Does It Make Sense to Incorporate a Business During an Economic Downturn?

Are you thinking about starting a business amid COVID-19? If so, you might be wondering if it makes sense to do so during a market downturn. But, did you know that incorporating a business during a period of economic uncertainty is a smart move? Keep reading to know why:

Understanding Incorporation

When you incorporate a business in a state, you need to file a document with the Secretary of State or other business authority to make a separate legal entity. Depending on your chosen state and the kind of business you want to start, the processes can vary. If you are not sure about the best business entity for you or which state to build your company, consult with an attorney.

Benefits of Incorporating

Incorporating your business will provide you with the following benefits:

  • Protect your personal assets. If you structure your business as a corporation, you will have a measure of personal liability protection that can protect your personal assets from the reach of business creditors or business-related legal proceedings.
  • Deter tax. Incorporating may provide tax benefits, depending on your chosen business structure. You may defer income taxes and benefit from tax deductions and credits designed for small businesses.
  • Lend credibility. By incorporating your business, you lend credibility to your venture, making your customers and suppliers more confident about doing business with you. Also, it will make it easier to get financing and capture the attention of investors.

Benefits of Starting a Business in an Uncertain Market

By starting a business during uncertain market conditions will let you lower your startup costs. If you want to build a business that depends on goods and services from other businesses, you might be able to negotiate lower rates for your company. Also, it can be possible to buy the materials you need for running the business at auction or directly from a competitor that may be leaving the business scene because of the market downturn.

Moreover, if you want to start a small business during a rocky financial market, you may find it easier to find business partners or quality employees who are facing the possibility of being downsized or furloughed from their jobs.

During a financial downturn, customers are looking for deals and value at a time in the field where competition is becoming narrower. A new business that provides competitively-priced products or services can win over new customers and keep them long after economic recovery.