From Freelancer to Small Business Owner

The 3 key foundational things you need to transform your side-hustle into a small business

By Alex Hubenthal, owner of Bookscaping

Are you ready to take your side-hustle and turn it into a viable business but don’t know how or where to start? So many budding entrepreneurs have been in your shoes at one point in time or another—including myself. When I started my first business, I had no idea what a DBA was or what the difference between a C Corp and an S Corp was. But rest assured, I am here to give you all the information you need to get started so you can run the business of your dreams. Start with these 3 key steps:

1. Select a business entity type.

The very first thing that you should be considering when turning your side-hustle into a small business is selecting your business entity type. In business, you have the option to file official documents with the state where you reside to provide yourself legal and financial protection. These documents have a fee associated with them that range between $100-$400 depending on the state and entity type. These documents are filed with your state’s Secretary of State Division of Corporations. Some states allow you to file digitally so you can get your documents immediately, while others are still on the paper system where you have to mail in your documents and then wait 1–2 weeks to hear back from the state. When you are paying, make sure that you request official copies of your documents and a certificate of status. You will need this later. Also, it’s important to note there is an annual filing fee (also known as an “Annual Report”) that is in most cases cheaper than the initial filing with the state but you must pay this annually to keep your records current.

For information on different business entity types, you can check out my blog post here.

2. Apply for an EIN

After you receive confirmation from the state that your business entity is approved and in an “active status,” you will now need to apply for an EIN (Employer Identification Number) with the IRS. You need this regardless if you have employees or not. This is free to obtain and only takes a few minutes. This number is the equivalent of your personal Social Security Number and you will need this number when filing your business taxes at the end of the year or paying taxes throughout the year as required by your state/business type. To obtain your EIN, go here and follow the prompts. You will have an option to receive a digital copy or a paper copy by mail to the address you provided the IRS when filling out the form.

3. Open a business banking account

The third thing that you want to have set up is a bank account for your business. You must have a bank account set up for your business that is separate from your personal bank accounts. I cannot stress how important this is. If you start conducting business transactions in a personal bank account, you are going to have a very big financial mess on your hands. When budding entrepreneurs are getting started, I recommend that they go to a large national bank. The reasoning behind this is that when you go to set up your accounting platforms, we can guarantee that the accounting software will link up to your bank account so you can make reconciliations a breeze. My three favorite banks are Wells Fargo (Simple Business Checking), Chase Bank (Chase Total Business Checking) and Bank of America (Business Fundamentals Checking). These all require minimum balances and may have a nominal monthly service fee. In most cases, you can avoid the service fee by using a debit card associated with the account or agree to receive digital statements. Note, you will need your business filing documents provided from the state when opening a bank account.