Starting Your Coaching Business

By: Brooke Haubenstricker

Coach Brooke is one of BLOC’s most experienced coaches. She specializes in coaching beginners of all athletic backgrounds, with a soft spot for the awkward and uncoordinated. To learn more about Coach Brooke, read her articles, or sign up for coaching, visit her bio here. 

Starting your first business can feel daunting. Despite the endless amount of information at our fingertips, there isn’t always a clear path forward. It can leave you second-guessing which type of business to set up or whether you have overlooked important legal considerations. This article will give you an overview of two types of American businesses that are popular with independent coaches so you can feel more confident in how you choose to form your business.

Note that this article is not intended to provide legal or accounting advice. Please speak with a professional for any guidance or additional information on the subjects discussed in this article.

Sole Proprietorship

Sole proprietorships are the simplest and easiest type of business to set up. All you have to do is start selling your goods and services. That’s it. There are no special hoops to jump through or forms to file first. This is because the business is not considered a separate entity from you. The owner and the business are one and the same. While many sole proprietorships simply use the owner’s Social Security number (SSN) for tax purposes, the business will need an Employer Identification Number (EIN) if it has employees. Some states may require an EIN for reporting purposes or certain types of tax returns as well.

Here’s an example to illustrate. Let’s say Joe Smith just began coaching on the side at his local gym. He will incur expenses (fees paid to the gym, liability insurance, etc.) and earn revenue from clients. The income he earns and the expenses he incurs through coaching will be reported on his personal tax return, meaning his net earnings will be taxed at his personal income rate, just like the salary he receives from his full-time job. However, he may also have to pay self-employment taxes (Social Security and Medicare taxes) on those net earnings.

This setup also means that if Joe is sued for something related to his coaching practice, his personal property will be at risk. His future earnings (wage garnishment), bank accounts, house, car, valuables, and other personal assets could all be seized. If he is married, even his spouse’s property could be at risk, especially if he lives in a community property state.

Detailed waivers and liability insurance are always a good idea, but don’t assume that they will provide full coverage in the event that you are sued. Be sure to read and understand your policies, and hire a professional to assist with any legal documents or proceedings.

In regards to banking, there is no legal requirement for sole proprietorships to separate their personal and business finances. You can use the same bank account to buy your kid’s birthday present and the paper you use to print your coaching waivers. However, this approach makes it more challenging to separate your business transactions from your personal ones, which you will need to calculate your net profit or loss and self-employment tax.

If you still plan to use the same bank account for business and personal transactions, verify that your banking institution supports business banking first. If it doesn’t, you’ll either have to switch to a new banking institution that does both or create a separate business account elsewhere. Most banks that support business banking will allow you to set up an account for your sole proprietorship using your SSN. If an EIN is required, you can request one through the IRS’s website.

Sole proprietorships can be a great way to dip your toes into coaching, but I am personally wary of maintaining a sole proprietorship long-term, given the physical nature of strength training and our sue-crazy society.

Single-Member Limited Liability Company (LLC)

The second most popular business type for coaches is the single-member LLC. An LLC is a business entity that is separate from its owners (called “members”). For federal income tax purposes, an LLC is also a pass-through entity, meaning that if you form a single-member LLC (an LLC in which you are the sole owner), you will, by default, be treated as a sole proprietorship for federal income tax purposes. LLCs are set up at the state level, so refer to your state’s resources for more information on how to file for one. The same rules for an EIN apply to a single-member LLC: request an EIN from the IRS through their website as needed. After that, you can set up a bank account for your business, purchase liability insurance (optional but prudent), and it’s off to the races.

Let’s say Joe Smith decides to switch over to an LLC. He does all the necessary work to create Smith Strength Training, LLC. All business documents use the LLC’s name, and all business transactions go through its bank account. Generally, a single-member LLC will file taxes as part of the owner’s tax return and, like sole proprietorships, will have self-employment taxes calculated based on the business’s net earnings.

LLCs offer more liability protection than sole proprietorships because they are considered separate entities from their owners. The business is responsible for its own expenses and liabilities (such as loans, accounts payable, accrued expenses, etc.). If the business is sued, then, typically only the business’s assets are at risk. That would include the business’s bank accounts and the building, company vehicles, and gym equipment. A person would have to sue the business and the business owner to also put the owner’s assets at risk. The idea behind an LLC is that the business owner will not be personally responsible for judgments and debts that belong solely to the LLC. However, that is not always how it works.

The following are some common scenarios where an owner could find their personal assets at risk:

1. It’s determined that the owner personally committed wrongdoing and is being held legally responsible. Examples would be negligence or violating criminal law while operating their business. For example, if a person is injured while you are coaching them, that person may try to sue you as the coach in addition to suing the business. The LLC will not protect your assets in a lawsuit in which you are a named party.
2. The business owner personally guaranteed a business debt by using personal assets as collateral or signing a business loan as a responsible party. Many banks require business owners to personally guarantee business loans so that in the event the business is unable to pay its liabilities the bank can collect from the owner. Failure to repay a loan can result in legal action by the lender. The same is true for lease agreements, advertising or other services, and any other contracts entered into personally.
3. During a lawsuit, courts may “pierce the corporate veil,” choosing to disregard the LLC liability shield.

If you’ve done any reading on LLCs already, you’ve likely come across the term “piercing the corporate veil.” It refers to owners losing the limited liability status that their business afforded them (in other words, the “veil” that separated both entities has been pierced), making them personally responsible for the business’s actions and liabilities. States differ in their criteria for piercing the corporate veil, but the most important area to exert extreme caution is finances. Keep business and personal finances separate.

Don’t pay for your groceries with your business bank account.

Don’t pay your house utility bills with your business bank account.

Don’t pay for personal meals and travel expenses with your business bank account.

The small tax benefit you receive from categorizing that purchase as a business expense isn’t worth the risk. Instead, perform an owner’s withdrawal to move the money from your business account to your personal account, then make the purchase from your personal account.

On the subject of taxes, there are some situations when expenses paid with your personal banking accounts can be claimed—at least in part—as a business expense. For example, you may claim utilities, internet, and phone usage that can be contributed to coaching costs (including online coaching) as well as the portion of your home designated for business purposes only. I would recommend working with a tax accountant to determine what is appropriate for your business. They can be expensive, but working with an accountant for even one year can provide a lot of insight into what you should do when you file on your own later.

Doing Business As (DBA)

Whether you choose to operate as a sole proprietorship or create an LLC for your coaching business, you may want to do business under a name different from your own or that of your official company name. Any individual or business entity can choose to use a DBA, which is a name that a business uses for its operations, but it’s not its legal name. You can think of it as a business’s nickname. A DBA needs to be registered in the state in which the business resides for it to be legitimate.

There are many reasons why businesses may choose to use DBAs. Sole proprietors may want to keep their professional and personal online presence separate. A business owner may decide to operate under a different name but may not want to go through all the hoops to legally change their business name. Some businesses may have multiple DBAs depending on the products or services they sell. For example, Joe Smith may decide to use the DBA Smith’s Coaching for all his strength training offerings (private sessions, small classes, day camps) and Smith’s Football Coaching for the after-school programs and summer camps he runs for kids who are passionate about football.

Independent Contractor

Whether as a sole proprietor or the owner of an LLC, many coaches will choose to offer their services as independent contractors. An independent contractor is a person or business who performs work for another business but is not an employee of that business. Generally, the hiring business may specify specific tasks to be performed, deadlines, quality standards, and deliverables, but they have less control over how independent contractors meet those criteria. Important aspects of the work, including payments, should be detailed in a contract that’s negotiated, reviewed, and signed by the contractor and the person or company hiring them before the services are provided.

Joe is growing his coaching practice and was recently approached by the gym owner about coaching a strength club for the gym. Joe requested a written contract and looked it over closely to verify it was accurate and that nothing was missing. He should look for things such as:

1. His business’s legal name is used (not his personal name), as well as the legal business name for the gym.
2. A description of the work to be completed, which may include non-coaching work like marketing and responding to new client inquiries.
3. The duration of the contract.
4. Payment information, including:
   • How payments would be determined (hourly, by percent, by client, a flat rate, mixed, etc.).
   • Payment schedules.
   • How payments will be received (cash, check, direct deposit). For direct deposits, business bank account information should be provided before the services are provided.
5. Any additional information like non-competes, NDAs, photography rights, and if the contracting business would need to be added to his professional liability insurance.
6. The gym representative’s signature with the date. Ideally, the person signing should be the contracting business owner or someone who you know has permission to represent the business, such as a general manager.

After going over the finer details with the gym owner, they decide on a final contract draft and sign it. If they decide to expand Joe’s work responsibilities, change how his pay is determined, continue working together beyond the duration of the contract, or make any other contractual changes, they should sign a new contract that covers those new details.

Remember that being an independent contractor is a business relationship in which you are providing a service to the hiring gym and the gym provides payment. As with any business relationship, it’s important to take the contract terms seriously, maintain good business records, communicate clearly, and follow up on any problems or discrepancies.

Consult with legal and financial professionals to make sure the business entity you choose is appropriate for your situation. There are a lot of factors to consider, like liability protection, tax implications, and operational flexibility. A competent professional can make this decision (and the process of setting up your business) a quick and painless process. This doesn’t need to be an obstacle to growing your coaching practice. Embrace this opportunity to start your coaching business in a way that aligns with your vision and sets you up for long-term success.