Photo by Valeria Ushakova
by Kevin Elliott
Are you a creative in business?
Do you have your business organized in a Limited Liability Company (LLC)?
If not, you’re losing money.
My LLC Revelation
I was like you once. For 10 years, I ran a business as a sole proprietor. Not because I thought it was a better business structure. Because I was scared of LLCs.
It felt like lawyer stuff and I was busy, so I put it off.
Then I read Rich Dad Poor Dad.
Watch How the Money Moves
In the book, Robert Kiyosaki explains how money moves through a normal household (which is the same as a sole proprietorship) and how it moves through an LLC.
If you are sole proprietor, you earn an income from your business, from which various deductions such as taxes, payroll taxes, and social security contributions are subtracted. Then you pay your business expenses and live on the rest.
You live on the scraps.
With an LLC, you make the same income, but you take aaallll your expenses out first, then pay taxes on what’s left.
That’s right, you pay for every conceivable (legitimate) expense for your business – supplies, gas, gear, travel, even your cell phone bill payroll – income tax free, then pay taxes on just the profit left over.
WHAT?!
How much money have you lost by paying taxes too soon?
I don’t agree with everything Kiyosaki wrote in Rich Dad but, damn, he got that right.
Filing Your LLC
Now that you’ve caught your breath, here are the basic steps to forming an LLC. This will vary state by state (I live in Florida), so research the details in your area. But this should get you close.
Step 1: Do the Paperwork (Online)
- Start by Googling “How to get an LLC in [your state].” Look for the official government website, such as the state’s Department of State or Business Department, which issues LLC paperwork. It should be a relatively simple form to complete.
- Avoiding Service-Selling Companies: Many search results will return companies trying to sell you their LLC filing services. However, you can do this yourself, I promise. Save the money.
- Name Your LLC: Choose a name for your LLC (Ours is Wewa Films LLC). Your state’s database will verify name availability. If your preferred name is taken, choose an alternative.
- Drafting an Operating Agreement: The government website might also require an operating agreement, which defines basic business processes. Don’t be scared. You can find free templates online to help you complete this straightforward document. Our operating agreement at Wewa Films is like five pages, mostly boilerplate I found online.
- Uploading Documents and Paying Fees: After completing the form and operating agreement, upload to the state’s LLC website. There will be a fee (there’s always a fee), which varies by state.
Congratulations! You have an LLC.
Step 2: Get an EIN (Employee Identification Number)
- Similar to a social security number, an LLC requires its own identification number, known as an EIN. This ensures separation between your business and personal finances.
- To get an EIN, Google “IRS EIN.” The online form will prompt you to enter your LLC’s name and other necessary information.
- After submitting the form, you will receive an email from the IRS within a short period, usually about 15 minutes. The email will contain a single-page document with your LLC’s EIN.
EIN, check.
Step 3: Open a Bank Account for Your LLC
- Think of an LLC like a separate person. It needs it’s own bank account, tax return, etc. This lets you manage business finances separately from personal funds, which is a very big deal, trust me.
- Take your operating agreement and EIN document to a bank that offers business accounts. Tell them you want to open a bank account for your LLC.
- Banks do this all the time, so it should only take a few minutes. Once your account is active, use it for ALL business-related transactions, including receiving payments and making expenses.
- Taxes: Remember, your LLC will require separate tax returns. Hire an accountant to handle this process. This is a whole other topic, but please, please, please get an accountant.
You can do this
It’s scary, I know. You’d rather just do your artform, I know. But if you want this to be more than just a hobby, you gotta to the grown-up business stuff. An LLC is the easiest, quickest way to professionalize and save you money.
Now go crush it.
Kevin
kevin@wewafilms.com
(850) 819-4463
P.S. – Want more info on cash flow and the difference between wealthy people and the rest? Here’s an article by Robert Kiyosaki.