I recently had the honor of serving as a legal mentor to the Khafra Community Cohort that hosts a little under a dozen entrepreneurs per cycle and provides access to professional mentors and other building blocks of building a successful business.

One of the top questions I am most consistently asked is whether it is necessary to have an LLC OR now that their side hustles have taken off and started to generate real revenue how can they make sure they stay legal.

Here is how you know it's time for you to launch that LLC:

1. IS IT MAKING MONEY?

If you are providing a product or service and have yet to net any real money it likely is not time to start an LLC. What should you consider to be real money? The gauge I use for clients regarding making "real" money is when you are making enough to cover at least one major household bill per month (i.e. water, lights, cellphone, cable/internet, mortgage, rent). Is your side hustle finally taking off? Did your song land a major placement? Have you built a handful of consistent clients? It might be time to consider starting to handle your business under an LLC. 

2. ARE YOU INVESTING A LOT or WORKING WITH OTHERS?

The flip side of this is also how much money are you investing in your business or if you are going into business with partners.  At the point you are investing a substantial amount in tech equipment like laptops, studio equipment, courses, software like InDesign or Pro-Tools to launch your business you are increasing the risk associated with your business and it becomes a good idea to go ahead and register your business an LLC. (more on this next..) Similarly, once you decide to go into business with others you want to have a clear line between your personal assets and business assets should something go wrong in the business and registering as an LLC creates this line and protects you personally when running a business with others. Everyone is friends until money gets involved. Cover yourself and handle business as business.

3. IS YOUR BUSINESS RISKY?

If you are doing anything that involves hosting events, working directly with people face to face, or creating something for someone (like music, graphics, websites) your business has a legal risk to it where it would be wise to register as an LLC. Again, the main purpose in registering an LLC is to create an entity that would be responsible for the business that is taking place. If you run a business where someone could get hurt, get sick, or get sued (copyright infringement for music production or infringement for copying someone's graphic design) then it is wise to have an LLC in place that will answer and be responsible for any legal claims that come from running your business instead of your own personal bank accounts.

Have you answered yes to all of these and think you are ready to launch your LLC? Check out 3 Things Nobody Tells You About Starting a Business....you might want to grab a drink!

SHAY MONEY TALK:

All the legal protections of registering your business as an LLC go out the window if you don't handle business as business and put the money that should go into your business in your personal account. If an issue arises and your business gets sued while you have been mixing money in accounts the court can come after you and your personal property in a process called "piercing the corporate veil". So you always want to handle business as business and keep your business money separate from your personal money and have clear records of paying yourself a "salary" to CYA.

If you've been mixing your money, now is the perfect time to start fresh and open a business account and get your personal finances separate from your business finances. Here is a great post on how to separate your cash flows from my client and money expert Iyanna Vaughn who specializes in helping entrepreneurs get their money straight. 

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