Updated: Jan 14
We know it sounds way easier to just stick to text messages and Apple Pay, than spending time legalizing your biz. However when it comes to providing services that you expect to be paid for, there are many reasons to dot your i's and cross your t's.
Don't know where to start? Before doing anything at all, you need to pick a name for your business. Sounds like an easy task until you realize there are approximately 7.8 billion people in the world. It's possible someone has thought of the same name, that is why it's important to check, Checking if a name is available will save you a lot of time and crushed dreams. You can check by searching trademarks and social media domains.
Choose a business structure
When starting business, you want to decide what form of business entity to establish. Here are a few examples:
Sole Proprietorship- single owner business requires no paperwork, ties business to you personally, does not offer legal protection for personal assets
DBA- allows sole proprietorships to operate under a trade name different than their personal legal name, it does not offer legal protection for personal assets
LLC- separates you from your business, limiting your personal liability. In this case creditors cannot pursue personal assets (house, bank accounts, etc).
What is best for you, depends on local laws and the needs of the business.
Apply for an EIN
One of the biggest reasons we began to educate ourselves, are these three letters: IRS. An acronym that makes even us law abiding citizens, shiver! In order not to get in trouble with the big man, you need everything to be well documented. It's always best to keep your biz finances separated from your personal finances.
To get started you will need to have an EIN issued by the IRS. You need one to apply for business licenses, bank accounts and tax returns. Yes, we know that was a lot of acronyms in one sentence!
EIN stands for Employer Identification Number aka Federal Tax Identification Number; it's used to to identify a business entity. Applying for an EIN is not as scary or as complicated as it may sound. Just visit the official website for the IRS, fill out the appropriate forms, and pay a small fee. Thanks to everything going digital, the process is pretty quick!
Depending on the industry you are in, or state and local laws, you might need a business permit or license. Such as: an operational license, sales tax license, and occupational or professional license. Check with your Department of Revenue, because each state is different.
Taxes, taxes, taxes.
Everyone pays them, yet little understand how they work. You may have come across this popular quote on Pinterest: Know your worth then add tax. These are words are not just inspirational, but a good rule of thumb when developing pricing. Keep in mind that once income from your biz hits a threshold, you will have to file quarterly taxes.
Always hope for the best but prepare for the worst. No matter who you are working with, whether it's your family, best friend, boyfriend's-best friend's-little sister. You need a contract! The contract must include an outline of the scope of work you will do, key details and terms of proposal. A payment explanation detailing due dates, payments accepted, late fees and stopping work. It all needs to be very, VERY clear!
Be sure to include a cancellation policy, refund policy and a confidentiality notice. Contracts are not the type of documents you can DIY in Word or Pages, and expect to hold up in court.
For help check out these resources:
Starting, or running a business is not for the weak, but it is possible to run them efficiently. In the case that you are not good with money, taxes, accounting, or anything outside the scope of what you offer, don't panic! There are a plethora of tools available.
As always, we encourage our readers to do their research, BEFORE making a solid decision.
Legalizing your biz shows future investors, clients and potential clients that you MEAN business. If you want to be taken seriously, you have to take yourself seriously. Having a well run biz shows you are serious, and not to be trifled with!