Question: How Do You Structure a Speaking Business?
Today’s question comes from Kevin Payne who asked the question, “How did you set up your speaking business as a legit business (i.e. an LLC or sole proprietor)? And how did you go about doing that?
All right, thanks for the question, Kevin. This is actually a question I get a lot and it’s an important one, but to be honest with you, I think it can be a bit of a distraction for people because I think a lot of people who are just getting started in business, speaking or otherwise, I think a lot of times we’re more interested in playing business than actually doing anything with our business.
Meaning, it’s fun to set up a business, and it’s fun to think those things and think of your business name and getting the proper structure set up and getting business cards and what colors your website should be, and all of that is well and good, but sometimes it’s easy to get distracted by that stuff. It’s really important, but at the same time, in the scheme of things, sometimes you’re spending way too much time on it and it can just be a distraction.
So rather than just worrying about and tinkering on the business and some of those things, just playing business and the idea of business rather than actually doing the work of whatever it is that your business is offering.
So in your case, Kevin, or anyone that may be listening to this, the work of actually finding speaking engagements, of getting better at your talk, of looking for building relationships with other speakers, of finding those bookings, that’s really what I want you to spend your time on. Now, again, that’s not to take away from your business structure, because it is important.
Again, I want you to spend like 30 seconds on it, and that’s probably about it for the next few years. Because I’m going to tell you exactly what you need to do. We’ll just roll with that.
Now, before we get into this, let me give you this disclaimer here that I’m not a legal professional in any way. So everything we’re getting ready to talk about, don’t take this as professional legal advice. I have a bookkeeper, a CPA, but this is just what I have done as a speaker and kind of what my journey has been through the business structure of becoming a legitimate business, so to speak.
The Three Most Common Business Structures for Speakers
Now, while there’s a wide variety of business structures that you could have there, generally there’s three main ones that apply to solo entrepreneurs such as speakers.
The first one, the most common one that we’ll spend the most time talking about is a sole proprietorship, so we’ll spend some time talking about that in just a second. The second one is going to be what’s called an LLC or a Limited Liability Corporation. And then the third one is a formal corporation, most commonly known as an S Corp or an S Corporation. So I’ve actually been all three of these. I started as a sole proprietor for the first few years, then I switched to an LLC, and a few years ago we switched to an S corp.
Now, there are similarities and differences between each of them, but really at least 95% of people listening to this will probably be fine as a solopreneur or as a sole proprietor. So again, I am not a tax legal expert here, but for most people a sole proprietorship would be just fine. So if you’re just getting started, you’re brand new to speaking and you’re making under, let’s say, $50,000 in speaking fees, a sole proprietor is most likely just fine for you.
And a sole proprietorship basically means that you have a one-person business that sells some type of product or service. It’s really pretty simple. So for the sake of our conversation and our discussion today about this, I’m going to just answer a couple different questions as it relates to this.
So first of all, let’s talk about number one, how do you actually become a sole proprietor business? Well, one of the nice things about being a sole proprietor is that you don’t have to take any legal or formal steps to get started. Basically, as long as you are the only owner, you automatically become a sole proprietor by conducting business.
So if you’re already running a business as a speaker, you’re good. You’re probably already a sole proprietor without you even realizing it or without you even knowing it. So how do you become one? As long as you’re the sole owner, then you are already one.
Second question would be how do you actually run a sole proprietor business? One of the big things that you can do is to begin to treat your business as a business, and meaning that one of the biggest areas where you really need to do this is your finances.
So starting now, what I would recommend is that you need to separate your business finances from your personal finances, and you need to keep them independent of each other. That means that you would have a business checking account and a personal checking account. So for us, we also have a separate business credit card and a separate personal credit card. So when I have business expenses, they are paid for by the business.
And when I get a check for speaking, which would be business income, that check gets deposited into the business checking account, not into personal accounts, so you have to begin to treat these as two totally distinct, separate things.
I have my business accounts and my business finances, and then on the other side I have my personal accounts and my personal finances, and you have to treat them separately. They’re two different things.
Now, you may be going, okay, Grant, that’s great. The point of business is to make money for me. And if I’m the speaker and I go speak, isn’t it all my money? Yes, it is. And yes, it is all your money, but you have to treat them separately primarily for tax purposes. So for us, every two weeks, what we basically do is we take a salary amount from the business and we basically transfer that from our business account into our checking account.
But other than that, you do not allow the accounts to mix and mingle. The accounts do not interact, so you don’t deposit business income into your personal account and you don’t pay personal expenses with your business money. Do not mix the accounts. You have to, have to, have to keep these things separate and not get them confused.
Now let’s talk about the tax side of a sole proprietor business. How do you actually pay taxes on a sole proprietor business? So as a sole proprietor, you would file an annual return with the IRS. And again, this is within the context of the United States.
Maybe it’s different within other countries, but just within the U.S. this is where this would apply, but you’re going to file an annual return with the IRS, just like you would with your personal income and expenses, but you’re going to be reporting your business income and expenses within that. And so there’s still the need to keep them separate.
And so what you’re going to basically do is filing what’s called a Schedule C, which is a part of your 1040 return. The form 1040 is just the most basic common federal return form. It’s the form that you would fill out to just file your taxes. And so within that you’re going to be filing a Schedule C, which would show my own personal sole proprietor business. This is what income we had come in. These are the expenses that we had go out. And so that’s basically how you would file it. You’re filing a Schedule C within your 1040 filing.
If you don’t have any employees, then the business can basically operate under your social security number. Now, once you would hire staff or set up a retirement plan, you’re going to need a federal employer identification number or an EIN.
And so you can get that online, no cost from the IRS. And that’s basically what you would want if you begin going more that direction and you start hiring people and it starts to become more of like a company or something.
Then in that case, that’s where your taxes may get a little bit more complicated, but as long as it’s just you and you are keeping your business income and expenses separate from your personal income and expenses, you can file it as a Schedule C on your 1040.
Now let’s talk about another question here. What’s the difference between a sole proprietorship and an LLC? Those are the two most common ones.
So what’s the difference here?
One of the biggest downsides about being a sole proprietor is that as a sole proprietor, you can be held personally liable for any and all business-related issues, meaning that if suddenly your business owes a lot of money, then creditors can legally go after your personal possessions, which also include any cars or houses that you may have.
LLC (Limited Liability Corporation)
And so an LLC, a Limited Liability Corporation, basically gives you personal liability protection against those issues. So, let’s say your business owes a lot of money, your personal property is at least still safe.
The good thing though, as a speaker, is that you shouldn’t really have any debt on your business. It’s not like this is a capital-intensive operation. Like you don’t need a million dollar loan to get started as a speaker.
It’s not like you’re opening a retail store or a factory or something where it’s very, very capital-intensive and you have sizable, significant loans. So you shouldn’t really have any debts on your books there.
The second thing is that you’re generally in a somewhat safe space legally, safe from lawsuits.
Now, personally, I haven’t heard of many, if any – I’m trying to think of any speakers I’ve heard of that have been sued for something that they said or something that they did as a speaker, although, again, anything is possible.
So basically what I’m saying is that it’s not very common that a speaker would end up in a situation where we owe a lot of money. So again, all that to say, not as legal advice, but just my personal opinion here that a sole proprietor is generally fine when you’re getting started.
Now, this also raises the question though, at what point should you switch if you should switch from a sole proprietor into an LLC? Again, I’m not a tax or legal expert. I’ll just tell you what I did. So we didn’t switch from a sole proprietor to an LLC until I was speaking full-time and starting to generate more revenue.
I was starting to hire part-time contractors, and I think we were probably between $50,000 to $100,000 in revenue when we first switched to an LLC. And again, there’s pros and cons between both. It’s best just to talk to a professional to figure out what makes the most sense for you to switch.
And so when you’re ready to switch to an LLC, you can actually do it yourself, which is what we did. It just depends on the state and what your state requires. And so you can just honestly Google that, or you could do something like going through a service, like a legal zoom.
But again, I think the nutshell here of what I would say is that for 95% plus of speakers that would be listening, this should be fine as just a running as a sole proprietor for now.
So I think the biggest thing that you need to do, if you haven’t already, is make sure that your business and personal finances are separate. They’re two separate things, and in that case, again, you would just continue to operate as a sole proprietor.
You don’t have to file any paperwork, you don’t have to do anything federally or statewide that you need to tell them that you’re a sole proprietor. Just keep doing what you’re doing and you should be pretty much in good shape.
But again, final disclaimer: I’m not a tax or legal expert there, but hopefully that just gives you something to chew on and something to get started with.