So you’ve decided to make your side hustle a full-blown business (or you’ve decided to launch a business in any form). That’s great and I’m sooo excited for you!
I’ve been there. It takes a lot of work, nerve, and ambition to take that leap of faith and create something new. But, if you’re not taking all the right steps to set up your business legally, you’re not fully setting yourself up for success, no matter what else you do (content creation or otherwise). Setting up your business legally can and will protect you (and your clients) and it’s so so important to have all these boxes checked off.
I know first-hand how overwhelming this can seem. Especially with my background as a performer, I had no clue what it meant to have an EIN number or what the difference between an LLC and a sole proprietorship was. I was lucky enough to have an incredible mentor who explained everything to me and patiently guided me through the process.
Because I know how important these steps are in setting yourself up for success, I wanted to outline them for you. So here is the important information along with some fun anecdotes about my journey in what I’m calling “Legally Blog”. (I know, I rolled my eyes too. Until I laughed and thought how clever I am). Read on to learn about how to set up your business.
I’ve also created a FREE Getting Legal checklist at the bottom of this page that you can download and use to make sure you are on track, every step of the way!
Legally Blog: 10 Steps to Set Up Your Business for Success (legally)
Choose a name and check availability
Choosing a name is a full process on its own because you want it to be something catchy, memorable, easy to recognize, and easy to spell. Aside from that though, it’s important to check the availability of a name before you get your heart set on it. You don’t want someone else to have your desired name or something too close to it. The first step is to do a quick Google search to see if anything comes up. From there you want to check for domain names, social media handles, copyrights, and trademarks. I’ve included some links below where you can do this:-https://www.uspto.gov/trademarks/search
-GoDaddy domain search
Buy your domain and claim your social media handles
Even if you’re not ready to launch, buy your domain (preferably a .com) and set up your social media accounts (Instagram, Twitter, Facebook, TikTok, Pinterest. etc.). Even if you don’t plan to use a Twitter account or Pinterest for your business, you don’t want someone else claiming that handle and pretending to be you! Yes, the chance of that may be unlikely but you want to be prepared, just in case.Set up a business email
A separate Gmail or G Suite account may not be necessary for everyone but it takes only a few minutes to set up and anyone can do it. I think it’s important to separate your personal and business communications for a number of reasons but primarily, it just helps to keep everything separated and organized. (You can also use this email account to set up and separate all your social media handles and other important accounts we’ll talk about coming up).Decide on an LLC or Sole Proprietorship (or other entity)
Again, this is where we get into the world of the unknown, unless you have some experience in the business world. As a small business, the two most common options are an LLC and a Sole Proprietorship. There are some others but I was focused on these two when I decided, so I’m going to stick with these for the Legally Blog journey.There are pros and cons to both an LLC and a Sole Proprietorship. The main differences occur when it comes to setting up and handling taxes. Consider what stage your business might be in, what your financial situation is, and choose whatever makes the most sense for your business. I went with a Sole Proprietorship when I set up. I’ve outlined the differences below.
-Sole Proprietorship: means one individual owns and operates the business. As a Sole Proprietorship, your personal and business assets are considered one (for tax purposes and legally if someone were to sue). A Sole Proprietorship is easier to set up as you typically don’t have to register with the state (at least for NY State; New York City does require you to register with the city/county). You don’t have to pay any annual or quarterly fees with a Sole Proprietorship.
-LLC: Separates personal and business finances. So if your company were to encounter any legal trouble (hopefully not) only your business finances would be involved. An LLC has annual fees (in NY it is about $200/year). You also have to pay to register with the state, whereas for a sole proprietorship that is not necessary. In New York, you can register an LLC easily online. New York also used to require you to publish a notice in a newspaper when you registered an LLC. At least, that used to be the rule!Obtain an EIN from the IRS
This is another one that sounds scary but honestly might be the easiest part of this whole process. All you have to do to get an EIN is go to the IRS website and apply. It takes literally minutes to apply and you usually receive your number within about half an hour (usually less). All you need to provide for the application is your business name and social security number. Mind you, there are a lot of scams out there so ONLY use the IRS website for this. I’ve included the link below:Register your business/obtain a business certificate
Registering your business will vary based on whether you are registering an LLC or a Sole Proprietorship and based on state and local guidelines. Make sure to double-check those before you take this step. I’ve included links below for NY State information.
Sole Proprietorship:-Certificate Information:
https://www1.nyc.gov/nycbusiness/description/certificate-of-assumed-name--business-certificate-Manhattan County Clerk information: http://ww2.nycourts.gov/courts/1jd/supctmanh/county_clerk_operations.shtml
(Do NOT CitiBike the entire length of Manhattan on a Wednesday to the County Clerk’s office. You will be tired and they will be closed. Feel free to attempt this any other day of the week though).-Form X-201:
http://ww2.nycourts.gov/courts/1jd/supctmanh/Business_Certificates.shtml
(This is the form for a Sole Proprietorship in NYC. Ignore the part of this that talks about the candy store and how much it costs.. just go to the basement and you can get the form (for free) at the clerk’s desk. You will need two extra copies: one for the bank when you open your business bank account and another for your records. Filing the form costs about $100 and each additional copy is $10.
LLC:
-Here is a link to information for an LLC in NY State:
https://www.dos.ny.gov/corps/llcguide.htmlOpen a business bank account
Most banks offer business bank account options. Do some googling or check with your personal bank to see what they offer and figure out what works best for your business. Keep in mind, most bank accounts require you to have a minimum deposit to open, typically around $100-$200, and some require a specific amount threshold by a specific date to avoid maintenance and other fees.Get a payment processor
Stop using Venmo. Seriously. There’s no way to track it for your books and it just looks unprofessional. PayPal also isn’t your best friend when it comes to protecting yourself in any financial disputes. Consider a service like Stripe or Square. Most processors are free to create an account but take a 3% processing fee on any transactions (which you can write off on your taxes).Invest in a contract
Again, this one might not be necessary, depending on what your business actually involves. But if you provide a service (training, coaches, photographers, designers, etc.), you’ll want a contract in place. It not only protects you but also protects your client and makes sure you are on the same page about expectations, costs, cancellations, and other vital components of a working relationship. Contracts can be expensive but they are a necessary investment. Be sure to have a lawyer from your city or state review your contracts to make sure they are airtight and follow all city and state guidelines. I’ve included a few links where you can purchase legal contracts:
-https://www.wonder.legal/us/-https://thelegalpaige.com/
Here is a list of some clauses you might want to include in your contract:-Payment terms (rate, dates, accepted forms, fees)
-Outline “services”
-Cancellation/refund policy
-Contracted/freelance/1099 worker
-Confidentiality clause
-Termination clause (how, who, notice, etc)
Set up a CRM
A CRM stands for client relationship management software. Again, this might not be necessary depending on what your business is but will be a life-saver if you need one. A CRM can help you interact with your clients without a million emails back and forth. You can share forms, proposals, questionnaires, and contracts. You can also send invoices and receive payments easily. Some CRMs also include some light bookkeeping and reporting as well which will make your life easier come tax season. I use (and love) Dubsado! It has great (and MANY) capabilities and works for a variety of different industries. They have truly incredible customer support (I once spent an entire afternoon with the chat box open talking to Brittany who had the patience of an angel) and offer a 101 training course that outlines every step from set-up to management. They also offer a trial for your first three clients so you can test it out before paying to see if it’s a good fit for your business. I’ve included a link below where you can get 20% off your first paid month:
-https://www.dubsado.com/?c=abya
That wraps up the 10 Legally Blog steps! A few more notes that I do want to mention quickly that might help you:
Taxes:
When it comes to taxes, an Independent Contractor (self-employment) is not taxed the same way as W2 employment. None of your Independent Contractor income will have been taxed when you get paid so I suggest setting aside 25-30% each month for taxes. I know it’s a lot but you get taxed on it for your personal income taxes PLUS social security, Medicaid, etc. And trust me, you’d rather set money aside rather than be surprised at how much you owe down the road!
Tax forms for an Independent Contractor:
-W9: This is the form you give to your clients. It details your legal name, EIN, how you file your taxes, etc. It is available for the IRS website (https://www.irs.gov/forms-pubs/about-form-w-9
-1099: You should receive this from your clients if they pay you more than $600/year. No taxes will be taken out from this pay but you will still owe taxes on this income.
If you’ve made it this far without your brain exploding, congratulations and thank you for sticking with me!! I know the thought of spending hundreds of dollars to set up legally (in addition to what you might have already spent to get going) doesn’t sound super fun, especially when you are starting out and might have a low (or no) budget. But if you think of how much money you will be able to make off this new venture, I promise the investment is worth it! If you have any questions or would like more information on any parts of this, feel free to reach out to me and I will try my best to help! Don’t forget to download your checklist below to make sure you are fully covered and officially official!! Leave a comment below if you’re planning to use the list ;)
*None of this is certified legal advice. This is my experience and the steps I was advised to follow by my coach and mentor. Please consult a lawyer and an accountant, especially when it comes to contracts and finances.
*some of the provided links are affiliate links in which I may receive credits