Forming an LLC or Limited Liability Corporation is a great first step toward legitimizing your company and to insulate you and your family from the financial liabilities of your business.
Most small business owners quickly find out the hard way that there’s a few more steps they need to take before moving away from their days operating as a sole proprietor.
Here are 6 you don’t want to forget about:
1. Compliance Plan
Now that you’re an LLC, the state(s) you operate in and are registered in will expect a yearly report. This is more of a formality than something you’ll need to dread every single year, simply involving you updating your company and personal contact info for state records. Some require disclosure about your shareholders too. Find out when reports are due and put this important task on a to-do list.
In many states, failure to meet the deadline will result in forfeiture of business registration and dissolution of your LLC by the state. Lending institutions will also have to call in any loans or lines of credit outstanding as well.
2. Licensing & Permits
This can be a tedious process your first time around. However, most of this paperwork will be relatively easy to obtain in contrast to the potential fines and other financial liabilities you’ll incur if you forget something.
Call, or go to your state Board of Equalization office to find out what exact licenses and permits you’ll need to operate to the letter of the law. There are also services that offer to do the legwork for you, but be prepared to pay – they aren’t non profits!
One such concern is that your business insurance won’t validate claims without the proper paperwork in place:
For instance, if a customer in your restaurant decides that the food you prepared for them two nights ago has made them critically ill and they can get a doctor on-board with their thinking; your insurance company isn’t likely to cover the claim if you don’t have a health permit or general business operation license. Another oft-forgotten permit is a “seller’s permit” which is required to sell taxable goods.
3. Hire an Accountant
You can even consider hiring an accountant before you file for your LLC. This step should be done sooner rather than later. Even as a sole proprietorship, you should hire the services of an accountant to take care of payroll, taxes, and other financials. The money you save using the services of a good accountant will pay you back.
Business accountants are generally very knowledgeable about the other important aspects of your business, such as compliance including licensing/permits, credit, investments, and insurance (just to name a few). Ask around before settling and make sure they’re right for your type of business. This is also important so you have someone to be accountable to for your company’s balance sheet.
4. Obtain EIN
An Employer Identification Number is required so you don’t get into trouble with the IRS for tax evasion, etcetera! Even if you don’t plan to have employees right away, you might as well get this step out-of-the-way in case you need it in the future.
5. Bank Account & Credit
You can’t operate your business with a personal bank account – nor would you really want to even if it was allowed. Same with credit cards and lines of credit. You registered your LLC to insulate and protect yourself from the problems (monetary and otherwise) of the business right?
6. Business Insurance
There are at least one or two types of insurance any business will need including: professional liability (for service providers), product liability insurance (for selling products), BOP (business owner’s policy), or general liability. You’ll also want to get separate automotive insurance for business vehicles and any applicable insurance for property, including the building(s) your business operates in and the equipment you own.
We’re not in Kansas Anymore!
Much like Dorothy and Toto from the Wizard of Oz: you are not in Kansas anymore!
Follow all the suggestions above and seek the advice of someone who knows more than you, such as a friend, lawyer, or accountant, before you jump “feet first” into your new LLC.