The world we live in today is filled with opportunities for the self-employed designer, but sometimes it can also feel a little like the wild west.
There’s no regulation in pricing, the barrier of entry to become a surface designer is low, and most designers just start their career without thinking of the legalities of starting a business (myself included). At the best of times, that’s a bit naive and careless and at the worst of times, it’s downright dangerous.
Still, most surface designers don’t even know there are things they need to do to become a legit biz, so it’s not your fault if you’ve never given it any thought – the info just isn’t out there for artists.
So today’s post will hopefully help fill that knowledge gap just a little as I’m sharing 5 things you should consider for your design business. And they are in a specific order for a reason (you’ll sometimes need to complete earlier steps in order to fill out paperwork for later ones).
But before we get to them…
Yes, I am a surface designer working in the United States, but I am not a lawyer or an accountant and this post is to share what I’ve learned as a self-employed artist and should NOT be seen as legal or tax advice. Please consult your attorney or accountant if you need legal or financial assistance with your business.
1. Sole Proprietor vs. LLC
When you first start working for yourself, the structure of your business isn’t probably something you give a whole lot of thought to, but you should still understand what your options are. The two most common business structures for surface designers are sole proprietor or an LLC.
Sole Proprietor is the easiest of the two because there’s no required paperwork or government regulation. Just by the act of working for yourself, you have a sole proprietorship. And you’ll pay personal income tax on any profits you’ve made in your business.
However, the downsides to being a sole proprietor are that it’ll be much harder for you to secure a business loan and your personal assets won’t be protected if you go bankrupt or get sued.
This may not be an issue if you don’t have many assets (like a home, car, investments, etc.), but if you do have a considerable amount, you’ll be putting them at risk as a sole proprietor.
LLCs on the other hand, do protect your personal assets and make it much easier for you to get a business loan, but they require more effort and money. You first need to name your LLC (most artists just use their legal name but you can name an LLC anything you like so long as the name is not already being used) and then file paperwork with your state or local government. You also might need to pay a yearly filing fee which can vary widely depending on where you live.
Some states and countries have very low filing fees, making an LLC a very attractive option to do a bit to protect yourself.
However, if you live in a place where fees are high (like here in California where the yearly fee is $800 every year), you should think about whether it makes financial sense for you to become an LLC.
It’s the main reason I stayed as a sole prop until last year because I didn’t generate enough income to justify the $800 yearly expense until 2020.
2. DBA: Doing Business As
If you’re a surface designer that plans on using your own name as your business name OR you’ve decided to form an LLC, you can skip this step.
However, if you want to be a sole proprietor and do business using something other than your legal name, you may have to register the name with your government – you can check here to see if your country requires it like we do here in the US.
EXAMPLE: Jennifer lives in Atlanta, GA and wants to call her business Delightful Designs. She’d need to check with Georgia’s DBA registry to make sure the name was still available, and if it were, she’d then fill out the necessary paperwork to register it.
NOTE: One exception for LLCs is if you’re running more than one business under your LLC, each with its own name. If so, you might have to register those names as DBAs. This is what I’ve decided to do for my own business: my LLC is registered as my name. However, beyond my surface design business, I’m also running this site, so I’ve opted to register Sketch Design Repeat as a DBA of my LLC.
3. EIN number
An EIN is an Employer Identification Number and is specific to the US – if you live outside the US, check with your government if there’s something equivalent for you. But as a self-employed designer with no plans of hiring any employees of your own, you might be wondering why you’d ever need to have an EIN. Well, there are at least three instances where you might:
You’ve formed an LLC. Even if you’re only a single-member LLC, most states here in the US will require you to sign up for an EIN.
You’ve paid an independent contractor more than $600 in a single tax year. Whether that’s someone building your website for you or managing your social media, if you’ve paid someone more than $600, you’ll need to issue them a 1099-NEC form at the end of the year for tax purposes and you have to have an EIN to fill out the form.
You’re asked to fill out a W9 form by a company, but don’t want to include your social security number on it. Since most W9s are sent via email, it’s totally understandable to want to hide your SS#, and registering for an EIN is an easy way to do that.
Here in the US, registering for an EIN is free and incredibly easy to do directly on the IRS website.
4. Business License
Many countries require that you register your information with them and obtain a business license. How it works will depend on your country’s and state’s laws, but here in California, I had to register with the county I currently live in.
It’s generally not a complicated process (especially as we’re not a regulated industry like food service or medicine), but it’s something you should definitely look into if you haven’t obtained one.
This is especially for those who form an LLC as you’ll likely need your business license info when starting a bank account for your business – which is the next step!
5. Business Bank Account
Protecting your finances should be as important to you as protecting your artwork.
That’s why it’s VERY important when you start your business (and by that I mean when you start making money from it) to keep your personal and business money separate.
It makes it much easier to keep track of your biz income and expenses and it’s also highly recommended by the IRS. If you don’t, you’ll have to make sure to clearly identify all business transactions in your personal account when you file for taxes (something that’s not always easy). And if you’re unfortunate enough to get audited, you’ll expose your personal finances to scrutiny by the IRS.
So once you’ve done steps 1-4, collect all your business information, schedule an appointment with your bank, and go apply for a business bank account. Your future self (and sanity) will thank you for it!
So, how’d you do?
Have you got all these steps already done and completed or are you feeling overwhelmed at all the things you didn’t know you had to consider? Let me know in the comments below – I’d be happy to answer any questions.
Oh, and I actually went live on Instagram recently to talk about setting up your business and to answer questions I’ve received from this post, so if you want to dive a little deeper than what I covered above, you can catch the replay of my chat below.
View this post on Instagram