How to Not Mess up Your LLC | The RIGHT Way To Get Paid In Your Business

Have you ever wondered how you're actually supposed to pay yourself if you own your own business? If you've set up an LLC, did you know that there is a very specific way that you should flow that money to make sure that you're preserving all of your asset and legal protection? I'm attorney Brittany Ratelle, an attorney for online business owners and creators just like you, and today we're going to dive into the very simple workflow that you can follow to make sure that you are paying yourself correctly. You are going to make money in your business, whether it's a little bit now or a lot in the future. We want to make sure that all that money can be moved from the business into your pocket and in the right way. Now, just to start off as a disclaimer, because what kind of attorney would I be if I didn't have a disclaimer? Well, I'm a licensed attorney and I practice Utah and Idaho. I am not your attorney. This is not official legal advice. So if you have any questions, please consult with the legal professional in your jurisdiction. All right, so step 1 is setting up our legal entity, and I have more videos on this. And so if you haven't liked and subscribed to my channel, make sure you do that right now to make sure you're not missing out on any of the easy and practical tips that I'm here to teach you to make sure that you can manage the backend of your business. So make sure you set up your actual business entity. And 99% of the time I recommend an LLC, a limited liability company. They're usually cheap, flexible. You can have anywhere from 1 to 99 members and they're pretty easy to maintain. It's pretty hard to mess up an LLC versus a C corporation, which has some other corporate formalities and some other red tape that you need to make sure you do every year. Otherwise you can actually lose your corporate protection and your status. An LLC is a lot simpler. To set up your LLC, you have some options, I'm gonna give it to you straight. I am not an affiliate for a lot of these third-party companies that are gonna try to upcharge you to form a business. The truth is that you don't have to pay anyone anything extra to form an LLC. It's actually pretty straightforward and it involves filling out the same forms either way. So let's save you some money and cut to the chase. And so I don't recommend using LegalZoom, Zendesk, Incfile, Tailor Brands. I want to make sure that you are empowered with options. And so if you want to save some money and after researching those you feel like you can handle it, let's go ahead and go through that workflow. So to start setting up your LLC, you want to Google LLC plus your state. Now Google's going to give you a bunch of results, and a lot of those, like I mentioned, might be ads or recommendations. They've bought keywords for other companies. You're going to want to look for the.gov website. It's going to send you to the actual government website for whatever your state is that you want to register your business. If you get to a website and it looks really smooth and slick, that's probably a fancy user-designed website meant to upsell you and charge you some these other things. If you get to that website and it looks like a boring government website, there's like an eagle flag in the corner, you're in the right place. And once you get to that website, you are going to create and set up credentials, a username, password, answer all the questions, pay your fee, and then it's going to spit out some documents on the other side, usually called Articles of Organization or Certificate of Organization. Just as a practice pointer, when I set up a new LLC for myself or for hundreds of clients that I serve, I recommend setting up either a PO Box or a virtual mailbox and a registered commercial commercial agent service. The reason I like to add these two tools and to actually have those set up before I go register a new business is I want to protect the privacy of my clients and entrepreneurs as much as possible. And if you have a business based out of your home, like many online business owners do, and you want to prevent having your personal home address listed on the internet, publicly searchable in a database, if you want to make it harder for people to dox you— this is especially important for my creator clients or people who maybe get a little bit more of a public profile— then this is a really important piece to put in before you register your business. Again, what you need is either a PO box or a virtual mailbox, or say you have an address at a commercial business location that you maybe work out of and you get some privileges there. You'll need that address and you'll need to pay and sign up for commercial registered agent service. How do you find that? Again, go to Google, go type in commercial registered agent plus your state. They're available in all 50 states. Expect to pay about $50 a year. That's a pretty fair price. What does this registered agent do? You've seen them in movies, right? When people get sued and someone goes, you've been served, and someone like takes the documents, that's a commercial registered agent. You probably won't ever need this person, but if you do, again, you want them to go to this person and not someone to come to your house. So now that we've got the LLC set up and you're going to spit out those LLC documents, you're going to put them in a safe place. I recommend printing them out and putting them online in some sort of business safe deposit box. The next step is you're going to get your EIN, electronic identification number, also known as your tax ID. It's kind of like your business Social Security number. Ideally, you want to use this number and stop using your Social Security number. You are telling the world my business is a real thing and it's set up and I have an EIN that's linked to this new business entity. So you should fill out this IRS application. Again, go to Google and make sure that you fill out the information and then it matches this new LLC that you just set up. Spit out the EIN. Don't lose this number. I can't tell you how many business owners I've seen who've done this on their own and ask me, Brittany, tell me there's a way I can look up this number. And unfortunately, you're on your own with the IRS and they're not great at answering their phone.. So please don't lose this number. As soon as the number pops up on your screen and you're done with this form, screenshot it, and then it will spit out a letter. Print that out and save that in multiple places. Please, please, please don't skip this step. Save it in multiple places. It's a huge hassle to look up, and you're going to need this number again and again. As a little tip, if you in January, February get asked for your W-9 by people, that W-9 will have this new business Social Security number or your EIN, not your personal social. All right, so that was step 2. Step Step 3, you're going to take both of these handy-dandy documents, your LLC docs and your EIN, and you're going to take those with you to the bank. Now I say that metaphorically because you might be setting up an online bank account. It doesn't really matter where you bank. There are different options and choices. If you go to a chain, there's going to be more locations, sometimes more services. If you go to a credit union, there's frankly sometimes better customer service. They care about your business more. Sometimes there's some other benefits actually they'll throw in because they're really excited to have your money and to have an open up an account for you. If you go online, there's sometimes lower transaction fees or carrying fees or less deposit minimums that you have to have. You're not going to get charged if you don't keep a minimum balance in accounts. You have some options there to set up a bank account. I recommend at least 2 accounts. Set up a main business checking account and probably like a business savings. Technically they can both probably be checking, they'll ask you that at your bank, but I like to have one main account. Step number 3 was set up a bank account. We're on to step number 4, set up your payment processing or your merchant account. This is setting up your Stripe, your PayPal, your Venmo business. Make sure it's business Venmo, not personal Venmo. These are customers, not friends and family, or anywhere else where you are accepting payment. Square. And it's going to ask you as you set up that payment processing and merchant processing for the name of your business, for your address, and it's going to want your EIN. Good news, you've got all those things tucked away and ready to go. It's going to ask you, where do you want to send your money? You want that money sent to that business bank account that you already set up. Remember, we are trying to set up a really clear definition from our personal money to our business money. We don't want those commingling unless it's on the dance floor. Okay, so we've set up our payment processing. All that business money goes into that account, all the expenses go out of that account, which brings us to step number 5. It's time to pay ourselves. We are making money, money is coming into that account, so how do we pay ourselves? This is what's called an owner's draw or an owner's distribution, and the good news is that you can pay yourself as much as you want. There are not any rules here, except I do recommend that you leave enough money in that account to pay for your business expenses. In fact, you can get in trouble if a business is not adequately capitalized, meaning you didn't put enough money in there to cover stuff. And especially if you have a business with other partners, you need to make sure that there's money for all the expenses to be paid. There are two ways you can do this. You can either do a transfer, so transfer money from your business bank account to your personal account, your personal checking or your personal savings. And you can do that on a regular interval and kind of treat it like your own little payroll or salary. Or you can do it as you need money, as you make money. As you have a launch, or you know that you bill on the 1st and that you get your money on the 10th, so you're going to do it on the 15th. You're going to wait till all that money hits the account and then you're going to go pay yourselves. You set up a cadence that works with you. Again, I recommend Profit First if you want to have some good monthly workflows on how to do this right so that you're paying yourselves, paying your expenses, and saving money for taxes that will be due quarterly or yearly depending on the size of your business. And again, there's not a normal amount of how much this needs to be. You have to have a reasonable salary when you become an S corp, which is different. That's not what we are now. Right now, we are just an LLC. It's pass-through taxation, which means the IRS actually doesn't care. It's like all the same to them. They're like, whatever, you do what you got to do. You just put down on your individual tax return how much money you made, and we will tax you. It's really straightforward. When you become an S corp is when you raise your hand and you're like, I would like to be taxed differently, and I would like to save 16% on payroll taxes. Thank you very much. That's becoming an S corp. Watch another one of my videos if you want to learn how to be an S corp, or if it's time to be an S corp, or if you are leaving money on the table and you want to make sure you're not overpaying on your business taxes. And then step number 6, keep that money separate. Like we talked about, the main way that people ruin their LLCs and they mess it up is they mix their money. They use their business credit card and buy personal stuff and vice versa. They write checks for business things from their personal account. You do not want people to be able to pierce the corporate veil. What is that? That sounds like a really scary thing. It is. It's when someone can get through and mess up the border of your LLC because they'll say, look, your money is mixed together, so I should be able to get to that money because it's all mixed together in your business. And so if you get that litigation judgment or that debt against you in your business, we want to keep that in the business. We want to keep that in the business panic room that we have built with our LLC. The walls come down, it sucks, but at least it only floods that room. Okay, if you mix your money, now you've opened yourself up to vulnerabilities and people can get to anything that touches and has been mixed with your money, which can include personal assets. Equity in your home, in your bank accounts, things you own with the spouse, other businesses, 401(k), other savings or retirements. Do yourself a favor, make sure you maintain that LLC. Keep the money separate and think with that good business owner hat on because you're a business owner and we don't take ourselves too seriously, but we do take our business seriously and we own our business, which means owning this workflow to make sure that you're managing your money, you're paying yourself because you work hard for your business, business, and you should not be working for a crazy tyrant boss. I.e., that's you. So make sure that you're making money in your business. And I promise you that as you get better about managing and being on top of your money, not only are you going to be able to protect yourself and have that liability protection, that asset protection, but you're going to have a better handle on your numbers. You can easily run a profit and loss or a P&L if you've heard of that before, and make sure that you know how much money am I making? Is my pricing right? Am I keeping an eye on expenses? Is there software subscriptions that I'm paying for that I'm not using? And do I have money to invest into team members, into education, into coaching, or other things that I might need and want to budget for in my business? And if you need contracts in your business and are looking for some really solid DIY resources, head over to Creative Contracts. It's my curated shop that gives you step-by-step instructions and really easy color-coded fill-in-the-blank— couldn't make it any simpler— ways for you to get what you need for your modern business. I hope this has been helpful for you today. Thanks for joining me and learning about how to pay yourself because you're a real business owner, you're making money. How can we Jerry Maguire this? Show me the money all the ways. Make sure you like and subscribe to this channel if you haven't already, and check out some of my other videos here to be able to show up as a more confident business owner and send with swagger.