FORM AN LLC
When starting a business, many new owners operate as sole proprietorships. However, Because of the lack of protection sole proprietors face, many small business owners choose to classify their business as a Limited Liability Company, or LLC. Like sole proprietorships, LLCs file personal tax returns alongside Schedule C and Schedule SE and make quarterly estimated tax payments. The primary difference between a sole proprietorship and an LLC boils down to protection; an LLC protects a business owner’s assets from being used to settle liabilities such as lawsuits or debt.
How To Form an LLC
If you want to enjoy the liability protections that LLC designations offer, here’s how to obtain LLC status.
1. Name Your LLC
Naming your LLC may be more complicated than you think. Many states require LLCs to have unique names previously unregistered under any business classification. In addition, you may need to obtain special permission from your Secretary of State if you plan to use insurance or bank-related terms within your LLC name.
2. Appoint a Registered Agent
A Registered Agent is a person that accepts legal documents on behalf of your business. In some states, you may designate yourself as your business's Registered Agent. Still, if you do so, it is your responsibility to maintain open availability so you can receive legal documents promptly at all times. In many states, Registered Agent services provide business owners with a simple, convenient solution.
3. Check If You Need a Business License
Depending on your state and industry, you may need to obtain a business license. Some business types, such as healthcare providers and other highly-regulated service providers, must obtain additional certificates.
4. File Your Articles of Organization
To finally get your LLC on the official registry, you’ll need to file your articles of organization with your Secretary of State. Most states allow applicants to file online for a streamlined experience, although it’s worth checking whether this is offered in your specific state.
After you have completed all these steps, you must maintain your obligations as a business and, if applicable, an employer. For example, to maintain good standing, you must continue to pay business taxes, comply with federal requirements, and meet your legal obligations as an employer, if applicable.
Should Your LLC Hire a Bookkeeper?
Most small business owners started their companies because they were experts in providing a good or a service — not balancing a book. In addition, small business and startup bookkeeping can be complex and multi-faceted. Nevertheless, sound bookkeeping is imperative to manage any company’s financial health, guide decisions for growth initiatives, and ultimately ensure your business is in good standing with its tax obligations throughout the year. However, it can also be tedious, complicated, and time-consuming — especially for those who own smaller businesses or sole proprietorships. Additionally, the IRS can be unforgiving when it comes to mistakes — for instance, filing your payroll taxes just one day past the deadline incurs a 2% penalty. To make matters worse, these penalties can add up to 15% of the initial amount owed.
There is good news, however; outsourcing accounting and bookkeeping to an outside firm is a rewarding and straightforward process that allows business owners to spend less time worrying over books and more time, well, running their businesses. Every day, more and more business owners trust Liberty Tax to handle their books.
What does a Bookkeeper do?
For most businesses, the work required to handle bookkeeping responsibilities will necessitate a specialized bookkeeper to handle the books. In their typical day-to-day, a bookkeeper must:
- Develop and adhere to their employer’s bookkeeping policies, procedures, and systems.
- Manage cash flow.
- Balance and maintain subsidiary accounts such as accounts payable, accounts receivable, and payroll.
- Prepare invoices.
- Keep track of overdue accounts.
- Categorize business transactions.
- Prepare bank deposits.
- Deliver payments to lenders.
- Verify receipts.
- Maintain bookkeeping documentation.
- Maintain compliance with federal, state, and local requirements.
In addition, one of the most critical responsibilities of a bookkeeper is to create financial statements. Bookkeepers must craft financial statements for each reporting period — informational documents that guide business decisions and indicate financial performance for lenders and investors. Chief among these statements are the balance sheet, the profit and loss statement, and the cash flow statement.
- The Balance Sheet: The balance sheet is a financial statement that balances what a company owes and what is owed during a specific period.
- The Profit and Loss Statement: Typically, the PnL statement includes vital cash flow information such as revenue, costs of goods sold, and operating expenses during a particular period. It should also show the resulting net income or loss for that specific period.
- Cash Flow Statement: The statement of cash flows, or the cash flow statement (CFS), is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.
Bookkeeping vs. Accounting
Among the general public, the role of the bookkeeper can be difficult to parse from the accountant's role. However, there are a few fundamental differences; in a nutshell, bookkeepers handle the financials from an administrative perspective, while accounting is much more subjective. For example, while bookkeepers record and file concrete financial transactions, accountants utilize recorded financial information to inform strategic decisions, manage business finances, or identify potential avenues for growth.