by Kelley Keller
Whether you’ve already started a business or you’re thinking of doing so, you should consider how to go from self-employed as a sole-proprietor to being a business owner, meaning you own a business that is completely separate from your personal life in terms of operations, finance, taxes, and the law.
As a sole-proprietor, you’re selling goods or services as yourself. There isn’t a formal and separate business entity. Your income and losses are reported on your personal tax return. While it’s quick and easy to be self-employed as a sole proprietor, there are also risks involved. Mixing your business and personal income and expenses can be a slippery slope if things go wrong.
Do You Have a Hobby or a Business?
Before you do anything else, you should determine whether you have a hobby or a business. The distinction is really important when it comes time to file your taxes because the IRS views hobbies as very different things than businesses.
In fact, the IRS uses eight key factors to determine whether you have a hobby or a business, so your first step to becoming a business owner is to review those factors and figure out which you actually have. If you have a business, then you can move on to the 10 steps of becoming a business.
Legal, Insurance, Finance, and Tax Steps to Become a Business
There are five steps you should take to become a business that are critical components of building a solid legal, insurance, finance, and tax foundation (your LIFT Foundation) for your business:
- Form a business entity by registering your business in your state (usually with the Secretary of State).
- Obtain an Employer Identification Number (EIN) with the IRS. This is like your business’ Social Security Number.
- Prepare your business Operating Agreement or bylaws and initial organizational resolutions. Depending on the type of business structure you choose (e.g., limited liability company or corporation), there are different types of documents you’re required to prepare.
- Open business bank accounts, obtain insurance, and file any special tax elections. For example, if you want to be taxed as an s-corp rather than a c-corp, you have to file the necessary documents to make that tax election (IRS Form 2553).
- Set up your company record book and maintain it so you’re treating your company like a company, not just as an alter ego for yourself.
Setting up a business the right way can be confusing, but there are ways to get help so you do it right the first time. Whether you dive deeper into the articles here on She Owns It, read an ebook, find a mentor, or visit your local SCORE office, you should educate yourself.
And of course, it’s always a good idea to hire professionals like attorneys, accountants, a tax advisors very early on so you don’t make mistakes that could end up costing you a lot more money in the future.
Branding and Marketing Steps to Become a Business
Once you’ve set up your legal, insurance, finance, and tax foundation, you need to set up your branding and marketing foundation. The next five steps that you should take to become a business ensure that you get started correctly:
- Trademark your business name (as your brand name), and register it and similar names as domain names and as social media URLs so you can protect both your business and your brand.
- Decide how you’re going to represent your business and brand online. For example, consider if you’re going to promote your business brand or personal brand to generate sales. It’s expensive to grow both brands until you have a budget to pay for marketing help!
- Consider how your trademarked and registered business name lives together with any product or service brands you’ll create in the future so you have a cohesive brand family.
- Identify the factors that define your brand so you can create the right messages to attract customers.
- Learn how and when to use Inc., LLC, trademark symbols, and copyright symbols, so you properly protect your brand and business without annoying your audience.
Of course, these are just the first 10 basic steps you should take to go from self-employed to business owner. However, if you have a business (not just a hobby) and you follow these 10 steps, you’ll be on your way to building a solid foundation that your business and brand can grow on for many years to come.
Kelley Keller, Esq. is President of The Keller Law Firm and a 20-year veteran of the intellectual property law field. As an intellectual property attorney, she has deep experience helping businesses of all sizes identify, manage, and protect their trademarks, copyrights, patents, and trade secrets, including many household brands like Toyota, Disney, and Verizon, which she worked with during her tenure at two of the largest IP law firms in Washington, D.C. Kelley also offers education to small business owners, creative and coaching professionals, digital entrepreneurs, and established companies about starting, building, and growing a Rock Solid Business on an strong foundation through her website KelleyKeller.com.
Kelley’s personable nature and ability to explain complex legal issues in simple terms set her apart from most attorneys. She is relentless in helping businesses, their owners, and their families mitigate risks and open the doors to new opportunities.