Biz Features

3 Basic Business Registration Tips For Freelancers and Micro-Business Owners You’d Be Crazy To Ignore

by . May 29th, 2012

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Conceptually speaking, few things are easier than starting a business. Exchange a product or service for something else – done! Freelancers and other people engaged in microbusinesses do this sort of thing all the time.

Freelancing - 3 Stupid-basic Ideas on Business Registration
Source: coworking.betagroup.be

In the real world however, not registering your business isn’t such a good idea. While you might feel you’d do just fine just winging it without the right documents (hey, works for heroin dealers right?), you really aren’t doing yourself, or your clients any favors.

We have laws in place requiring businesses to be registered, not just to help the government collect taxes, but to afford everyone- businesses and the general public included – some protection for their basic rights.

1.) Get a CPA!

This should be the first order of business. Unless you’re already a CPA, in which case this article will do nothing for you. But I digress. A good CPA will save your hide and basically tell you everything you need to properly set up and register your business.

The Stapler Incident
A CPA should be able to save you a lot of time that would be better spent doing whatever it is you do best. You might want to learn how to do basic accounting, and while this would be helpful, it’s unlikely you could do it as well as someone trained for the job- I know because I tried.

If you can afford a CPA, get one. Once your business reaches a certain size, chances are you will save more money if you pony up the scratch to get a CPA than you ever could doing accounting work yourself.

2.) Consider Setting up a Limited Liability Company (LLC)

Depending on where you do business, this is relatively affordable and  should cost you anywhere between $300-$600. An LLC is an unincorporated entity (an important distinction as LLC are different from corporations) that helps you limits your liability so in case you run into problems with your business, you won’t be completely personally accountable.

Rosie the Riveter - 3 Stupid-basic Business Registration Tips
Set up a business bank account for the LLC – DO NOT USE A PERSONAL ACCOUNT. Set aside a portion of  your monthly income (1/4 – 1/3 as a rule of thumb) for Estimated Quarterly Taxes.  This way you won’t be running around like a headless chicken when you find out at the last minute that you owe the government taxes.

Note that this might not be feasible if you don’t do freelance or do business that often – in some states you might spend close to $1,000 in fees before you see revenue. In these cases, it might be wiser to build up capital before doing registering (duh).

Also note that it doesn’t have to be an LLC either, but anything that shifts the liability from your personal assets to a business entity is normally a good thing. In any case, refer to number one and ask a CPA.

3.) Registered? Great! ALWAYS Get a Written Contract

This actually holds true whether or not you’ve been registered. Contracts are there for a reason – you really can never be too careful. Registering might be the best time for you to finally get into the habit of really taking things seriously.

Many freelancers and small business owners take such a casual approach to registration, it’s not surprising contracts are treated the same way too. This is even when they’re registered under an LLC or an Umbrella company or whatever – and that’s not a good thing. I’m not that cynical but off the bat, I’d say about half of the instances when microbusiness owners and freelancers are screwed in a deal is because they don’t have a contract in writing.

 Contract Devil - 3 Stupid-basic Business Registration Tips
Source: thepennyarcade.com

Chances are, if you’re dealing with a decent human being, you would think a verbal contract would do just fine. But you can never be too sure when money is involved, especially if you deal with companies where personal responsibility gets diffused or disappears altogether.  Plus, a written contract removes most of the vagueness that comes with verbal agreements.

BONUS:

Hopefully, now that you’re registered and done with all the legalities, it should now be far easier for you to ask for money down before taking on a contract.

Always, always, always ask for 30-50% down before you start on any work. I know this isn’t the norm in many industries these days, but since we’ve seen so many freelancers get burned this way, it’s always good to ask yourself what you think you’re really worth.

ABOUT THE AUTHOR:

Arthur Piccio manages YouTheEntrepreneur and has managed content for major players in the online printing industry. He was previously BizSugar's contributor of the week. His work has appeared multiple times on The New York Times' You're the Boss Small Business Blog. He enjoys guitar maintenance and reading up on history and psychology in his spare time.

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