6 Mistakes Freelancers Make When Setting Up an LLC

In 2023, freelancing has taken on a whole new level than ever before. Studies show that 73% of U.S. workers planned to freelance in 2023, and more than 72% of Gen Zers stated they plan to leave their jobs in 2023. With numbers like those, it should come as no surprise that freelancing is simply going off the charts. 

With the flexibility to make your own hours and not having to report every move to your boss, freelancing certainly has its pros. However, setting up your business for success as a freelancer is key to its success.

Freelancing isn’t just deciding what service you want to offer, but it’s also setting up your business and implementing a business plan. Although neither task is difficult, they do require some work and are crucial to starting your business off on the right foot. 

In this article, we will look at 6 mistakes freelancers make when setting up an LLC and what you can do to avoid making the same mistakes.

(Source: Financesonline.com) 

Why Should you Set up an LLC?

Before we dive straight into mistakes freelancers make when setting up an LLC, let’s understand why you, as a freelancer, should go the extra mile to set up an LLC. 

Setting up an LLC is popular for freelancers for more than one reason. The main reason is in the name—an LLC provides limited liability protection. Your personal assets are generally protected if your business faces legal action or debt. It separates your finances from your business obligations, shielding your personal assets from business liabilities. So if, for whatever reason, something happens to your business, your home and car would not be included as part of your company if you had set things up correctly when you made your LLC. 

An LLC can also add credibility and professionalism to your freelance business. Clients might view an LLC as more trustworthy and established than someone who has not started their business off right.

Plus, if you plan to expand your freelancing business or hire employees or partners in the future, an LLC structure provides a solid framework for growth.

As you can see, setting up an LLC can benefit you in the long run, so be sure to start things off right from the get-go.

What Do you Need to Set up an LLC?

Although every state is different in what they require to set up an LLC, most states have a few things in common they require. 

Here are some popular things states require that you should consider having in your hands when you prepare to file your LLC:

• Name of the LLC
• Name and address of the person filing for the LLC
• A valid email address
• Mailing address for the main office
• Name and address of the registered agent
• Name and address of each organizer
• A form of payment
  

Do Your Research and Go Against the Norm

Starting a freelance business is hard work. Sure, when you come up with the initial idea of what you want to do, you are inspired and ready to take on the world. Keep that inspiration and good energy, as you will need them to tap into it when business gets crazy.

As a new freelancer, don’t be afraid to go against the norm. For example, if you are a marketer, you probably tap into freelance tools that help you do your job better. This could be for anything from Mailchimp alternatives for newsletters, to the best platform to create free professional estimates for your business. Before committing to a certain platform, look into all the pros and cons of why one platform is more beneficial than others for your freelance business.  You will probably be surprised with all the innovative options out there for freelancers. 

6 Mistakes Freelancers Make When Setting Up an LLC

With freelancing more popular than ever before, which isn’t surprising since 60% of freelancers make more than they did in their previous jobs, standing out by having an LLC set up will help you start your freelance business off right.

Let’s look into 6 mistakes freelancers make when setting up an LLC and what you can do to avoid making these same mistakes.

#1 Not Knowing Local Laws

A huge no-no is being unfamiliar with what your state requires to form an LLC. Each area has its own rules regarding business operations, taxes, and compliance standards.

Ignorance of these laws could result in unintentional violations, fines, or even having your LLC shut down. In this scenario, ignorance is certainly not bliss. Understanding local regulations is key to getting the right permits, fulfilling tax obligations, and following industry-specific rules. It will help you avoid legal troubles and ensure your business runs smoothly.

Without this knowledge, you could face some legal obstacles that could really hinder your success, and the last thing you want as a new freelancer is to have to worry about legal issues. So, before anything, you should really delve into your state’s requirements and what you can do to set up your LLC correctly from day one. This will avoid a lot of unnecessary headaches and worries down the road. 

#2 Not Knowing How to Manage Your Freelance LLC

Unfortunately, many freelancers set up their LLCs without knowing how to manage them. An LLC can only be successful if the person behind it has set the business up for success especially when it comes to a freelancing LLC!

Handling an LLC involves much more than just setting it up—it means knowing how to maintain accurate records, manage finances, fulfill tax obligations, and comply with legal requirements. 

Without these skills, you might struggle with disorganized finances and miss important deadlines. Plus, you might even face penalties due to non-compliance.

If you need some help managing your freelance LLC’s finances and receivables, be sure to lean into Billdu’s expertise. Billdu offers several features to help you manage your business. If you need a place to create top-notch invoices, learn how to avoid common invoicing mistakes and use their invoicing feature to create professional invoices and add an extra layer of trust to your freelance LLC.

#3 Trying to Skimp on Insurance

Cutting corners is rarely the best way to start a business venture. It is a risky move that leaves your business vulnerable. Insurance acts as a safety net, protecting you from unforeseen circumstances like liability claims, property damage, or legal issues.

Without adequate coverage, a single mishap could drain your finances or possibly even jeopardize the existence of your LLC. Without insurance, you could be placing everything you have built so hard to build at risk.

Investing in the right insurance safeguards your LLC, offering peace of mind and a solid layer of protection against the uncertainties that come with freelance work.

#4 Mixing Personal and Business Finances

Mixing personal and business finances is about as messy as mixing oil and water. They just don’t blend. Always keep your personal finances separate. Sure, it may seem like a hassle to get separate receipts when shopping instead of throwing everything under the same purchase, but if you really want to know if your LLC is making money, you need to know how much you spend on your business every month.

To ensure that your freelance numbers are always progressing, establish some specific financial key performance indicators to track your business’s success.

#5 Staying in the Dark about Tax Obligations

If you set up your LLC, you must learn your tax obligations. In the majority of states, you need to report your  income or taxes paid, even if your receivables were zero for certain months. LLCs have specific obligations that are different from other business entities. Ensure you understand your tax obligations and how to fulfill them.

Whether you are a web designer or work with freelance digital marketing, you should keep accurate business records for tax purposes.

#6 Not Knowing When to Seek Professional Help

If you get to a point in your freelance business where you think you might be in over your head, seek professional help. Setting up an LLC can be complex and time-consuming, especially if you aren’t too certain about all the steps that are part of the process. 

Don’t hesitate to seek professional help from a lawyer or accountant to ensure you are doing everything correctly. It may cost you a bit up front, but at least you will have the ease of mind that you set your freelancing business up correctly from the get-go.

(Source: Websiteplanet.com)

Bonus: Brand Away to Give Your Freelance Business a Step Up

Besides setting up your freelance business LCC for success by avoiding the 6 mistakes above, you should establish one key thing from the very start of your business: branding. 

Branding is one of the top ways to set your freelance business up for long-term success. So, whenever you start your freelance business, be sure you are connecting with your audience by sharing your brand story and who you are. 

Include key points like what compelled you to freelance and what makes your business different from all other businesses. These are all important points you should include in your branding storytelling. 

Building a solid brand should, at minimum, include the following things:

• Choosing a name people will remember
• Designing a logo
• Creating brand standards to ensure uniformity across the board
• Establishing a mission statement that shows what you are about
• Setting colors that everything in your brand must follow
• A tone of voice to use in all communications for your brand

Whatever characteristics you decide, the key component is that you stick with your branding. Strong branding is a big part of freelancing success, so you should set it up as you are setting up your LLC. 

Final Thoughts on Mistakes Freelancers Make When Setting up an LLC

Did you know that 46.7% of all workers worldwide are self-employed? If you are in that statistic as a digital freelancer, having your LLC set up correctly from the start of your venture will help ease additional worry further on down the road.

Avoiding common mistakes—such as overlooking local laws, mismanaging your LLC, or skimping on insurance—becomes crucial. Keep in mind that your LLC isn’t just a legal structure. Your LLC can protect your personal assets and offer stability to your growing freelance business.

Take the time and effort to set it up correctly now. This will give you peace of mind and ensure a more secure and confident path as you navigate the dynamic world of freelancing.

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