So you’ve decided to start a small business — you’re embarking on a very exciting, challenging, and rewarding journey! At the MI-SBDC we know there’s a lot to consider when starting your small business — and in this blog, we’re going to talk about forming your small business’ LLC or DBA.

We often receive questions from clients about forming an LLC, as well about the DBA, or “Doing Business As.”’ Both are known as sole proprietorships. So let’s say you want to start a gardening business— you purchase the garden supplies, a lawnmower, a wheelbarrow and anything you might need to be successful in taking care of a customer’s lawn or garden. You complete the job and are paid for your services. Your small business is known as a sole proprietorship.

But perhaps you decide you would rather have a name for your business. You can file an LLC (sole proprietorship), or you can keep your name and file a DBA (Doing Business As). Either option gives you the opportunity to name your business and separate its transactions from you, the owner.

So what are some advantages of filing an LLC or a DBA? Well, mainly, time and money! Filing either is very easy! You do so by visiting the State of Michigan’s Department of Licensing and Regulatory Affairs website. You can search available business names and the cost(s) of filing. Once you’ve decided on a business name and have filed your LLC or DBA, it’s easy to maintain. The State of Michigan will mail you a renewal notice at the end of each calendar year. Simply fill out the form, include payment for the renewal, and mail back to the State of Michigan. Note: it is important your small business’ address, phone, and owner contact information are up-to-date. If any changes occur, please report them to the Department of Licensing and Regulatory Affairs as soon as possible.

With anything new, there are always advantages and disadvantages for which to be prepared. It’s a little more complex to maintain sole proprietorships, as the owner of the LLC and the LLC members need to manage their business and personal affairs separately. Thus making an LLC is a less attractive option for a corporation looking to garner the interest of outside investors. This is important to consider, especially If you’re thinking of down the road, when you might need support from venture capitalists or private equity firms.

While there are some disadvantages, for many of our clients at the MI-SBDC, the LLC route is a nice fit of being relatively easy to establish and maintain, while also providing some protections. Remember, you have to separate your personal affairs from your business affairs — you want that wall of protection created between your personal assets and your business assets.

If you’ve decided to establish your LLC for your small business, there are a few more things you will want to do. First of all, we highly recommend getting an EIN, an Employer Identification Number. The EIN identifies your business for federal and state tax purposes. It’s kind of like a social security number for your small business. Sole proprietors and single member LLCs without employees may use the owner’s Social Security number. However, the EIN only takes a couple minutes to obtain and it doesn’t cost anything. It also adds to that previously mentioned level of protection!

Next, it’s incredibly important, and very highly recommended, to establish an operating agreement for single member LLCs. Having a well-written, thorough operating agreement can help establish that your small business is operating as an entity separate from yourself. It will also outline cost(s) for services or goods that you’re providing, payment terms, expectations of the customer/client you’re serving, etc.

When you’re ready to start accepting payments for your goods or services, you get to decide in what form the payment comes to you (as long as it can be tracked in a financial system to aid you come tax season): e.g., cash in hand, a check, Venmo, PayPal, etc. Any money you earn should go directly into a business bank account. Any bills related to the business can then be paid through this account, versus paying business expenses/contractors from your personal bank account.Forming a small business and selecting the proper route for you can be overwhelming sometimes, but we’re here to help! Whether you need support selecting a name for your small business, or need assistance with LLC paperwork, please connect with us here!

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