You've broken the chain and struck out on your own. You know you can become a success if you work hard, keep your nose clean, and have 5-star Google reviews aplenty.
Creating a company isn't quite as easy as that. Let's look at some of the reasons you may want to create an LLC and some of the reasons you may want to avoid it.
Congratulations! You're in Business
Taking the first steps into the world of self-employment requires a lot of brass. It's a dog-eat-dog world and you're going to need protection from it. We'll talk about asset protection later, but let's consider what you need as an individual.
A great market is a must. Solid ethics and a flawless reputation are your second-most top priority. Your top priority is your clients. Keep them happy and you'll be on your way in no time. Creating an LLC is just one of the many things you can do to help assure all these while requiring fairly little input from your side of it.
What is an LLC
An LLC is a limited liability company. In the plainest terms, this means that you won't lose your shirt if your company goes down in flames. We all hope that doesn't happen, but bankruptcies are declared every day. Natural disasters destroy businesses which may be your own office or a client's office that is paying your bills.
LLCs provide an incredible amount of coverage for you, the owner. Classified as a "member", your private property is not responsible for the actions of the LLC. That means no creditors can pursue you, personally, if your LLC goes broke. You are not personally responsible for the company any longer. And that gives you room to breathe.
It also allows other investors to come in as partners. Becoming an LLC gives you distance from your company to preserve yourself. And that's very important when your business is yours.
As stated above, an LLC protects your personal assets but it isn't just that. It can also protect the assets of other high-ranking executives in the company in the case of a very bad company-based financial situation. It may also help to protect your clients.
How is that? If your clients lose a significant amount of money due to a situation within your company, the LLC's coverage may help reimburse them. Your personal business coverage typically only includes yourself--not clients. An LLC's may be adjusted, with certain companies, to provide protection to everyone working together.
Rather than paying taxes upon the basis of a 1099 form for self-employment, you will be an employee of the LLC. Your company will file its taxes and you will file yours. This separation assists, generally, in lower taxes for most LLCs. Companies simply have larger costs than individuals in the eyes of the government.
Even if you are your only employee, an LLC may assist you with a lower tax table overall. This means savings in the long term. Those savings may help you grow your company.
Professionalism and Credibility
Many companies base their choice of representation and consultation upon appearances. Yes, they'll check into your reviews and look for references. That comes later. To catch their eye, you need an appearance of professionalism and credibility. An LLC assists with that.
But why? Why do three little letters mean so much? It makes it appear as if you have more invested in your business situation. You've taken the time and used the funds to create a company, not just a business that you work through on the weekends. It doesn't matter if that is the case. An LLC is visually more presentable than a freelancing situation or a self-employed professional without the protections of an LLC.
In short, it means you care enough about your company to do the paperwork and spend the money to look professional. It doesn't matter if you're working from home with your bunny rabbit slippers on your feet. Someone willing to invest is someone worth paying attention to. Others? Perhaps not.
The initial start-up costs of an LLC may be outside the realm of possibility for some new businesses. And that's fine. In that case, take what work you can get and save toward the cost of LLC fees and documentation. The sooner you get there, the faster you'll attract more clientele. The faster you'll be able to grow your company from the ground up. Welcome to the world of business ownership. We hope you do well.