forming an LLC + lessons learned

Friday, June 21, 2013

Last November I finally took the big jump and registered my business (Joy Inspiration) as an LLC.  It was something I had been thinking about doing for a little over a year, but just never had time or strong enough of a desire to do.  Mostly because I thought that the process of registering as an LLC would be drawn out and that it would take forever to become “official”.  However, after reading a short and simple post about how a blogger registered her business as an LLC, I realized that, other than small differences between states, overall it wasn’t a difficult process to complete.

For me, the actual act of filing to be an LLC wasn’t hard, it was the wonder and cluelessness that I had afterwards.  Once the papers were submitted, I didn’t know what to wait for, what the next steps should be, or if I should just carry on with business.  I blame this on the fact that I registered as an LLC in Alabama.  Alabama lacks resources...big time.  I thought that I would receive an official certificate in the mail...when in reality, I didn’t & never would.  I kept putting off calling my business “Joy Inspiration LLC” because I didn’t think it was legal yet.

Also, no one informed me that I would have to pay sales tax.  Sales tax is a small fee that occurs when someone who also lives in Alabama buys a physical product from me - that product for me was/is greeting cards and printed invitations.  In turn, every month I pay Alabama the Sales tax I earned.  And in order to pay sales tax, you have to apply for a sales tax license.  I didn’t discover this until two months after I applied to become an LLC and as a result I had to pay a “minimum” fee for the two months I had missed submitting my sales tax.  Bummer.

Along with sales tax, many small businesses are required to pay taxes.  More specifically, Quarterly Estimated Taxes.  There is a minimum amount that you have to make each year in order to be required to file quarterly, but if honestly, putting away money into a savings account every month and paying your quarterly taxes makes filing taxes at the end of the year much easier.

Being a small business is no joke.  Yeah, it sounds cute when I say that I run my own small business, but there’s more to it than just selling things and making money.

Do I wish I knew about all these little details before I registered?  Yes and no.  Yes because then I wouldn’t have had little freak-out moments when I realized I missed something.  No, because I wonder if I would’ve been too intimidated to register as a business if I knew about sales tax and estimated taxes.  It sounds boring and complicated.  And it was at first for me, but then I eventually got into a routine and was able to focus more on my business.

I remember early on when I had just learned about sales tax and I decided to put my Etsy shop on vacation mode for a couple of days while I figured out how to charge my customers sales tax.  Those two days when my doors were closed were very sad.  I missed working on my shop and responding to customer inquiries.  I missed working on Joy Inspiration.  In my mind, it was worth all of the tax trouble.  And once I registered as a small business, I was more confident in telling people that I was self employed.  Because I really am!

If you’re considering registering as a business, I highly recommend it.  Either go for LLC or Sole Proprietor.  In some states it’s cheaper to be a sole proprietor and if you’re not at risk for being sued (AKA: you don’t sell food products or toys/children’s accessories), it’s a great alternative to being an LLC.

To learn more about selling on Etsy, read my *Etsy Shop: Year One Lessons* post

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