Hey Don- long time member- have not posted in a loooong…while… If you dont mind another thought process coming into play- I’ll share a bit of advice.
-For clarification- my wife is a CPA- I am a long time small business supporter and owner. Jewelry is NOT my primary career. I live in a “commonwealth” state in the USofA. That ALL being put out there so you know what direction I come from- here goes.
Im going to quote your original post then place my response in line to address your items and then propose another perspective for your consideration.
DON<< I have a business plan which I advise everyone to have as it creates a road map of sorts. But one area I am a little in the dark about is the legal status of my business.>>
REPLY- Bravo for the business plan- I see a LOT of folks go into things without a map, and the plan is definitely a good course of action. If you have NOT considered getting your business plan looked at for soundness- I would recommend it. How? Hey I’m glad you asked!
-Go to SCORE.org and use the business plan template there to write or re-write your business plan… Why? Because it is already in the format banks or venture capital groups use and is plain, straight forward and as you fill it out may bring up questions you may not have considered. The caveat here is these guys are FREE- and there are LOCAL chapters in every state. I have even used their online mentor program (Free as well) and received very sound advice.
DON- << why I would wish to add an LLC to my business name >>
REPLY- Short answer- because you can be accused of “copying/rendering or adultering another persons idea for your own financial gain” according to the law. It is all about a person/companies PERCEPTION (not always a reality based fact) of a threat to business or market-share. This can/will tie your finances up, cause lost time and craft, and could potentially disrupt the business long enough to kill it. Big names like David Yurman (Torques in particular) have gone after other artisans and effectively killed them by dragging out a financial case over a long period of time. I hate putting names to cases- but just google trademark infringement lawsuit ______ (add company name) and see.
For this portion of the reply, apologies… its a long one- sorry- thank DAVID GELLER for putting these ideas into my head years ago! (HA! thanks to Dave’s older mailings my metalwork went into analysis mode and my efficiency went up)
-Liability protection is the avenue a lawyer will go down for all things- that being said a CPA will direct you down the path of financial security in general. You can do both. the key element is CRAFT YOUR MARKETING PLAN ACCORDINGLY.
Jeeze- you mean another layer to the puzzle? Yup. The act of creating a marketing plan with growth and expansion benchmarks/targets will force you to see “down the road” to avoid things like Cease and desist" letters- but MORE importantly it will allow you to craft your business and tax advantages around where you are in your marketing plan.
Starting out- Most artists create branding that is associated with the name/personal style or codex of skills they bring to the craft- it adds an air of personality with the knowledge that if your name is on it- its personal. Good and bad- If you ever want to branch out- not many folks named Frank want to buy “Dons” jewelry store… so long term outlook here- Start personal and with the goal of 100% personal service.
But- this “starting out” is also your space to find out what niche/arena and focus you bring to the industry… its NOW you need to be thinking big- and preparing for that eventuality. So- LLC? Sole Prop? LLP? If you are afraid your product can/will get you sued then at this point go for liability protection.
As you grow, your needs will change. Use your marketing plan to define and identify when those points are upon you.
Beginner- Sole Proprieter… Got a few annual craft shows under your belt and have a small line or production that you wholesale? Think about an LLC… Got a student/apprentice or like to teach? Then explore S-Corp (mostly for injury/liability and financial insulation from accidents or employees/workers)
DON-<< As I am a sole proprietor will I need a different type of bookkeeping? >>
REPLY- You will need specific book-keeping for EACH separate entity- the key here is no (can I stress it again- NO) co-mingling of funds (please read this again- NO co-mingling)… dont even put a pack of chewing gum for yourself on the business account… The moment you co mingle- the fiscal liability for debits and legalities to the business become a household item… and any other hobbies/crafts/activities should be their own- you dont want to tie your house to a lawsuit.
DON- << Do I have a greater exposure to business liability as I have a second business as a musician and I need to keep the businesses separated. >>
REPLY- All business should be separated financially and each should have their own audit/control and financial reporting. Sounds daft- but it will protect you from any “gray areas” of interpretation on the IRS/State or in my case the municipality.
Let me explain this- a business exists to make money or grow to a profit level. Tying your music to the jewelry may be seen as a tax-dodge to some folks. In my case I had a foundry for casting (investment and greensand) as well as another business doing property maintenance. They were separate. In addition I had my fabrication (jewelry) metalworking business.
Yes- I was audited. I was able to show each existed separate from the other with books and financial reporting and seperate accounts (no co-mingling). The trigger for the audit was the “Appearance” of tax-dodging with the casting versus the fabrication. I was able to show via timelines, business plans and marketing plans the direction of each business being independent of the others (although all were housed in my one business address).
So if you are still reading- good on you! My advice:
1- Go to SCORE.org and do the templates
2- Get the free counseling/mentoring
3- Build the MARKETING PLAN along with the business plan to know when it is time to grow/change your tax-structure
4- No co-mingling of funds
5- Make lots of jewelry and have FUN!