June 16, 2018
Having stumbled my way through creating my own company I thought I'd share my findings.
Before we begin, I recommend getting a fresh cup of coffee. By the time you're through this article it'll be gone, cold, or you'll be dead. So on that note, let's get started!
4 Steps to Registering your LLC
So, you’ve decided to go for it—nice! Now, all you need is about $250-400, creativity and time.
Step 1. Probably the hardest part for some, naming your company. Company 9000. Wow, would you look at that — the domain is even available (at the time of writing). You’re welcome! A $12/yr domain name and just $5/mo for Google G Suite that includes a fancy email address? Easy, done.
Step 2. Determine who will act as the company’s Registered Agent. It can be you if you have an address in the state that your business is registered, but I do not recommended this. You would need to make sure you’re always available during business hours M-F. If you miss delivery attempts of important legal documents then you could be in serious legal trouble. Instead, hire a company to act as your Registered Agent. They will be responsible for receiving important legal documents on behalf of your business. These services typically cost $39 (+ state fees). Next!
Step 3. Are you the boss and make daily decisions? Then you’re a Member-Managed company. Good to know — so enlightening. Now you have all the information you need to register your company with the Secretary of State’s Business Registry and pay $100 to make it official.
Step 4. Finally, obtain an Employer Identification Number (EIN) from the IRS here. It’s like a social security number for your newborn company. It’s used for state and federal taxes, and is likely needed when opening a business bank account for all the cash money you’re about to be swimming in.
You did it! Company 9000 is now a legitimate business.
Are those four steps too much? Yeah, I’m lazy too and didn’t want to deal with any of it. So, I took the easy way out and had my lawyer file the paperwork and create a fancy binder with my company’s formation documents. I put it in the dusty cabinet with all of my photo albums. It cost about $400 for that service, but allowed me focus on other more fun things and be stress free. They also act as my Registered Agent and will handle my first year’s business renewal. Win win!
What is an S corp?
An S corp is a type of company that an LLC can elect to act as. There are some positives and negatives that come with this election. The main benefit is that you might be able to pay Uncle Sam less taxes. However, there is more complexity that comes with running an S corp which will require more of your time to manage and possibly additional costs.
S corp requirements:
- There is another form you’d have to fill out when registering your company, or after the fact. You have a 75 day window to do so.
- You must run payroll as you are now an employee of your own company. Along with this you must give yourself a reasonable salary for your position. The salary should be based on the average salary for someone in a similar position. Payroll has its own taxes and accounting that must be done. I recommend you hire a CPA to provide your company with accounting services. Also, use an online service like Gusto to manage your payroll and file payroll taxes for you. This will save a lot of time and stress.
- You must obtain a Business Identification Number (BIN) for reporting and paying payroll taxes.
That sounds like a lot of work because, well, it is. An S corp is extra beneficial if you ever plan on hiring employees which would require payroll, health benefits, insurance, etc. These are all things that can be provided at an additional fee by a company like Gusto which makes it much easier for you to manage.
What does all of this really come down to? Well, if you expect your company to make more income than what your reasonable salary would be then you wouldn’t have to pay Medicare and Social Security taxes on the remainder. Instead, as the owner you can take that remaining money (or a portion of it) as a distribution right into your personal bank account. You will still have to claim that income as part of your personal income when you file taxes. You should consider what your salary versus company income might be, and take into account the extra complexities and costs that an S corp requires.
MSA + SOW = 🙂
Math is hard, so let me break this down for you. MSA and SOW stands for Master Services Agreement and Statement of Work. Two things that you’ll want to be sure to have when you take on new client work. These two contracts are used in conjunction with one another to protect your company from any legal battles and to clearly define the services that your company will be providing.
The MSA is more about any legalities that might arise and how those things should be addressed. There are very few changes to this document with each new project you take on.
The SOW controls the details around the scope, timeline, and payment structure of a project. This document will change significantly for every project. If the project scope needs to change while the project is ongoing then you would create an amended SOW for the client to agree to and sign.
I highly recommend you work with a lawyer to draft these documents for you so that it’s written to work specifically for your company and services. You can expect this to cost around $1-2k for basic needs. This could save you much more money if you run into a client who doesn’t want to pay, or tries to get you to do things that are not within scope.
Check out the Bureau of Digital’s free MSA + SOW template that can help provide a good start to creating your own contracts. It’s a collaborative project between two attorneys at Groundwork Legal and CreateLegal (the law firm I use).
Business in the Front, Party in the Back
The whole point of creating an LLC is for its “limited liability” protections for its owner(s). If the company gets sued then your personal assets should be protected. Make sure your personal and business accounts and assets are completely separate from one another.
Time Tracking, Expenses, and Making $$$
At past jobs I've used Harvest. It’s a service that does it all with easy setup and customization for a cheap monthly cost. They even have a desktop and mobile app that lets you easily start and stop a timer to track the time you’re spending on projects.
I use Harvest with every project I work on — starting and stopping project timers throughout the workday. You can create categorized expenses and it includes an automatic conversion for mileage. Create an invoice based on the actual time spent on the project or for fixed fee projects. Send invoices directly to your clients, and record payments all within Harvest. You can run reports, see paid and unpaid invoice totals, and time and expense summaries for all projects at a glance. If you have employees you can add them and restrict what they can see and do. You’ll get a clearer picture of how your employees and projects are performing and where time and money is being spent. Harvest isn’t a replacement for accounting software, but does have the ability to integrate with apps like Quickbooks.
Finding a CPA
CPA stands for “Certified Public Accountant”. It’s a good idea to hire a professional accountant to manage the accounting needs of any business. A CPA can provide many different accounting services like tax projections, filing of taxes, managing income, expenses, and payroll. Making sure these things are done correctly and on time is very important for a thriving business.
I recommend finding a CPA that is knowledgable with the industry that you work in. Also, make sure that they have the bandwidth to answer any question you might have throughout the year and availability during tax season. Odds are they have a high hourly rate, but they will save you time, a headache, and could potentially save you thousands of dollars in taxes.
That’s all I got for now!
Phew. That was a lot of info. I’ve come a long way from the time I first Googled, “how to start your own business”. I’m so thankful to have a great law firm that has assisted me with the formation of my company as well as all of my contractual agreements. A special thank you goes out to all of my supportive friends, family, and small business owners who have given me advice and encouragement along the way.
If you found this journal post helpful I’d love to hear about your own experiences with creating your own company. Or, if you just want to say “hi” feel free to email me.
up next: The One