The Business Structure Series: Why Sole Proprietorship Might Be Draining Your Wallet

Is your business structure secretly costing you profits? In this episode of The Cash Flow Factor, Dawn Porthouse kicks off the Business Structure Series by unpacking the real pros and cons of starting as a sole proprietor.

Many entrepreneurs begin here because it’s fast, simple, and cheap. But what looks easy upfront can become risky as your business grows. From unexpected tax burdens to unlimited personal liability, Dawn explains what every freelancer, consultant, and small business owner needs to know before choosing—or staying with—a sole proprietorship.

Whether you’re testing the waters or already running full speed ahead, this episode will help you spot the red flags and plan smarter for long-term success.

What You’ll Learn in This Episode:

• ✅ What a sole proprietorship is and why it’s the default for most new entrepreneurs

• ✅ The benefits: simplicity, control, and low costs

• ✅ The hidden pitfalls: personal liability, self-employment taxes, funding challenges, and limited growth opportunities

• ✅ Key signals that it’s time to upgrade to an LLC or corporation

Resources & Links Mentioned:

• 📥 Free Business Structure Cheat Sheet – Compare sole proprietorships, LLCs, and corporations side by side so you can make confident choices. Get it here.

• 💬 Want help figuring out your next step? Book a free Clarity Call with our team. In 20 minutes, we’ll talk through your goals, answer your biggest structure questions, and point you toward the smartest path for growth. Grab your Clarity Call here

Next Episode: Partnerships

We’ll dive into the opportunities—and potential headaches—that come with sharing ownership. Don’t miss it!

🎧 Subscribe now so you never miss an episode, and share this with a fellow entrepreneur who’s ready to protect their profits.

Episode Transcript

(00:05):
And how you can safeguard your hard work.
Welcome to The Cashflow Factor.
.666666667I'm your host Dawn Porthouse, and this series will reveal how your business structure can impact your profits, taxes, and growth in ways many entrepreneurs don't expect. 5 00:00:22,201.666666667 --> 00:00:24,511.666666667 Ever feel like your income doesn't match your effort. 6 00:00:24,751.666666667 --> 00:00:25,801.666666667 You're in the right place. 7 00:00:26,801.666666667 --> 00:00:32,801.666666667 Before we jump in, grab your business structure cheat sheet, a free resource for comparing the main types of business structures. 8 00:00:33,281.666666667 --> 00:00:37,151.666666667 You'll find the link in the show notes and for YouTube viewers in the video description. 9 00:00:38,651.666666667 --> 00:00:43,631.666666667 We'll check back with the cheat sheet throughout the series, and if you're looking for a deeper dive, keep listening. 10 00:00:43,841.666666667 --> 00:00:46,841.666666667 The Ultimate Business Structure Guide is on the way in episode three. 11 00:00:47,741.666666667 --> 00:00:48,611.666666667 More on that soon. 12 00:00:49,91.666666667 --> 00:00:52,91.666666667 Just know it'll offer extended strategies and examples. 13 00:00:52,571.666666667 --> 00:00:55,511.666666667 Today we're talking about why so many choose sole proprietorships. 14 00:00:56,441.666666667 --> 00:01:01,181.666666667 The risk behind the decision and how you can set yourself up for longer term success. 15 00:01:02,181.666666667 --> 00:01:10,41.666666667 What is a sole proprietorship? If you're running a business on your own and haven't created an LLC or corporation, you're a sole proprietor by default. 16 00:01:10,641.666666667 --> 00:01:14,121.666666667 There's no extra paperwork, just basic licenses to get started. 17 00:01:15,561.666666667 --> 00:01:17,391.666666667 This simplicity is a big draw. 18 00:01:18,81.666666667 --> 00:01:21,201.666666667 There's very little paperwork, almost zero startup costs. 19 00:01:21,681.666666667 --> 00:01:23,961.666666667 That's why so many begin as sole proprietors. 20 00:01:24,531.666666667 --> 00:01:31,251.666666667 You control every decision and keep all the profits, But as your business grows, that simplicity can turn into hidden risks. 21 00:01:32,91.666666667 --> 00:01:38,931.666666667 If you have your cheat sheet handy, take a look at how sole proprietorships compare to other structures as we move through this episode. 22 00:01:41,601.66666667 --> 00:01:43,491.66666667 Here's why most people start out with this structure. 23 00:01:43,851.66666667 --> 00:01:46,851.66666667 Launching is quick, minimal red tape or fees. 24 00:01:47,251.66666667 --> 00:01:48,751.66666667 Start up of costs are very low. 25 00:01:49,691.66666667 --> 00:01:50,951.66666667 You make all the decisions. 26 00:01:51,71.66666667 --> 00:01:52,241.66666667 There's no one to answer to. 27 00:01:52,961.66666667 --> 00:01:54,191.66666667 Taxes stay simple. 28 00:01:54,311.66666667 --> 00:01:56,471.66666667 Just add your business income to your personal return. 29 00:01:57,471.66666667 --> 00:02:00,621.66666667 If you're freelancing, testing the waters that just wanna keep things simple. 30 00:02:00,861.66666667 --> 00:02:02,566.66666667 This could be a practical starting point. 31 00:02:03,486.66666667 --> 00:02:06,766.66666667 Remember, you can refer to your cheat sheet as we walk through each aspect. 32 00:02:08,406.66666667 --> 00:02:11,526.66666667 Now let's shift gears to the risk that can creep up with this approach. 33 00:02:12,526.66666667 --> 00:02:13,516.66666667 Personal liability. 34 00:02:14,356.66666667 --> 00:02:16,486.66666667 There's no legal fence between you and your business. 35 00:02:16,606.66666667 --> 00:02:20,896.66666667 If your business faces legal trouble, your personal savings and property could be at risk. 36 00:02:22,126.66666667 --> 00:02:22,726.66666667 Tax burden. 37 00:02:23,236.66666667 --> 00:02:29,476.66666667 You pay both the employer and the employee side of self-employment taxes and might not qualify for certain deductions. 38 00:02:30,466.66666667 --> 00:02:31,516.66666667 Funding challenges. 39 00:02:31,936.66666667 --> 00:02:36,76.66666667 Business loans can be harder to secure since banks see more risk in sole proprietors. 40 00:02:37,6.66666667 --> 00:02:38,176.66666667 Limited growth potential. 41 00:02:38,806.66666667 --> 00:02:43,306.66666667 Attracting investors or scaling the business is difficult without a legal structure in place. 42 00:02:44,146.66666667 --> 00:02:49,546.66666667 Reference your cheat sheet to see how protections and growth opportunities differ with other structures. 43 00:02:50,26.66666667 --> 00:02:52,726.66666667 As your business grows, these issues matter more. 44 00:02:53,726.66666667 --> 00:02:56,816.66666667 Thinking about making a change to your structure, here are some signals. 45 00:02:57,641.66666667 --> 00:03:03,191.66666667 Are your personal assets truly protected? LLCs of corporations could add a legal shield. 46 00:03:04,61.66666667 --> 00:03:08,51.66666667 Are your profits growing? Certain structures may help lower your taxes. 47 00:03:09,71.66666667 --> 00:03:13,721.66666667 Planning to add a partner or outside investors? Upgrading your setup might be the key. 48 00:03:15,206.66666667 --> 00:03:25,356.66666667 Use your cheat sheet for a quick comparison of your options and remember, the ultimate business structure guide will be available in episode three for practical steps and insights. 49 00:03:26,616.66666667 --> 00:03:29,761.66666667 It's smart to review your structure as your business evolves. 50 00:03:29,941.66666667 --> 00:03:32,851.66666667 Don't let convenience today become a liability tomorrow. 51 00:03:34,171.66666667 --> 00:03:38,591.66666667 Thanks for tuning in to, episode one of our Business Structure Mistake series. 52 00:03:39,71.66666667 --> 00:03:45,131.66666667 Today we explored why sole proprietorships are a common starting point, but also when they can expose you to risks. 53 00:03:45,761.66666667 --> 00:03:47,21.66666667 Here's what you can do next. 54 00:03:47,561.66666667 --> 00:03:51,791.66666667 Download your free business structure cheat sheet from the show notes or video description. 55 00:03:52,451.66666667 --> 00:03:54,401.66666667 It's your guide for the rest of the series. 56 00:03:54,911.66666667 --> 00:03:58,861.66666667 Looking for a deeper guidance, the ultimate Business Structure Guide launches in episode three. 57 00:03:59,326.66666667 --> 00:04:04,276.66666667 Stay tuned for more info, In the next episode, we'll discuss partnerships. 58 00:04:04,786.66666667 --> 00:04:09,196.66666667 We'll break down how sharing your business can unlock new opportunities or introduced fresh challenges. 59 00:04:09,916.66666667 --> 00:04:12,976.66666667 Subscribe, follow, and send in your questions for future episodes. 60 00:04:13,336.66666667 --> 00:04:15,256.66666667 Thanks for joining me on the Cashflow Factor. 61 00:04:15,466.66666667 --> 00:04:17,596.66666667 Let's set your business up for smart growth. 62 00:04:17,716.66666667 --> 00:04:18,376.66666667 See you next time.