profit of $10,000. As a result, one of two things happens:

  1. The business only pays taxes on that $10,000. To put this in perspective, if you earned $100,000 in one year as an individual, you would pay taxes on every dollar.
  2. The $10,000 profit is passed to the owner—you—and you pay individual income taxes on that amount.

If you use company money to purchase something you need for your lawn maintenance business, like a lawnmower or computer for the office, it’s recorded as an expense.

As a result, you don’t have to pay taxes on that money. All of your legal and legitimate business expenses should go through the business’s accounts, not purchased in your own name.

Invest in business insurance to protect your assets

Accidents happen. I have my share of sad stories to tell about flooded basements, smashed windows, and other disasters caused by lawn maintenance mishaps. Whether it’s carelessness, foolishness, or just plain bad luck, it only takes an instant for things to go wrong, and the results can be serious.

The best way to protect your business when things go wrong—apart from training your employees to make good and careful decisions—is to invest in business insurance. The right policy protects your assets in case of a lawsuit. Most large insurance agencies have plenty of options to choose from. Shop around a bit to see what fits.

These are important safeguards to protect your business, your employees, and yourself from the ups and downs of ‘the beautiful business.’

Once you have these safeguards in place, you can breathe easy and be proud of yourself for handling your business like a professional.