If you look at all businesses in general, you can easily imagine that none of them just came out of nowhere… they all pretty much started out as an idea. There were, of course, steps those budding entrepreneurs had to take in order to make their ideas become a reality. From drawing up their business plan and finding funding to determining their legal business structure and getting their business registered, there are so many aspects to consider when starting a business that’s easy to make some mistakes somewhere along the way.
Making mistakes is human nature… nobody’s perfect but from a business perspective, some mistakes you make can cost you a great deal, whether it’s a financial loss or wasted time and effort. One of the areas where small business owners make the biggest mistakes is in running their LLC. Becoming an LLC member has actually grown in popularity over the past decade or so but in its growing popularity people are jumping in blindfolded not knowing anything about running an LLC… and that’s where the issues start coming in.
There’s nothing wrong with looking to get help starting an LLC… it’s certainly much better than starting your business venture with absolutely no knowledge on it. In fact, seeking help is actually one of the smartest business moves you can make when starting an LLC. You can read a free guide or seek professional services but whichever route you decide to take, it will definitely help you and ultimately prevent you from making these common mistakes in running an LLC.
Mistake 1: Not Getting Your LLC Insured
This is a huge no-no and an irresponsible one at that! You aren’t even supposed to launch your business without it being insured. You never know what could happen over the course of a day. Your business could be robbed, you could encounter property damage, or an employee could get injured on the job. Purchasing an insurance policy for your business is one of the best investments you’ll ever make for your business.
If your business provides a service, you may want to also consider professional liability insurance. This is insurance that will cover you if you fail to do something in your service or do something wrong while providing service. The main thing is to look at the different insurance policies out there and see which one or ones are best for your LLC.
Mistake 2: Poor Accounting Records
When you’re running an LLC one of the most irresponsible acts you can commit is not maintaining a good record of accounting. In fact, according to the Small Business Administration, maintaining a good record system is the key to determining just how successful your business will be.
Just think about it… you’re running an LLC; a business; a corporation… why wouldn’t it cross your mind to keep a paper trail of any and all monies, receipts, and documents? It’s common sense for most people but there are small business owners who have made this mistake, which is why it’s listed as a mistake for you to not make!
What you have to realize and understand is that your lack of accounting records can and will be used against you, the LLC member when someone is trying to sue the member responsible for any liability or debt that’s associated with the LLC. Not only that, but you need a well-documented paper trail for tax purposes as well. In order to prepare the LLC’s tax return or Schedule E, you’re going to need that paper trail.
The bottom line is, when you decide to start an LLC, you make it one of your top priorities to document everything and keep any and all receipts and records of documents that pertain to accounting and taxes… this will save you a lot of headaches in the future.
Mistake 3: Failing to File an Articles of Organization
Filing an Article of Organization is an LLC law required in every state. You simply file a document with a state agency and then pay your filing fee… not too painful of a task when trying to form your LLC but believe it or not, there are people out there who don’t do it. The thing about Running an LLC or just having your own business, in general, is that so many people are lazy.
Do you know how many “underground” or “under-the-table” businesses are out there? Millions. From people running salons out of their homes to landscaping businesses that only accept cash, nobody wants to set themselves up as a legitimate, legally operated business. Filing an articles of organization can be as simple as stating your LLC’s name, depending on where you live. And then the filing fee can be anywhere from $100 to $500, and people try to get out of having to pay that!
Some people get away with it but there’s no escaping it, especially if your “underground” business is successful… you’re going to have to make it legal at some point and if you get caught running an illegal LLC, you will be facing some serious penalties.
Conclusion
Opportunities are all around you to form an LLC but you want to do it the right way. Is it expensive? Yes. But is it worth it? Also yes. If you have a great idea and there’s a market for your product or service, the time is now to start the process of forming your LLC.
Speak with professionals or read the free guide mentioned above to help you get your process started. If you can learn from the mistakes of those before you, wouldn’t you take their advice to prevent yourself from making those same mistakes?
