A separate legal entity for snow?

August 5, 2016 -  By
Phil Harwood.

Phil Harwood.

Snow and ice management professionals come in all forms, and so do their companies. Some firms have snow divisions, while others have established separate legal entities for their snow businesses. For those with a divisional approach, some companies organize their snow divisions into profit centers, while others only separate snow-related revenue. Which approach is best? Does the size of a company’s snow business or the percentage of total revenue impact the decision about which form to use? These are common questions.

Establishing a separate legal entity for a snow business has several strong benefits. First and foremost, there is some risk mitigation and legal protection afforded by this arrangement. Protections vary by state and according to the overall asset protection strategy employed. It’s always best to work with a professional to guide these matters. Even the simple strategy of incorporating your snow business in the right state makes a difference. (You may select any state you wish to incorporate a business entity regardless of which state the business will operate in).

Secondly, it allows for a different ownership structure for the snow business without affecting the ownership structure of your other businesses. Many times, an owner wishes to give up some ownership for key employees or to bring on partners of their snow business, but they don’t want to give up ownership of their non-snow-related business or the mothership.

A third benefit is marketing messages may be more clear and compelling with a separate entity. It’s common for snow businesses to be inadequately promoted, with snow and ice management services are simply listed as another service offering among a long list of services. I often encounter large snow operators with very little snow and ice presence on their company websites—sometimes there’s no mention at all. An unknowing prospective customer on the website would have no clue the firm was into snow and ice management in such a big way.

Finally, setting up a separate legal entity usually provides better financial information and a greater focus on profitability. It’s possible to achieve these things without establishing a separate business, but most owners fail to do so. The fact that separate companies require separate accounting creates a higher level of care.

These are just some of the benefits of separating your snow business from the rest of the company. There are additional benefits, as well. But what are the downsides of this strategy?

A look at cons

There are negatives of separating your snow business into a legal entity, such as the additional costs related to setting up and managing multiple businesses. Accounting and administrative costs are the most obvious additional costs. Also, customers may be confused or unable to make the connection, reducing some value that would otherwise be gained. And to obtain the full marketing benefit, there are additional expenses related to building and managing multiple websites, domains, brand strategies, vehicle graphics, business cards and more.

When considering the option of a separate legal entity for your snow business, the positives
almost always outweigh the negatives. I believe this is the best approach and should be seriously considered.

Sometimes it’s the only approach. For example, if you would like to have a partner in your snow business but not in your non-snow businesses, this is your only option regardless of the negatives. Size does not matter.

Even start-ups and smaller operators would do well to organize themselves in this manner. It’s more difficult to change when the company is larger, so don’t wait.

Snow and ice management businesses bring great opportunity. They also bring risk. By becoming educated and employing a solid asset protection plan, you will be well positioned to handle situations that are likely to arise. Best wishes for a successful snow season.

Phil Harwood headshot

About the Author:

Harwood is a Managing Partner with GrowTheBench and Pro-Motion Consulting. Reach him at Phil@GrowTheBench.com. He is a Landscape Industry Certified Manager, NALP Trailblazer, NALP Consultant, and Certified Snow Professional. Harwood holds a BA in Marketing and Executive MBA with Honors from Michigan State University.

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