Today we’ll work on the essential pillars of your professional organizing business.
How are you doing this week? I hope you’re having a great time learning and working on building your business!
Now that you did your work on the last posts, did your market research, and chose the name of your business, it’s time to create the basic structure of your business.
We will cover the legal, financial, and logistical steps you’ll address. So let’s pay great attention to them.
You want to have everything set up correctly so when you start taking clients, receiving payments and when tax time comes down the road, you have everything in place and can enjoy each step of the way instead of scrambling to get them done.
Thinking through and implementing every part of your business professionally will make you feel and look (you guessed it!) professional.
Estimated reading time: 6 minutes
Legal, Finances & Logistics
As I did in the previous texts, I will go through each step in a commented checklist format, and this way, you can print and start working on your list.
Since I’m not a CPA or a lawyer (in the US), you must consult a professional to clarify all these points and explain the outcomes of your choices.
For example, the business structure you select will impact your taxes, so you must understand them beforehand.
1. Legal Structure
It’s time to decide on your business structure.
Most of us start our businesses as sole proprietors, and then as things pick up, and we feel we have tested the water enough to know this is what we want, we move to other business structures.
Let’s see what sole proprietorship means.
The U.S. Small Business Administration defines sole proprietorship as “the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses, and liabilities.”
Let’s break this down?
As we compare the two most common forms of business structure when we’re starting, the critical points we should pay attention to in this definition are:
- It’s unincorporated vs. incorporated like an LLC.
- Owned and run by one individual – no partners.
- No distinction between the business and the owner.
- You are entitled to all profits.
- Responsible for all business’s debts, losses, and liabilities – which makes you and your assets personally liable in case you’re sued.
A simple way to summarize sole proprietorship is that there’s no distinction between you and your business under the eyes of the law. They’re one entity and will be treated as such.
While it is the simplest form of starting your business, you’ll still have to comply with State and local requirements like business licenses and permits. Search your Secretary of State and your city websites to check and comply where needed.
Limited Liability Corporation – LLC.
The second most common route for starting your small business is the Limited Liability Corporation, LLC.
LLCs are a business structure allowed by state statute, and each state will have its regulations about it.
By deciding to create an LLC, instead of taking the sole proprietorship route, you separate your business assets from your personal ones, which will protect you from debts or costs associated with your company — the most significant selling point about LLCs.
Compared to Sole Proprietorship, what will distinguish an LLC is that you can have one or more people as owners and the owners are not personally liable. Tax-wise, you will pay self-employment tax in addition to personal or corporate tax, while in a sole proprietorship, you’ll pay personal tax only.
While I wanted to give you an overview of these two most commonly used business structures, you can consider others. Whatever your decision, I advise you to talk to a qualified professional to examine your situation and help you decide which one works best for you.
Once your business is registered, open a separate bank account from your personal account and have a credit card for your business, different from your private card.
This is critical because if you start mingling your personal with your business expenses, the likelihood of you mixing things up is high. So, take out your monthly fixed income (salary) and leave the rest of the money in your business account as working capital.
Another critical point is to research ways of payment you can offer your customers. Check, and cash are the most common forms of charge in our industry; however, offering alternatives like Zelle, Paypal, or credit card might open the doors to larger projects.
Accounting – you should be tracking income and expenses as soon as you’re open for business.
The easier route is to use a service like Freshbooks, Quickbooks, or what I use, Bench.co (my referral link). When tax time comes around, or if the IRS ever audits you, you’ll be so happy you have all your receipts, expenses, and income filed and organized.
Finding an accountant – They will be an essential partner in your entrepreneurial journey. Select this professional carefully; make sure you communicate well and that they are prompt, organized, and can answer all your questions.
Business insurance is a biggie for me. I know this can become one of your most significant expenses when you’re starting; however, not having it can break your business even before it has a chance of getting off the ground. And that’s why I’m not joking when I say I don’t even leave my house to offer a consultation if I don’t have insurance.
It’s common for colleagues to start without insurance but consider these simple and not uncommon scenarios for a professional organizer:
- You move a piece of furniture at a client’s home, and you scratch the hardwood floor or rip the carpet;
- You are organizing documents, and you advise your client about shredding certain documents. Months later the client receives a letter from the IRS initiating an audit, and she needs all the documents, including the ones you shredded;
- You make a recommendation on installing shelves to improve storage and decide to install it yourself since you’re a very handy person. In the process, you perforate a pipe that is now leaking and flooding the house;
- You are decluttering a house, and when moving things from room A to room B, you break a valuable or irreplaceble item.
As you can see, these situations can happen to all of us, but if you don’t have insurance, you and your business (depending on your business structure) can be liable and responsible for the repairs, etc.
To learn what type and how much coverage you need, I recommend you schedule a time with an insurance agent and clearly explain what kind of work you will perform.
If you are a NAPO member, you can look for the NAPOsure option.
Types of insurance to be considered:
- Liability, commercial and professional
- Errors and ommissions
- Income protection, like disability
- Auto insurance
Very well! That’s all for today.
You’ll have plenty of work to get done, and I am looking forward to hearing from you and your new business!