Just asking what best practices typically are, because someone told me that I should try to get small but consistent income results before starting an LLC.
I guess this makes sense, since it can cost a little to start and is a lot of work. However, wouldn’t this mean my business’s initial income/expenses would be coming in/out of my personal account, rather than a business bank account?
Don’t most people advise against this?
When we first started we just did a partnership but I would always advise to go straight to incorporating. It’s cheap and significantly less personal risk. There’s really no reason not to do it.
I can’t really recall why it took so long for us to incorporate but we were just young kids so either laziness or ignorance.
That being said one advantage to not being incorporated that I didn’t realize until long after was that people were giving us credit terms easily despite being a new company with no track record since we had to personally guarantee it all haha.
Many have posted about comingling funds, which is a concern, but another thing you might want to consider is what industry you’re in and what protections an llc affords you. The very point of created an llc is to limit your liability, of which separating of finances plays a vital role. If you’re in an industry where liability is a big concern, you might be better served to go ahead and protect yourself and your personal assets. Good luck!
If you are starting a tech billion dollar startup, then yes you need an LLC, EIN, website, business cards, socials, business bank account, corporate lawyer, bookkeeper, financial advisor, accountant, company cars, etc.
Anything else, just worry about revenue first. Let’s make sure it even is able to lift off the launch pad before you worry about those things.
I know everybody thinks it is the greatest sin in the world to intermingle business and personal transactions by using your own bank account at first. I’m here to tell you. I’ve started several businesses. Nobody in the IRS or anywhere else gives a crap about the initial stages of a business. I know I’m a complete stranger on the internet, so I guess take what I say with a grain of salt. But to me, you should just worry about lifting your business off the ground first before worrying about LLC and all the other fluff.
As a matter of fact, I personally know a bunch of people who spent all their initial energy on getting an LLC, EIN, webiste, business, cards, etc. and never actually launched their business. They just left those things sitting there collecting time dirt. Don’t fall into this trap!
It’s not that the IRS cares, it’s that such commingling is tough to square during diligence of your first investment round. A clean sheet is better and easier for everyone.
I understand that. But making the LLC, EIN, etc. Is the easy part. I’ve seen too many times people focus on the easy part because it’s the easy part. The hard part is launching the company off the ground.
I’m mainly in the real estate business. Most people who want to do rental real estate never get past the research part. Why? Because it’s easy. You ask them why they haven’t gotten their first rental yet they will tell you they are still researching. Yeah, been researching for 15 years…
The OP needs to focus more on launching the company. Registering an LLC literally takes minutes to do.
I would personally say to start it sooner to avoid liability, but some would argue that it’s better to earn something first as the idea might not pan out.
But what if I’m planning on having another idea of the first doesn’t pan out?
I honestly feel like I just want another source of income, whatever it may come from. Wouldn’t that be better to simply make a general LLC with a versatile name that I could use for any number of my pursuits?
Go for it. What do you have to lose?
You could always changed the name in the future, LLC is only the corporate name which would show up on documents, while your branding would be what your customer’s would see.
The thing I hear from most people here in the UK is 5k a month in revenue. That’s not a definitive answer because this isn’t an exact science, but basically it’s just about how tax rates fall over here.
In the past, I’ve setup registered company structures on day 1, I’ve also had companies where I worked out pretty soon it was a bad idea and closed it less than 2 months later.
I think the baseline just comes down to ‘is this real or not?’ like I think most of us have dipped our toes in with businesses that, lets be honest, weren’t real businesses. The only difference is the amount of paperwork you give yourself when you walk way from it.
Start with making money, then use that money wisely for your plans. Don’t rush, build a strong branding (logo, social media, customer facing creatives) that will attract sales, close em’ then reinvest your earnings.
If you need help with your branding, were here to help
I usually file first so i can set up the bank accounts and all the business accounts i need and workspaces
Yeah that’s what I was thinking.
And if my current venture doesn’t work out, I could alway start another one, right?
I’ve been thinking about adding a side gig to my work for an additional stream of income. I was always gonna do something, even if my first thing fails, I was going to just do something else for income.
So I don’t see why I shouldn’t just make one and name it something general.
Totally depends on what you do. If there’s risk on your startup, you probably want to create a separate legal entity so if any catastrophic issue arises, you can’t be personally exposed.
The real reason to start an LLC is for legal protection for your personal assets. Starting it to save taxes or “make it real” are not reasons to start an LLC.
The only thing I can think of is liability. If you operate under an LLC with liability insurance you should not be liable for a lot of things that could ruin you financially if you operate without one. Just investigate and limit risk!
Echoing a lot of comments in thread so far, it is a balancing act of focusing on generating revenue and limiting liability depending on your situation. Do not spend a significant amount of time setting up an LLC, as it will slow you down, hire a lawyer to help or a registered agent so you can focus on getting the business going.
edit: spelling
First is secure the .com and check for trademarks. Don’t want to step on toes and get shut down before you start
I’d just get the LLC. Like others have said, it isn’t expensive or time consuming, and it can provide that peace of mind, make it easier to set up a “business” bank account, and potentially save your ass with taxes.
If ~$250 bucks to set it all up is too much…I’d wonder if you’re really that serious about your business idea?
please get some money rolling in first.
until you have some money (let’s say 1k-5k) you can be a sole proprietor before setting up another entity.
Do you have a business (actually making money with buyers)?
If yes…
Do you want to be personally liable for this?