Have you been considering whether or not it’s time to form an LLC for your biz, and found yourself asking way too many questions to make an informed decision?? This is definitely not the type of thing you want to toss a coin in the air about (note to self: heads or tails should NOT be used to make important decisions).
Having questions about this is completely normal, though. And it’s better that you’re asking them now before you go spending money on an LLC that you don’tneed.
Before we go any further, though, it’s important to know some basic terms we’ll be discussing:
DBA stands for “doing business as.” This is something that is registered either locally, or at the state, county, or city level. It allows you to conduct business under your assumed name while still providing a level of flexibility for rebranding. If you’re just getting started, you may just need a DBA instead of an LLC.
An LLC, which stands for “limited liability company,” is something that the state you are doing business in affords you as a privilege of being a business owner. The point of having an LLC, and what makes it different from a DBA, is that it separates your business and personal assets in case something were to happen in either area (like…getting sued personallyor in your business, yikes).
You want to make sure that if someone tries to come after you in a situation like that they won’t be able to touch those other assets. Having the LLC in place protects you in that circumstance.
Now that we’ve laid down the basics, let’s talk about some more signs that could indicate you might not be ready, or even NEED, an LLC right now.
We can talk about the reasons you should form an LLC, but the reasons you shouldn't are much more straightforward. If any of these apply to you, consider holding off for the right time. Having an LLC is not a race, and it won’t make you any more or less successful.
This one is very dependent on where you are in the country. For example, the cheapest state to file an LLC in is Kentucky, where it costs only $40, but the most expensive state to file in is Massachusetts, where it costs $500. So, yeah, you definitely can say that it’s all about location, location, location…
If you’re not selling yet, you don’t necessarily need to file an LLC yet. Especially for those of you who might be Massachusett residents. A business truly forms when you have a client or customer who is making a purchase from you, when that happens, then it’s time to get serious about filing an LLC, regardless of what the amount may be.
We all have side-ventures, some that we know won’t last long, some that we think might but end up not, and some just to try out. You might have a website, have the brand, and have all the excitement about it in the world and then…nobody buys or books.
It happens! If you’re still in that “starter” phase or don’t have clients yet, HOLD OFF on the LLC. In the event that things don’t go your way, it makes shutting down a whole lot easier. Trust your process, make sure you’re passionate about what you’re selling, and look out for the situations that warrant the LLC.
This is similar to #2, but still important to talk about by itself. You might be sure about your business but unsure about your products – and that’s a perfectly normal spot to be in at the beginning of a new business venture.
So while you’re still waiting to see what sticks and what doesn’t it’s not crucial to have that LLC in place yet. When you start to feel good about what you’ve got, and are ready to share it as far & wide as possible, THEN you’ll be in a better position to take that next step.
When you do things like: take on business partners, become a joint business, or any situation where you find yourself working alongside other people who might need personal information for the partnership – THAT is when having an LLC becomes handy.
But, like all good things, this comes with time, so don’t feel like in order to match what everyone else is doing you need to run out and prematurely file for an LLC. Focus on growth before collaboration.
Don’t take this one personally, we all experience that initial slow startup, think of them like growing pains. If you aren’t selling products, and have been coming up short booking clients, you’re probably not making a ton of money yet. And if you’re not making any money, you don’t have to have an LLC (unless you really want one, of course).
The only way to BE in business is to make money, to exchange cash, to have that initial business transaction. So, if there’s no cash = there’s no business,yetanyways. Don’t let this discourage you. Instead use it as fire under your tush to get things up and running. Remember – any sale counts, even if it’s your mom, your cousin, your husband, etc.
Okay, this one might be a little controversial, but stick with us. If you’re working with a good friend, or haven’t gone online yet with your business, or simply aren’tthatvisible…you really don’t need to worry about having an LLC yet.
An LLC is going to protect you most when people you don’t know are trying to engage you in some type of legal confrontation (of course, we hope this never happens). If your company isn’t visible yet, you’re way less likely to get sued. But, again, if you want that extra level of protection and it feels appropriate, you do you!
An LLC may not be the best use of your money right now, when you’re just getting started. Instead, you can think about starting with a contract, which gives you initial protection at the client level. Having certain contracts in place when starting your business will help to cover you from a potential host of issues that can occur regarding client interaction. (i.e. what to do when someone is late on payment, because they will be, sigh…) These are things that an LLC wouldn’t protect you from necessarily.
Real talk: there are a LOT of start up costs associated with creating a new company, and if it’s not a priority to have an LLC, or, if any of 1-6 apply to you, then there’s no shame in holding off. Even if it’s just not wanting to fork out the cash, having that extra $40 or $500 dollars around is a big deal during this time in your biz life.
Every business is different, and not just based on what they’re selling, but also on where they find themselves in the growing process. For some people, it might take more time to set in stone what you want to sell, how you want to sell it, and therefore when that first transaction will occur. For others, you might find success right out of the gate. What this means is that there’s no right or wrong time to say to yourself, “I absolutely NEED to file for an LLC.”
If you’re more like the first person, and still have uncertainties, growing to do, or haven’t gotten that first big break yet, save yourself some money and hold off on filing for an LLC until it becomes more necessary. However, when you do begin to have those more steady clients, an LLC is necessary for protection.
In the meantime, there are a lot of other ways to protect your business, like: insurance policies (specific to your business), contracts, non-disclosure agreements (NDAs), and many more things that you’ll find more information on by visiting our YouTube channel.
And if you’re still not sure if it’s time to file an LLC, here are 7 reasons why you might want to create one.
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