My company, Socialexis, is an LLC! Whooop!
After two-and-a-half years of working with clients and making a living off this blog (this post explains exactly how I make money), I finally decided to incorporate.
Why’d I wait so long? you might be wondering. Others will ask: Why did I bother incorporating at all? And what are the benefits and drawbacks of going this route?
These are the questions I’ll answer in this post, so you can have a non-jargon-y explanation to turn to when you face similar questions for your own business.
What you’ll find in the next few sections:
Huge disclaimer before we begin: I'm not a lawyer!
These are the issues that came to the forefront for my business, and hopefully discussing them will help you think about your own goals and challenges. But every business and entrepreneur (and state, if you live in the U.S.) is different. You might face entirely different issues, or the same issues might affect you differently.
Use my ideas as a starting point, and then enlist a real lawyer to help you.
1. I know I'm going to stick with this business. When I first launched my company in 2010, it was on a bit of a whim – I saw the demand for social media help, and I had the skills to fill that demand. So I began taking on clients, without the intention of turning that side gig into my full-time job, much less eventually scaling the business. Of course, businesses and careers and life always take us down paths we don’t expect — that’s part of the fun of it.
Originally, I created a DBA (Doing Business As) for Socialexis because one of my clients preferred to write checks to my company rather than to me personally, which meant I needed a bank account for the business – and to open that business account, New York state required me to have a DBA. (Each state has their own rules, so check into your state’s laws before making any moves.)
This, by the way, was one of those things you don’t plan for and just figure out as you go: I needed to be able to cash checks from clients, so I needed a bank account with my business name on it, so I needed a DBA. I worked backwards step-by-step to get where I needed to be.
It didn't make sense at the beginning to invest time, energy and money into incorporating my business because I didn't know whether I'd stick with it. Filing as an LLC requires additional work, which is time-consuming and costs more. But now, after two-and-a-half years with the biz and nearly a year-and-a-half of focusing on it full time, it's clear I'm in this for the long haul. And that's why it's time to incorporate.
2. To protect my personal assets. Most freelancers start out by combining all their biz and personal money into one big pile. After all, you are the brand. You, the individual, are the business. Everything you earn beyond expenses is your salary.
But as my business and my team (of contractors, not employees) grows, my liability grows, too. By incorporating my business and following some simple money-management guidelines — like having one bank account for my company and one for my personal cash — I can prevent anyone who sues my business from accessing my personal assets. Essentially, this helps minimize my risk.
You can set yourself up to succeed at this down the road by keeping your personal and business earnings and expenditures separate from the beginning. That way you’ll already be in the habit and have a system in place when you have to keep those accounts separate as an LLC. It’s also just plain old smart; it will help you more easily pinpoint how much you’re earning, where you’re spending money and how to best proceed to maximize your profits.
3. It might benefit me financially. While LLC is a legal designation, it allows me to file my taxes in a slightly different way – as a S corporation – that might help me pay fewer taxes than I do as a solopreneur. Since sole proprietors suffer from the self-employment tax, figuring out how to minimize taxes is a big deal.
My accountant and I haven't looked into this in detail yet, but we think filing as a S corp could work slightly to my advantage. The reason is complicated (see benefit #2 in this explanation), but basically it could save me from paying some of that self-employment tax.
The biggest factor, in my mind, is whether you're absolutely positive you're going to stick with your business. If you're just getting started with your business, you don't need to become an LLC right from the get-go. Give this type of work a try to make sure you like it first.
Second, are you in a high-liability business? Is it possible you'll get sued? Even if the probability is low (I don't expect to get sued!), incorporating could minimize your risk.
Third, would it make you look and feel more professional if you had an LLC after your name? I believe in starting lean, but depending on which industry you’re in and what types of clients you’re targeting, it might be nice to have those letters after your name.
Once I realized it was time to take these steps, how'd I get it done logistically?
After doing a bit of research and consulting with my business advisor (aka my dad), I decided it was best to hire someone to create the LLC for me. I made that decision for two reasons: 1) to make sure it was done right and 2) to spare myself the headache and time investment of figuring out how to do it properly. Sometimes it just makes sense to outsource certain tasks so you can focus on the parts of your business you do know how to do well.
I paid an attorney who specializes in this type of work $1,000 to facilitate the process. That included an hour phone call where I asked lots of questions, including how difficult it is to change my company name after we incorporate (apparently not difficult), which state was best to incorporate in (we decided on Virginia, where I live at the moment), and what paperwork the lawyer needed from me to complete the task.
It cost an additional $100 to file in Virginia (but every state varies, so yours could cost much more), and I'll have to pay a renewal fee each year. Since the lawyer did all the legwork and I simply provided the information she asked for, it was a relatively painless process.
If you'd rather find a cheaper alternative, I stumbled across a site called CorpNet during my research; they'll file the paperwork for you for about half the cost of the lawyer I used. When I tweeted at that company with a question, they responded, which was a good sign in my mind. I ended up going with the lawyer mostly because I wanted the private consultation, but this other company looked like a solid option.
My big administrative slash branding goals for the business this year are to rename the biz, get a new logo and build it a dedicated website.
Why rename? Because people don't take Socialexis seriously, and it's too difficult to pronounce and remember. Plus, as this company and team grows, I'd like it to have a title that doesn't include my name. (UPDATE: I’ve decided to keep the name Socialexis!)
Socialexis was a good starting point, and part of the reason I've succeeded is because I didn't wait for the perfect name, plan and website – I went lean — but something more professional is in order for the future. What the biz will be called going forward, I don't yet know, but it will need to encompass the core services
my team and I offer to clients: digital strategy, content creation and online community building.
As for the website, it's a miracle I have any clients at all based on how little information is displayed about my services on my website. I need to more clearly define my company's buckets of offerings. Though I suppose there's a lesson here, like everywhere: that showing your value online and building your network is perhaps the best thing you can do for your business. Even without much on my site about my client work, potential clients approach me because they've heard about what I do and can easily see the value I provide through my blog.
Of course, the challenge of running your own business is there’s SO much to do and only so many hours. Would I rather put out another ebook or make this business website happen? Is it smarter to take on another client or put some time aside to think about my new company name? What are my priorities, and where does this fit on that list?
I have my goals to guide me, but I’ll figure out the details along the way.
Alright, you lurkers who know a lot more about this than me, chime in!
What am I missing? What else should new entrepreneurs think about? When is an LLC a good idea?