You have so much to think about in starting a business that you probably forgot the most important part of getting up and running, and that is… actually starting a business! Most of us start out with a Paypal or Etsy account and a service or product, and the more services/products we sell, the more money we make! Business is pretty simple, right? (I’m rolling my eyes right along with you)
There’s a million and one considerations, must-haves and “I really shoulds…” in our online business world right now. Cutting through the noise is challenging, and implementation is even more difficult. That’s why I’m a fan of doing things once, early and correctly.
Everyone asks me- should I file a DBA or become an LLC? How do I become an LLC? Is an LLC right for me?
The simple answer is that most small businesses and solopreneurs will benefit greatly by becoming a limited liability company (LLC) rather than stay a sole proprietor, partnership or forming some other kind of entity.
The other part of that simple answer is that it’s time to ditch the DBA and cough up the extra cash for an LLC when you’re running a legit biz (well, sometimes, it varies by state and it may even be cheaper to get an LLC than a DBA!).
Here are seven legit reasons to avoid forming an LLC:
You aren’t selling anything yet or in the foreseeable future.
You have no idea if this is a business you want to pursue.
You’re just testing the waters and seeing what services or products might stick.
You aren’t working with anyone else yet as a collaboration or joint venture.
You haven’t had any clients yet.
Your company isn’t very visible, online or offline.
You’re still using the excuse that it’s ‘too expensive’ to form an LLC (Even in California, the most expensive state to file in, if you can’t save $67/month towards your annual filing fee, you need to seriously re-evaluate your business strategy).
And here are six situations where it’s probably time to form an LLC:
You are regularly selling at least one product or service.
You have clients or customers who rely on you.
You work with your clients or customers in person, such as at a photoshoot or at a venue.
You are making at least $40,000 a year in revenue (in which case an S-Corporation filing may help ease your tax burden, but you can only elect this tax filing status after forming an LLC).
You would like your business to have it’s own separate liabilities, credit cards, bank accounts, assets and problems distinct and separate from your personal accounts and worries.
You’d like to start hiring independent contractors or employees.
You’re starting a business with more than one person. By default, this is a partnership, but with an LLC, you both (or all, if there’s more than two) become ‘members’ of the LLC. The LLC will survive even when partners leave (<<good news for clients!).
Forming an LLC is something that takes less than 10 minutes online, and can potentially save you thousands of dollars later. Just because it’s not talked about much in our industry, doesn’t mean it’s a smart decision to bury your head in the sand.