The day-to-day operations of a running a successful creative business are oftentimes anything but creative. And getting such an organization set up can be fairly intimidating. Here are a few thoughts that can provide some high-level perspective and hopefully get you pointed in a good direction.
Disclaimer: I am not an attorney, nor accountant. Consult with someone that really knows what they’re talking about rather than following any of my advice here.
Does my business name exist? These are great places to start for searching the availability of your business name.
One decision you’ll encounter quickly is that of your business structure. We won’t go into all your options here; rather I’ll outline the most common scenario. Generally a person starting out a side hustle (which is often how these sort of businesses begin) starts as a sole proprietor. That simply means they are managing their own business and there’s no real division between the business and the owner. The sole proprietor *can* hire employees, despite the “sole” in the name. In practice, the downside to this setup is that there’s no ability to separate the business owner from the business when it comes to liability (someone suing you) or taxes (no corporate tax benefits).
Generally, people who start this way but have success in their business eventually turn into a “Limited Liability Company” or LLC. This is a state-level designation which creates a new and separate business entity, distinct from you as an individual. The LLC can own business assets, invest in another LLC, etc., and the biggest benefit: if someone sues you, they don’t have access to your personal stuff.
Starting an LLC is incredibly simple. It takes just a few minutes and less than $100 in the state of Utah. But the protection offered by an LLC isn’t as simple as just filling out some paperwork. To benefit from the liability protection, the business owner must prove that they are truly separate from the business. You must use a dedicated bank account for that business, sign contracts in the name of the LLC, create an operating agreement and track every decision made by the LLC. This is called “maintenance” of the LLC and it’s absolutely necessary if you want to keep someone from accessing personal assets in the case of litigation (“piercing the corporate veil”).
The next step many business owners take is often done more for tax advantage than for liability protection. An LLC is treated as a “disregarded” “pass-through” entity by the IRS. This means the profits from the LLC are sent straight to the business owner and taxed along with their personal income. This can result in high taxes so many people elect to be taxed as an S-corporation by the IRS but still hold their LLC status with the state. The major benefit is that disbursements can be made from the S-corp to the business owner without undergoing the 15% FICA taxes. The business owner must be paid a reasonable salary and that portion will be fully taxed however.
With the S-corp comes a lot of other paperwork. Taxes are more complicated as the individual must now file their own personal income taxes plus the S-corp business taxes. With a brand new LLC or sole prop, the owner usually reports income on a Schedule C which passes through to the individuals tax return. Sometimes people forget to pay their taxes as they go and get fined by the IRS or owe a lot more than they anticipated. With an S-corp it’s even more complex since you now have income from the business (issued as a standard paycheck via W4/W2) and a K1 reporting disbursements from the business. At this point you’re likely paying an accountant to do your taxes and a payroll company to handle your payroll. Keep these things in mind before jumping into an S-corp.
With this basic knowledge, you should be able to Google a lot more specific information. Here are some additional questions to keep in mind as you proceed:
Are you required to hold any business license at the city, state or federal level?
Are there permits required for your form of business?
Are you hiring employees or 1099 independent contractors? What happens if someone is injured on the job?
Where will you bank to maintain separate of business and personal assets? What if some issues a check to your business name–can you cash it?
Do you have/need a place for clients to come and visit you? Do you have a place to hang your business license? Do you have a physical street address (something most business lenders will verify)? UPS mail boxes or “Virtual Offices” are alternatives for home-based businesses.
Do you know what your operating costs truly are for a business?
And the list goes on…
It’s great to find attorneys, accountants or insurance brokers who are savvy about the film industry. Your local film commission can be a huge help. Also, don’t forget the reach and networking efficacy of social media sites like Facebook.