E37: How to Know It’s Time to Form Your LLC

EPISODE 37

[INTRODUCTION]

[00:00:03] AW: You’re listening to The Transcend Podcast. I’m your host, Asha Wilkerson, an attorney by training and an educator at heart. This podcast is all about empowering you to build a business and leave a legacy. Here’s the thing, the wealth gap in America is consistently increasing. While full-time entrepreneurship is not for everyone, even a side hustle could change your financial landscape, if you’re intentional about using your business to build wealth. I’ve run my own law firm for over 10 years. In that time, I’ve helped countless California businesses go from idea to six figures. On this podcast, we talk about what it truly takes to build a sustainable business and find financial freedom. Let’s dive in!

[EPISODE]

[00:00:49] AW: Welcome back to another episode of Transcend the Podcast. As usual, I’m really excited that you are here. Now, for the month of March coming up, I have a cool series of workshops coming up for you, that will help you learn how to build your business in a way that is capable of leaving a financial legacy. You’ve heard me say it over and over and over again, the whole premise of this podcast is also to equip Black and Latinx individuals, entrepreneurs, with the skills and the tools that are needed to build a business that can leave a legacy.

I was thinking about it. Well, I probably already told you. I’ll tell you again. One of my clients a couple years ago said, “Great, Asha. Thank you for forming my LLC. This is great. I understand how it runs. Now, tell me, how do I keep my money like all the rich folks do?” That’s a really good question. I didn’t know the answer. I knew how to form the businesses. I knew how to write contracts, but I didn’t really understand the bigger picture of how everything goes together to really change your life, your lifestyle, and what – Not just taxes. I mean, it does help reduce taxes, but there are so many advantages that you get by having a business in the United States, and by knowing how to use the business to take advantage of all the systems that reward business owners.

A big part of that is paying taxes, but there are other affirmative things that you can do, so not just avoiding things, like not paying taxes, but there are affirmative things that you can do as well, like retirement, paying your children, making donations from a business to a cause that you actually like and support. All kinds of things that will adjust how much money you’re able to keep. Not even just keep, but you get more options on how you choose to spend your money that will be rewarded by the tax code or by the loss amount.

I really want us to understand how do we actually build businesses that are capable of leaving financial legacies? There’s a few different parts to this. The first workshop that I’m doing this week, which is on Friday, at 11 a.m. Pacific is how to know when it’s time to form your LLC. Let me back up. The three parts of forming a business that can leave a legacy that I’m going to talk to you about are strong legal foundation, knowing how to build your team, understanding how to use contracts to protect your business, and then putting it all together with some forward-thinking financial planning to make sure that your business is working for you, and you’re not just working for your business.

The first workshop that I’m doing with you all on Friday, which is free, at 11 a.m. Pacific, is how to know when the time is right to start your LLC. I get this question all the time. It really comes from fear, I believe, for a lot of folks. I’ve heard folks say, “I don’t know. It’s expensive. I’m not quite sure. I don’t know what to do. I’ve heard you have to. I heard you don’t have. Asha, what is it?”

Well, I tend to come at it from the perspective of not so much looking at where you’re at right now, although that can be helpful, but where do you want to be in three years in your business, in five years in your business? Eventually, an LLC is going to be necessary. I often think that it’s necessary in the beginning. At the very least, it won’t hurt you in the beginning, because there are all kinds of benefits that an LLC offers you, from legal protection, from getting sued to, even if you start the business, let’s say, you sign a lease with a company and the business goes belly up in six months. If that lease is signed in the name of your LLC, or of your corporation, then that responsibility is on the business entity and not attached to you personally, as long as you don’t personally guarantee that agreement. Things like that.

Businesses, LLCs, and corporations can really help protect you as you’re getting started. Now, as Black and brown folks, credit is an issue, by and large, right? We either don’t have credit, or we have bad credit, because there are all kinds of – I mean, there’s a whole host of reasons, including predatory lending practices and just thinking about how many cash – wait. Check cashing businesses there are in the hood that have ridiculous interest rates on them. Once you go to a check cashing business, or a day in advance business, I mean, it’s really, really hard to dig yourself out of that hole. Those are strategically placed in low-income areas.

It’s not just about personal responsibility, although some of it is, but it is also about some of these predatory practices that affect our communities of color. Credit, we want to get off on that tangent, but we really want to protect your credit. Even if you feel like you don’t have any assets that might be at stake, you want to protect your credit. You will always have your credit that will stay with you. It takes some time to improve. It can be improved. Why even put yourself in that position if you don’t have to? That’s one of the reason why I think that LLCs can never come too early.

I’m going to talk, too, about how limited liability companies are taxed. How are LLCs and corporations taxed and how does that look different from being a sole proprietor? Now, I am not a CPA. I’m not a certified public accountant. I’m going to tell you what I know from my own experience, and what research I have done. I always tell people, talk to an attorney and talk to a CPA before you make your decision, unless you’re already set about forming an LLC or a corporation. You want to understand, especially if you have multiple income streams, how your entity is going to be taxed.

If you are filing jointly with somebody else, there are some strategies that you might be able to take advantage of with an LLC. If you want to control a little bit – have a little bit more control over how money comes into your household, then a corporation might be the answer for you. We’re going to dive into that more in depth on Friday.

The last thing I’m going to cover with you is what steps you can take to get the most financial benefit out of your limited liability company. It’s one thing to start it up and that’s great. It’s one thing to have the legal protection. That’s awesome. It’s one thing to understand how you’re taxed. That’s super important. Then, I want you to start thinking about how can you use your business to actually make a financial plan? How are you going to take advantage of the benefits that come with being an LLC owner? A lot of people don’t think about this. I will say, a lot of people who are just starting out don’t think about this. These are not conversations that I’m hearing regularly in other spaces, but they are conversations that are sparked between my crew of folks, the CPAs that I’m in community with, the other business owners that I’m in community with. I want to take that conversation and amplify it, because everything is out there and it’s available for us. If we don’t know that it’s there and we don’t know how to take advantage of it, we’re not going to be able to take advantage of it.

On Friday, I’m going to talk to you about how do you know when is the right time to form your LLC, from the pros and cons, when to get started, how to get started, understanding the taxes that come with an LLC, and then understanding how you can use your LLC to plan for your financial future. It is super important.

Now, how do you register? You’re going to go to my website, transcendthemembership.com/events. You are going to get the information there for the registration page, and you can sign up for one, or all four workshops that I’m running in the month of March. In addition to the LLC workshop, I think I already told you, contracts, employment law, and then how to put it all together to really build your business to leave a legacy.

Now, it’s free, right? This is my contribution to the community, because I really want you to have the information. I also don’t want you to sit on it. What good is it if we just individually have this information? I want you to share the workshops and this podcast with your friends and your family. Anybody who is thinking about starting a business, or who is already starting a business. It is great for us to see success individually, but what’s even greater is if our communities can find some success as well.

Understand that Transcend is a community for Black and Latinx entrepreneurs, who are focused on building a business that is capable of leaving a legacy, and this is a movement you all. It’s not just a sound bite. It’s not just, I don’t know, something that’s cute for the time being. I really feel like, this is part of my mission to share this information with you. It’s ridiculous how educated I would say that I am. Probably a little bit too educated. What I found through that education is that I am truly an educator and a teacher at heart.

My goal is to make these complex, scary issues a lot less complex and a lot less scary. Don’t hesitate to sign up. Go to transcendthemembership.com/events, and you will see all of the information there. Alright, share the podcast. Show me how much you like it by posting it on Instagram, or leaving a review. I would really, really appreciate that. I will see you on Friday in the first of four workshops. Ciao.

[END]