Ask Felicia Joy: How to Protect Your Business

May 5, 2011  |  

Dear Felicia,

I’m starting makeup artistry school to become a professional makeup artist. I have my logo designed, I’ve selected Intuit as my webpage hosting site, I have my design ready for my business cards etc. I have a few questions regarding my new journey: do I need to register my business with my county, state? Do I need to federally trade mark my business name/logo? How do I handle taxes, etc.?

Lexie B.

via e-mail

 

Dear Lexie,

Congratulations on your creative new endeavor. How exciting to be studying to become a makeup artist.  You have made a lot of progress already.  I like it when people take action!

In regards to creating a formal entity for your business by registering with the Secretary of State, there are three main things to consider: liability, credibility and taxes. If there is high risk for you being sued or taking on a lot of financial responsibility to start your business, then creating an entity is a must because it separates your personal assets from the business. If a formal business entity faces a lawsuit or financial struggles, the entity is at risk instead of the personal assets of the founder.  Mind you, I am vastly oversimplifying how this works.  There are many nuances and complexities involved in legal and financial liability, but I am giving you a general idea of why it matters.

Next, consider credibility.  If you’re going to be serious about your business then separating business funds from personal funds is a best practice; so you’ll need a business bank account. Some banks will allow you to open a business account as a sole proprietor (which is your status before you are registered with the state) as long as you have a Federal Employee Identification Number (commonly known as an EIN). But many banks will require your business to be registered with the state before you can open an account.  In addition, if you pursue contract or corporate opportunities, the potential client may take your proposals and business more seriously if it’s a formally registered entity.

As far as managing your taxes, the easiest entity to establish is a Limited Liability Company.  (You can take business tax deductions as a sole proprietor too, but a formal entity demonstrates to the IRS that you are seriously engaged in a business, not a hobby. This further substantiates a business in the case of an audit.)  Nearly every dollar you spend to launch, grow and operate your business is deductible so keep a monthly list of what you spend.  Scan your receipts using Neat Receipts and keep them saved digitally or keep physical photocopies of them on file.  At the end of each month, or every quarter, give your accountant your list of expenditures.  When you start making a profit you’ll have to make quarterly estimated tax payments, so you need an accountant who is experienced in dealing with state and federal business tax filings so you can remain compliant at all times.

Trademark your business name and logo after you’ve built your brand for a few months.  To get a trademark finalized you have to demonstrate that you have used the name and logo in commerce.  This extra time will give you a chance to fine tune your brand.

To sum it all up: yes, register your business with the state, find a savvy accountant right away and trademark your business name and logo after you’ve finished school, started your company and gotten established.

Grace & Peace,

Felicia Joy

 

Felicia Joy is a nationally recognized entrepreneur who created $50 million in value for the various organizations and companies she served in corporate America before launching her business enterprise.  She is often called on to discuss the ins and outs of entrepreneurial success and has appeared on CNN, FOX and in other national press.  Felicia operates Ms. CEO Inc., a company that helps women entrepreneurs achieve more success, faster — as well as Joy Group International, LLC, a business development and consulting firm. Send her your questions at ask@feliciajoy.biz or www.twitter.com/feliciajoy.

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