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Feb 13, 2019

Cheers To Business | Karen and Cadie | Ep22 | Paula Question

In this episode, Karen and Cadie answer a listener's question concerning forming a new company and partnership. They will explain all the steps needed in filing the legal papers and will break down all the pros and cons between choosing to open an LLC or an S-Corp. Plus, producer Johnny Gwin gives some insight into Shopify, Etsy and the ups and downs his journey forming his E-Commerce company, Deep Fried Threads. Bottom line: while you can do most of the legal paperwork and the filing on your own (and online), hiring an affordable lawyer and CPA is highly recommended to start your company on the right legal and tax footing. Plus, document your journey, your income, expenses, the whole process, and ask a professional (you trust) when in doubt.

Paula (from South Carolina's) Question:

I'm in the early stages of product development but wanted to start selling some clothing items online now. It's just my best friend and me. Do you know what steps we should take regarding filing legalities before starting an online shop? And would those same steps apply to selling on a platform like Etsy or Shopify? Also, if we were starting from scratch, would you recommend filing as an LLC? Any advice or information you have would be greatly appreciated. Thanks, y'all.

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Deep Fried Threads - Johnny's apparel company

Quotables and Tweetables

Get a tax advisor. Find somebody that's in your area that you can sit down with and look in the eye, and find out what you need to do. - Karen Simmons

If you are expecting getting investors, and LLC's going to be better. If for taxes, and it's just going to be you, then an S corp's going to be better. - Karen Simmons

What you need to do first as soon as you form those papers is check with your state, because I know in Alabama you only have 45 days to file a privilege tax return, or they're going to pop you with a penalty. - Karen Simmons

Start with contacting the Secretary of State, because you've got to reserve the company name. They will switch you to other departments, like the state Department of Revenue. - Karen Simmons

Secure your company name because whoever does your paperwork, you don't want to pay them to do it and then find out you can't even use the name in your state. - Karen Simmons

Soon as you get all the name, the EIN, the business license, formation paperwork, that's what you've got to take to the bank to open up a business bank account. - Karen Simmons

If you were going into business with somebody else, spend the money upfront and get an operating agreement: What happens if somebody wants out? What happens if somebody dies? You don't want to be in business with their spouse if you built something profitable, and God forbid, somebody drops dead or gets hits by a bus. - Karen Simmons

Get an attorney to do the operating agreement paperwork. You need to have it down on paper. Read it out loud to each other, make sure that there are no misunderstandings because when you go into business, you're married to them. It's a business marriage, and you don't want a business divorce because of just trying to do business. - Karen Simmons

You have to have a business license in your city, in your county, in your state. State and county are usually really, really cheap, so don't worry about those as far as the price of them. But the city's is based on your revenues. - Karen Simmons

Research your platforms of where you're going to put your stuff out (i.e., Shopify and Etsy.) Which E-commerce platforms are going to do the most for you at the least amount of cost, of course? But are they going to handle the revenue collection for the sales tax? And they're going to pay it in, and you don't have to do it. - Karen Simmons

If you have a good CPA, they're going to do all the paperwork filings for you. The lawyer will draw up the paperwork. Then you take the paperwork to the CPA. They can get your federal ID number. - Karen Simmons

Every person has a social. Well, every business should have a federal ID number. And that's called an EIN - Employer identification number. - Karen Simmons

You as a business owner need to be worried about getting your distribution, getting your inventory, getting it priced right, getting the right platform. You need to be worrying about that kind of stuff, and so find somebody that can handle all this other legal and compliance stuff. - Karen Simmons

Besides from all the legal stuff, there's all that extra stuff as well. Do you have your logo, your specific font that you use for your branding, so your Facebook matches your website? Is your website built? - Cadie Gaut

When you check the state to see if your company name can be registered on the legal side, make sure you can get a URL domain with the same name. - Karen Simmons

Are you a self-proprietor, you're just going out there doing business. You can get the paperwork and be an LLC. LLCs are great with partnerships, and especially if you're going to have investors later on. You can split the profits different than ownership at an LLC. On an S corporation, you still become an Inc, but still, you have to file the forms to be an S corporation with the IRS. LLC is going to be taxed just like a self-proprietor. That means you're going to get hit with self-employment tax, FICA tax, social security, and Medicare. Whereas an S corp, the profit flows through with no FICA tax, no self-employment, no social security, and Medicare. Now the government knows that, so they're going to want you to be on a reasonable W-2. - Karen Simmons

See if it can be profitable before you spend all the money setting up your corporate and company formation and tax compliance. - Karen Simmons

I would say get your EIN number because that's an easier thing to do. Get compliant with your state and local, the bare minimum. - Johnny Gwin

If you're an employee, you get a W2. If you're a subcontractor, you get a 1099. If you're part owner in a business, you're going to get a K1. - Karen Simmons

Make sure your business legal and tax answers are coming from professionals. - Karen Simmons

Document your journey, just your growth. I think people who identify or love your brand or love your products. People who love your clothing, they want to identify with you and watch your journey as you grow and become more successful. - Karen Simmons

Somebody inspired you to start doing this, so inspire somebody else. I think to give back just makes you more successful in the long run. - Karen Simmons

Start as you go, federal, you've got to deal with. The state, you've got to deal with, and deal with your city. The other stuff, you can figure out as you're going. And get the store up and start selling. - Johnny Gwin

Find somebody that you can sit down and look in the eye and have a conversation; they don't make you feel stupid. - Karen Simmons

Don't sell, build relationships. - Karen Simmons

You've got to find that person you're comfortable with because then they care about you. And they're going to tell you the things you need to know - but it won't be in that first and one meeting. - Karen Simmons

I think the G in guts stands for God, and I do believe that. - Karen Simmons

I'm a huge advocate for QuickBooks for bookkeeping purposes. - Cadie Gaut

Google QuickBooks Pro Advisors in your area, and even if it's a CPA firm that you don't work with, they usually offer QuickBooks training. - Cadie Gaut

When you're marketing, document what you're doing because that's good for you and how you grow the company and your journey. The other thing is to document the federal ID number and the state thing and document everything because at least you've got a record of you acting in good faith. - Johnny Gwin

Run all your money through the business bank account. I know there's no money in it. You got startup money from somewhere. Put it in the business checking account, then spend it, because you get a year down the road and life's been a whirlwind, you're going to forget about that $158 down at probate that you spend to form this damn thing. - Karen Simmons

You can start selling today. You can deal with the money later, but you can start selling today. - Johnny Gwin

Be willing to sit back and listen to your gut and see which way you're supposed to go with this thing. It's a great journey. - Karen Simmons



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About Cheers To Business
Cheers To Business is a seriously casual business and entrepreneur podcast that discusses starting, running, refining and growing your company, or excelling at your current job with two or your soon-to-be friends - over a glass of wine. Please subscribe, review and rate Cheers To Business on iTunes, YouTube, SoundCloud & Overcast. You can contact and stay connected with us by LIKING our Cheers To Business Facebook page. Thanks for listening and as always, CHEERS to you!