What does the self-employed economy look like as its members begin to embrace small business ownership?
Cloud accounting software company FreshBooks recently released the 3rd Annual American Self-Employment Report. The report’s research picks up where previous studies left off, as it analyzes data from 4,000 American workers on the next leg of their self-employment journey. This is the leg known as making a go for it as small business owners. As of 2019, 70% of self-employed professionals are running their first business. These professionals are dedicated to the success of their business and its growth, and it’s an added perk that they get a bit flexibility in doing it.
As self-employed professionals learn how to run a business, there may be certain aspects to the process they are unfamiliar with. Would they know how to complete an EIN application or prepare bylaws and/or operating agreements on behalf of their business? After starting a business, here are a few items every newly self-employed small business owner needs to check off their to-do list.
1. Incorporate or form an LLC.
A business formation is essentially a foundation that structures your small business and helps it succeed. Many small business owners choose to incorporate under a wide variety of structures. These can range from sole proprietorships, partnerships, corporations, and limited liability companies (LLCs).
LLCs tend to be one of the most popular entities for small businesses. Self-employed professionals venturing into small business may be attracted to this entity thanks to its flexible structure. Forming an LLC provides liability protection, which creates a separation of personal and professional assets. This ensures that if something unforeseen should impact your small business, your personal assets (think cars and houses) would not be affected.
2. Register for trademarks.
It’s not an uncommon thing to forgo trademark registration when starting a small business. Many entrepreneurs may not consider it a priority to trademark unique words, phrases, logos, or designs. After all, is anyone else really going to think up these marks aside from them?
The best advice is to never assume you, and you alone, have the rights to a specific trademark. Conduct a name search first with the USPTO. If your mark is available, file a trademark application to register the mark. The sooner you are able to do this, the sooner you will be able to protect your company’s unique ideas from any potential plagiarism.
3. File for an employer identification number (EIN).
EINs, nine-digit federal tax ID numbers, are generally associated with hiring employees. What if you’re a self-employed professional running a small business that doesn’t plan to hire? You should still consider obtaining an EIN.
Filing for an EIN allows the IRS to identify a business entity. Beyond hiring employees, small business owners that have obtained EINs may provide their business with a number of benefits. Some of these include, but aren’t limited to, paying federal taxes, filling out payroll reports, and opening up business banking accounts.
4. File for the proper business licenses and permits.
Every small business is different, but most require certain types of licenses and permits in order to operate. Having the proper business licenses and permits also tends to be a requirement depending on the city and state you do business in. Prioritize understanding the licenses and permits that your business will need, then begin filing the necessary forms for each. (Psst! An EIN is on that requirement list!)
5. Stay on top of annual maintenance.
Once self-employed professionals have settled into small business ownership, there is a certain amount of housekeeping that comes with the role. You will need to remain on top of annual maintenance requirements for your business. Corporations have bylaws, which outline the rules and regulations of the corporation, while LLCs have written operating agreements that ensure the entity is being conducted in the proper manner.
Small business owners that incorporated as an LLC or corporation must also file an annual report. This document notes basic information about your business, such as its name, address, and registered agent information. Any changes are noted and updated accordingly on an annual basis. Once you get the hang of the new role, it’s quite easy to stay on top of everything and remain in compliance.