Stop! Hold on before you form that LLC!

There are some crucial things you need to get right to avoid errors that can cost you thousands, or even millions, of dollars when setting up your LLC.

In my 25 years of being a licensed CPA, I keep seeing business owners make the same exact mistakes over and over.

Today, I’m going to share with you how to set up your LLC the right way the first time.

Now let’s get started.

Top 5 Tips for setting up Your LLC Correctly

Tip #1 for setting up your LLC correctly is don’t include your name.

When setting up your LLC, avoid the temptation of using your own name in the business name. Many people make this mistake, but it can limit your ability to market your business effectively, grow your brand, and can turn off potential buyers when it’s time to sell.

Instead, choose a name that reflects what your business does or the value you provide to the marketplace. This makes your company more memorable, marketable, and easier to sell.

By choosing a name that focuses on your service, you help potential customers quickly understand what your business does at first glance.

Also, A well-chosen name can significantly impact your brand’s visibility and success. Unfortunately, a lot of clients set up an LLC with business names that do not align with what they do.

For example, with my CPA and accounting business, I chose the business name CPA Accounting & Tax Services. This aligns perfectly with what I do.

A funny story. The initials CPA which stands for certified public accountant, also turns out to be the initials of my sons in order of birth,

• Christopher
• Patrick
• Anthony

What a coincidence right? That’s when you know you found your true calling in life right? When your children’s names can be a apart of your business name. This represented something to me and at the very least, makes for a fun story I can tell people about my business.

And here’s a bonus tip. If you are struggling with coming up with your business name, give the free version of chat GPT a try for some ideas.

For example, if you’re a plumber, a good query to start with on ChatGPT would be “Provide me with 10 business names for a new plumbing business that offers excellent service and is appealing to both homeowners and Google.”

From there, you will have plenty of ideas to craft the perfect name for your new business.

State Considerations When Forming Your LLC

Tip #2 is form your LLC in your home state.

When setting up an LLC, it’s usually best to do so in the state where you live and operate your business.

If you establish your LLC in a different state, you might end up paying taxes in both your home state and the state where your LLC is registered, as a foreign entity doing business there.

This can complicate your tax situation and increase operational costs. In most cases, setting up your LLC in your home state is simpler and more cost-effective, while keeping your business compliant with local regulations.

Which Address to Use?

Tip #3 is a biggie and it’s don’t use your home address when registering your LLC unless it’s the commercial place of the business address.

And I say this for several reasons.

First, it can compromise your privacy, as your home address becomes a matter of public record, making it accessible to anyone.

This could lead to unwanted visitors, solicitations, and at the very least, tons of junk mail.

Second, using a home address may give your business a less professional appearance, which can impact how clients and partners perceive your company and of course, this can impact what might be able to charge for your goods and services.

And lastly, if your business grows and you need to move, changing the registered address can be an administrative hassle. Instead, consider using a registered agent service or a virtual office address to maintain privacy and professionalism.

Accounting and Banking

Tip #4 is Get Your Business Finances Started on the Right Step

Open a business bank account as soon as your business is set up. Establish a bookkeeping system right away — QuickBooks, for example, is great at tracking your transactions.
But remember, as a business owner, it’s your responsibility to categorize those transactions. Only you know the details of what’s happening in your business.

For instance, a transaction from Amazon might just show up as a purchase, but it won’t specify that you bought a computer.

QuickBooks will download the transactions, but it’s up to you to categorize them correctly. I mention this because I see it frequently in my practice.

If you want more than just basic bookkeeping, you might need a service that offers deeper financial management. If you hire a company like mine or someone else to manage your books, you’ll need to either understand how to categorize your transactions or request a service that covers this.

Taking care of these details is crucial to how your business is perceived by others and the IRS.

Partnership Concerns

Tip #5 is form your partnership legally from the start.

Having a partnership agreement done by an attorney is crucial if you’re setting up an LLC with more than one owner.

This agreement outlines each partner’s role, responsibilities, and share of the profits. This will help to prevent misunderstandings and disputes down the road and make for a more enjoyable partnership.

Without a clear partnership agreement, conflicts can be costly and relationships can be permanently damaged.

Parters can be great, but they certainly are not indesustructible. In some cases, partners get divorced, become disabled or worse yet, die.

Who will be your partner then? Their spouse, who may know nothing about the business? And this is why your partener agreement needs to be clearly state what will happen if the unfortunate takes place.

Here’s some more examples of concerns partnerships may face.

Imagine two partners start an LLC without an agreement, and after a few years, one partner wants to sell their share of the business. Without an agreement in place, there could be serious disagreements about how much the departing partner’s share is worth, or who has the right to buy it.

This could lead to costly legal battles that could have been avoided with a solid partnership agreement from the start.

Or imagine if one of the partners travels a lot, but is mishandling the traveling expenses, these matters can create both legal and emotional battles in your business.

What about distributions, there might be money in the bank, but no understanding as to how the partners will distribute the funds.

Having a tax professional guide you through these steps — preferably before you even open your LLC — can make all the difference in whether your business takes off or continually struggles with no end in sight.

Free Complimentary Consultation

If you don’t already know me, my name is Sonia Narvaez. I’m a licensed CPA in Orlando, FL and wealth-building strategist with over 25 years of experience.

If you have any questions about how to take advantage of the latest tax savings strategies, don’t hesitate to contact us.

To get your FREE complimentary consultation with a member of my team, simply click this scheduling link, and pick the time that works best for you. We would love to help and meet with you.