How to:Know when to file your company.

This is the burning question of all time,

How to you actually KNOW when to file as a company from a business?

And….tragically it’s got a terrible answer: IT DEPENDS.

From last week’s edition, we know that expansion really depends on LIABILITY, RISK and your own PLANS for GROWTH.

Here are 3 simple trigger questions to help you:

1. Are you creating a duty or obligation to another person or entity (business)?

• Any sale creates a duty and obligation to provide the product/service to the client/customer.

2. Can your product or service harm another person or entity? If you expand any further in your product/service offerings – will it increase your risk?

• How can it harm another person, including an innocent bystander? It doesn’t have to be a client or customer – any third party.

3. What do you plan to do with this business in the next 6 months; 12 months; 3 years?

• Are you happy with your current state of business? Do you want to expand or include new services to new types of clients?

Let’s use 2 separate business owners – Jamie & Louie – as an example.

Jamie is an artsy, marketing manager who has a 9-5 job. She unwinds from her stressful job by making intricate, cloth doilies that she sells on Etsy, the online crafts retailer (www.etsy.com). She makes about 4 doilies a month and sells them all at $10 each. While her friends have urged her to expand into boutiques and other retail fairs, Jamie is quite content keeping this little side-hustle exactly where it is, and doesn’t want to make this a full-time gig.

Now, meet Louie.

Louie is ALSO into making and selling doilies.

But, his doilies are flammable doilies.

That’s right – they literally can be set on fire. (My heart just hurt, writing that, y’all). Louie’s business is booming and he’s firing out anywhere from 20-40 doilies a month (at $100 each) from his storefront on Main street. He wants to expand online in the next 3 months and bring on an investor by the end of the year.

Who really should form a company to protect their assets and liability, here?

LOUIE – for ALL the reasons.

As in, TODAY.

He’s creating volume and plans to expand further within the next 6 months with online exposure and investments. Of course, let’s not forget that Louie’s doilies are supposed to be SET ON FIRE. Meaning, anyone within the vicinity of said doily is in harm’s way. Regardless of whether they were the initial consumer who bought it or the person that was standing near it.

While Jamie is creating a duty and obligation to provide her doilies upon payment by her Etsy customer, she still pursues this as a hobby and NOT a future, wealth-generating vehicle. Her doilies would generally be considered harmless (if used within the intended use of decoration) and she’s not selling huge quantities of this product. Jamie is a hobby-ist. Now – keep in mind – this can change AT ANY TIME, if she either expands the volume exponentially and/or decides to wander into creating flammable doilies, herself.

So, are you a Jamie or a Louie…?

Regardless, here’s what you can do with your business, today:

• ​Protect yourself with basic contracts such as a Client Agreement or Contractor Agreements & disclaimers in the interim. Your assets are still NOT protected should anything go wrong and you do NOT need a company structure to have contracts in place.
• Obtain business insurance through a commercial insurance provider.
• ​Decide today if you want to incorporate into a formal company – LLC or Corporation by the end of this year.
• Get your BIZ clique together (Accountant, attorney, banker, insurance agent) before incorporating. Consult with them about your specific liability and risk factors.
• Your Business Plan is still an active tool in your growth. Make Quarterly goals on your timeline for INCORPORATION, sales growth and revenue milestones.