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Does your creative business struggle to bring in the right clientele and financial leverage, leaving you feeling stuck and frustrated? The Outsmart the Hustle podcast will show you how to turn hard work into smart work! I'm your host, Hannah McGinty, helping you focus on the high-impact moves that drive your business forward without the endless grind. Whether you've been running your business for 20 years or 20 minutes, I'm here to bring you clear, practical strategies from industry experts and successful entrepreneurs who know how to create a sustainable business. I've been running my creative video production business since 2019, where I primarily work in the wedding and event space. And since 2021, my business has continued to hit six figures in revenue. Now imagine that for yourself. What would it help you achieve in life if that meant your passion could turn into a consistent paycheck? Tune in each Tuesday for fresh insights, tools, and ideas to help you streamline, scale, and find freedom in your work—so you can build the business and life you truly want to live.
Unlimited personal liability is not good. Let's find out why. Welcome to Outsmart the Hustle, where we turn hard work into smart work, helping you focus on the high impact move that drive your business forward without getting stuck in the grind. I'm your host, Hannah McGinty, and today we're exploring some popular legal structures for creative businesses. It might not be the most glamorous part of the job, but it can make a world of a difference in how your business functions and grows.
Speaker 1:So let's break down the most common business structures for creative entrepreneurs like yourself. The first and foremost that everybody knows about is the sole proprietorship. It is the simplest form of your business structure. It's literally like you and your camera. Someone pays you for something and that's it.
Speaker 1:Like, so easy. You do nothing for this. It's just already exists. Now as easy as this can be, it's not the best for your business because you do have unlimited personal liability. Yikes.
Speaker 1:This is kind of the boogeyman of the business world. In a sole proprietorship, if your business gets sued or goes into debt, your personal assets like your house, your car, your that vintage camera collection, your dogs could be at risk. Joking but not joking, they are personal assets, so they may be exempt in a court of law, but there's still a chance that they are at risk. Business related lawsuits are not fun in general, so please just try to avoid them. LLCs and s corps actually offer protection against this, which is why many entrepreneurs choose these structures as their businesses grow.
Speaker 1:So let's talk about some LLCs. LLCs is great. Everyone should have one if they are in business for like longer than a year, I would say. It's very flexible. It does offer limited personal liability.
Speaker 1:So your personal assets are generally protected and you get passed through taxation. We'll explain this shortly. The more complex it can get a little bit with like paperwork, but you can use online services like LegalZoom and Zen Business to set up your LLC pretty easily without having to do all the work. Now you could set it up online or you can just pay a service to do it for $500 the ones that I mentioned are not sponsors. They're just things that I know about.
Speaker 1:I personally have used Zen Business doesn't mean that you have to, but I really did enjoy how easy it was. So the next thing would be like when you're making enough money, please consider filing as an S Corporation. If you're in the U. S, you have to fill out a form 2553 and you literally mail that to the IRS. So what that does is it allows you to have pass through taxation like an LLC, plus potential tax savings on self employment taxes, and you still have that limited liability protection because you are still technically an LLC.
Speaker 1:All it does is just change your name essentially when it comes around to tax season, and it doesn't let you get taxed twice. Because corporations like C Corp will get taxed as a corporation, and then the owner will also be taxed again on whatever they profit. And then you're being taxed twice on the money that you've made. And that's no fun. So as a S Corp, it's great for small businesses.
Speaker 1:That's why it was made. It helps you just get taxed on the personal income rather than the business. So good. So fun. So if your business is making a good enough profit, I would say anywhere from like 50 to $60,000 talk to an accountant.
Speaker 1:You know, you need a CPA for this, guys. Don't just listen to me on whether or not an s corp would be good for your business or not when it comes to tax season. Because the main caveat with an s corp is that you must pay yourself a reasonable salary as a w two employee. And like, most people just don't know that, and they're, like, file as an s corp, and then they're like, oh, I'm screwed. I didn't know how to be an employee.
Speaker 1:And then you have to worry about payroll taxes and everything like that. Like, there's a lot that comes with it. And so really only do it when you are big enough as a company to afford it because it gets really expensive really quick. So it does have benefits, but maintain an LLC until you're around that, like, 50, $60,000 mark in savings because then you would have at least 1 employee salary saved up. You know, that's just my 2¢.
Speaker 1:So how do you choose, like, when to go ahead and start doing an LLC? I would say about a year into your business after you know it's for you, you wanna stay in the business forever because you love it so much, then I would go ahead and become an LLC. And then an S corporation, like I said before, just make sure you have saved enough money because you will need to be an employee for your own company or at least somebody else seems to be an employee. Right? But I would suggest employing yourself, and then you can also do an owner's distribution, which means you can literally take anything you need from the business to fund your personal expenses.
Speaker 1:But, obviously, don't take too much because then now your business cannot run. So just be smart about it. S corps are for if you're, like, bigger. Alright? If you're an LLC, you're great.
Speaker 1:You're doing awesome. Love it. Before you become an LLC, you can ask yourself a couple of questions like this. Like, how much personal liability am I comfortable with? Are you pretty risky when it comes to being on the wedding day?
Speaker 1:Like, are you drinking? You probably shouldn't be drinking on the wedding, but, you know, like, just what risks do you have having personal liability? And then do you plan on bringing any partners or investors on in the future? How complex is your current financial situation? Are you in a lot of debt or not?
Speaker 1:Are you okay with maybe a bit more paperwork if it means more protection and potential tax savings? LLCs are great. Just make sure to talk to your business advisors and CPAs for sure. I am just a girl behind a microphone who runs a business as well. And so I'm just trying to give you guys general guidance here, but definitely talk to your financial advisors.
Speaker 1:And lastly, just choosing a business structure isn't a one and done deal. As your business grows and evolves, you might find that a different structure actually would suit you better and it's okay to change things up. Just make sure that you're doing it legally and with proper guidance. Thanks for tuning in to this episode of Outsmart the Hustle. If you found this helpful, please share it with a fellow creative entrepreneur who needs a little less grind and a lot more growth in their business.
Speaker 1:And don't forget to subscribe to never miss an episode. Outsmart the hustle is produced by Memoir Mastery, a film business course hosted by Hannah McGinty, and edited by Manuel Mesa. Follow us at Memoir Mastery literally anywhere for more creative business tips.