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Episode 81: Get Your Legal and Business Foundation in Order—with Carol Stewart

Deb Zahn: Hi. I want to welcome you to this week's episode of the Craft of Consulting Podcast. So here's my question for you. Have you got your foundation set up right? So that as you are operating as a consultant, particularly an independent consultant in the U.S., you know that you don't have any risks that are lurking around that are potentially going to come up and bite you later? Now, what I mostly am talking about there is, have you formed a limited liability company? An LLC. That's what I have for my consulting business. And there were reasons that I did it to protect myself that I am so happy about because I don't have to worry about them today.

And then there are all of these things related to that that I had to get into place to make sure that I could conduct business appropriately and legally in the way that I wanted to. And take advantage of some of the nice tax things that go along with that. So if you haven't done that, or you're curious about it, I brought on an expert. Carol Stewart from Neal Johnson Enterprises. And boy, does she know this stuff inside and out.

I was taking notes while she was talking because I realized I had skipped some things. So take a listen to this podcast. If you haven't done all of these things, she's going to spell it out for you step by step. And you can make sure that you're protected. And you can go about your business as a consultant without a care or worry. So check it out.

I want to welcome to my show today Carol Stewart. Carol, thank you so much for joining me.

Carol Stewart: Thank you for having me.

Deb Zahn: So let's start off. Tell my listeners what you do.

Carol Stewart: During the day, I work in Kuwait supporting the Department of Defense. In particular the U.S. Army but here in Kuwait. So I work in a headquarters battalion. We manage the operations for our directory. That's my day job. But my passion, or what I consider my real work, is Neal Johnson Enterprises, which is a business that I created while deployed here in Hawaii to help sole proprietors and small business owners form their own limited liability company in 30 days or less. Usually 14 days is about the timeline. But 30 days or less is what I typically say. So that's what I'm most passionate about. I love my day job, but I'm most passionate about the small business that I create.

Deb Zahn: I hear you. We've all been there. I'm still there. So you have a really interesting history in terms of what actually got you to launch this business. So what was your inspiration behind doing it? Why did you focus on this particular way that you can help people?

Carol Stewart: So the idea, I think, has always been in the back of my mind. So I started my first business the summer before my senior year of high school. And it was a janitorial service providing commercial and residential cleaning. And actually, it was just a conversation that my mom had with someone that she knew. And it was a real overnight type thing. It was like, OK, we had a conversation on Friday, and Saturday I started this business.

But I started the business as a sole proprietor. So I didn't know a lot of the requirements and obligations as far as the legal taxes that came with being a sole proprietor. I had the business for several years, and then I ran into an issue. One being my tax obligation. The more clients I took on. The more income I made. The higher my tax obligation, right? So that was one thing.

And then the second thing, which was the most impactful was I had an employee that hurt themselves. And I had workers compensation insurance, but it didn't cover the entire legal, the financial obligation for that person. And so in order to satisfy that obligation, because I was a sole proprietor, I had to relinquish my personal assets. In this case, money out of my personal checking account.

Deb Zahn: Ouch.

Carol Stewart: And so when that happened I was just like, OK, this could happen again. So what do I need to do to eliminate the potential of being in this situation again? And again? As it turned out, I ended up researching more about different types of business entities. As a young, young, young adult, I didn't know anything about forming a limited liability company. The only thing that I knew was OK, if you're a corporation, you have to be big like a Walmart, or something like that.

Deb Zahn: Right. Right.

Carol Stewart: I didn't think there was anything in between. I thought either you were a sole proprietor mom-and-pop or you were a Walmart. I didn't know there was another option. So as I did my research, I learned more and more about limited liability companies. And how they were a protection mechanism for your personal assets. And then also to just create credibility and compliance for your business. And take you from the, OK, I'm just a side hustle to “Hey, I'm a full-fledged business.” Start to create business credit. A whole new world of opportunity opened when I formed my limited liability company.

So thinking back on that experience, and how if I had someone like me 20 years ago, that would have helped me to avoid a lot of setbacks, roadblocks. And it would have helped me feel more confident in myself and in my business. So I know that not just with the pandemic, but also due to the pandemic, there have been a lot of individuals that have started businesses. And their businesses are taking off so fast, they're not really thinking about the foundational aspects of business creation. And so it's not really as involved as most people think it is. You say, oh, I got to do these 20,000 things to form a business. I'm not going to do that. I'm just going to stay a sole proprietor.

Deb Zahn: And hope that works out.

Carol Stewart: And hope that works out. Exactly. I was like, OK, well, how can I share this information? Both of my parents are entrepreneurs as well. They have worked day jobs. They also had businesses. And so it's always kind of been there. Been in my mind. And the business that I started when I was in high school, I had that for about 17 years.

Deb Zahn: Wow. Can we just pause and say, “Wow!”

Carol Stewart: Yes.

Deb Zahn: Because I know you're saying like, it's matter of fact. Like, I worked at a video store when I was that age. But being an entrepreneur and really building up a lasting business is extraordinarily impressive. But that's why you have so much to teach anybody who's starting a business now because you've been doing it for so long. So I just want to pause there because that is so impressive.

Carol Stewart: Thank you. I mean, to me, I guess it's how we think about things. OK, once I've done it, I don't really think about it as a big deal.

Deb Zahn: Yeah. Yeah.

Carol Stewart: But I want to encourage other people that I'm not an anomaly. It is possible for everyone to do. It's just knowing what steps you need to take. Putting the information together. Being focused. Having the mindset. There are all these little components that add up to you forming this business, and then letting the business take off and change. It really can change the trajectory of your life, being a small business owner. It impacts you. It impacts your family. It can impact your community. And it just grows from there.

I'm very passionate about helping people and sharing information. And seeing people work through something they thought they couldn't do. And then when they get to the end of it, and they're like, "Oh my gosh, it only took me three days." I had some people that have done everything in a day. It just really depends on your state. Your type of business. Your city. Your county. Of course, and then pulling all the information together.

So having that roadmap and having someone who you can contact and say, "Hey, this is what I'm thinking. Or this is what I'm experiencing. What do you suggest?" Or, "Is this going to work?” Or just, “What do you think?" is very helpful in navigation. I think navigation is really important because you get to one part, and you have to stop and it's like, “OK. Well, do I go forward or do I just stop?”

Deb Zahn: That's right. Or they ask you this or that, and then your brain freezes because you have no idea what this and that even mean. I want to back up a little bit because I want folks to understand the power of having a limited liability company and what it does for them. So I have two LLCs actually. And that's the acronym for limited liability company. So you hinted at one of the things that it does for you, which it protects your personal assets. Can you say a little bit more about why in particular, an LLC? What are the advantages of that relative to being a sole proprietor, or just hoping everything's OK?

Carol Stewart: There are quite a few advantages. First, I guess, the explanation or more information on a sole proprietorship versus a lot of people think, OK, I'm a sole proprietor. I am a business. A sole proprietorship is not an entity. It is just an individual who is operating a business. So when you think about it in the form of a business structure, it's really not even a business structure. It's just Carol's Cupcakes.

Deb Zahn: That's right.

Carol Stewart: Carol is making cupcakes. But she is not a business. She is an individual providing a service. And so as I gave in the example, for me, it's extremely risky to do your business that way, depending on the type of business that you have. Because especially with, for instance, the janitorial service, that's a very high intensity involved. You're actively working. You're physically cleaning a building. And so you can slip and fall. You can...I've had someone damage property.

Those are things that come along with a service. A physical service type of business. So, for instance, Neal Johnson Enterprises, we're totally virtual. So even though I have business insurance, my business is insured. But the likeliness of someone hurting themselves in relation to my personal business is not high at all.

Deb Zahn: Good.

Carol Stewart: But that is one of the things that people don't take into account. Someone could say, "Oh, well, I want to sue you because your LLC formation didn't work?" Well, for my specific business type, it's mentorship and it's digital products. There's no guarantee that I'm going to help you make $100,000 in three days. That's not what we're talking about. It's all based on your actions. So if you don't take action on the information that's shared with you, that's not my fault.

But unfortunately, things come up in society. People are sometimes looking for ways to attack people, whether that be the individual or their business. And you have to set yourself up to reduce the potential legal liabilities as well as financial obligations. So of course, I'm not an attorney. And I'm not a CPA. But there are advantages that come along with that from the tax perspective, especially depending upon your election so you can, of course, choose to be taxed as a sole proprietorship or you can choose to be taxed as an S Corp. Or as a C Corp.

And you have to look at your business. See what works best for you. Some business owners choose to pay themselves a salary, like a real salary. Some choose to just reinvest their money back into the business and really take a draw from it. So all of those different things contribute to your tax obligations. And then, of course, we all know about deductions and write offs.

Deb Zahn: Oh, yeah.

Carol Stewart: So those are always good. As a sole proprietor or as a member of an LLC. But those are the biggest. The financial. The reduction of financial liability as it relates to taxes. And then the reduction of the legal liability, I think, are the two biggest things that are an advantage of forming an LLC versus remaining a sole proprietorship.

Deb Zahn: That's right. So I was at a firm, a consulting firm, and then I became independent. And when I became independent, the very first thing I did was form an LLC. And then when I started the business Craft of Consulting, I started an LLC. And when I coach new consultants, I tell them, you can look at the various options. I will tell you what I did and why. And I did it for all the reasons that you described. I also knew at the time that there was, and there still is a tax advantage, particularly for the LLCs, and of course, I check with my lawyers. I check with my accountant. Because I'm not either of those either.

But there's a big advantage to the personal liability because even as a consultant, and I always tell people, you still need to have insurance. I have insurance for my consulting business. But even as a consultant, things can go awry. You could damage something at a client site. You could have something go terribly awry. And now they're going to litigate. And in this case, in most cases, they will not be able to come after you personally and come after your personal finances because those aren't considered business finances, which is what the LLC allows you to do.

Carol Stewart: Exactly. I think, again, as far as education. So you go to school. Or you learn all these different things about business. But no one...I don't recall taking a class that taught you anything about how to set up a business. We talk about marketing classes. And business ethics. And all these things, which is great. I'm not downplaying them. But the foundation of setting your business up impacts you just as much as your business ethics will impact you.

And so that's one of the things that also led me down this path because it's so important. And some of those things that you need to do only take a few minutes or an hour here. An hour there. I understand that as a new business owner, your to-do list is ever-growing. But once you get those initial things completed, you're done with that. You can move on to the next thing. And a lot of people...

I have a partner that I'm working with right now. She's been in business for several years but she never formed her actual business formation. She's been a sole proprietor. And so she's like, "Well, I want to do it. But I've already been making money as a sole proprietor and I just feel like it's not really that big of a deal." So what her business is, is she is a digital creator. She does apps. She builds apps. And I'm like yeah, your liability, in general, is limited. But that doesn't stop someone from suing you.

That's what people don't realize. Even though you think, “Oh, I'm just online sharing information.” But there are people out there seeking to do these things negatively. And so you really have to think ahead and put in place what you can to protect yourself. To protect your business. We're going to speak all this greatness into existence. You're going to grow. Your business is going to take off. Well, that one thing can derail that.

Deb Zahn: That's right. So it's the foundation upon which you build your business is how I often think of it. And the thing is, it's not even people who just have bad intent. Sometimes it's just based on a complete misunderstanding. They thought X was going to happen. You thought Y was going to happen. They're mad that they didn't get what they want. Or they think that you really were a bad actor, even if you weren't. It can be based on stuff like that. So I always aim for-

Carol Stewart: Big patience.

Deb Zahn: Yeah. The strongest foundation you can get. Don't build a house on sand. Build it on a solid concrete foundation or up on stilts if you're on the coast.

Carol Stewart: Yes, exactly.

Deb Zahn: You got to know how to do it. So when I started my LLC, what was difficult is I wouldn't...So I'm in New York. And I had to look at New York's website, which was using a bunch of language that I didn't understand. And I'm smart. So I could Google things like what does that word mean? But it wasn't particularly user friendly. My understanding is, it's also different in every state. So when you help people, how do you help them get to a place where they can make the right decisions for themselves based on the fact that you actually understand what these things are saying?

Carol Stewart: So what I try to do is first, let them get their concern, fear, and frustration out. Like just give me your vent. Vent all that out. And then pull them in and say, “OK, these are the 10 things that you need to focus on to get your LLC formed.” And then we start pulling all that information together. So let's use New York as an example. So first, you have to think about, OK, your business name. We got to check your business name. No matter where you are because you want to make sure that you're not infringing upon anyone's trademark, right? So then after you do that, you need to select your NAICS codes, which are the Industry Classification codes that the IRS uses to group different types of businesses together.

Deb Zahn: And there's a lot of them. So it's easy to make a mistake. There are a lot of them.

Carol Stewart: Yes. And then you want to see maybe there's four or five that pertains specifically to your business. But then there's a fifth or sixth one that's...I mean, the sixth or seventh one that's like, “Well, I may fit into that. I'm not quite sure.” So it really depends on if you're trying to utilize that information to gain the contract business. That's when those codes really, really become important. Also, when you're building your business credit, sometimes those codes will give a trigger to the DMV and say, “Hey, well, this may be a high-risk cash business because of the code that you used.”

Deb Zahn: Oh my.

Carol Stewart: Those are different things that kind of go on in the background. The next thing that you want to think about is your registered agent, right? So your registered agent is the individual that will be contacted if there was any type of legal or tax type of notification. So a lot of people contact me anyway. Oh, I'm going to use XYZ company as my registered agent. I'm not 100% against that, but I'm 99.5%. Because when you do a third party, they have to receive the mail on your behalf. Then they have to do whatever processing they do. Whether that's scanning or calling you or sending you an email or whatever to notify you.

Well, depending upon if it's a holiday or the weekend, the day before the holiday. Now you have three or four days where you don't receive a notification. I don't know about you, but if I'm receiving some type of notice from the IRS or from the Secretary of State, I want to know as soon as they put the stamp on it and put it in the mail.

Deb Zahn: That's right.

Carol Stewart: So, when you use the registered agent service, you have that potential delay. And so that's why I don't encourage people to utilize that service. In addition, most of the time when we're starting a business, we're very cost-conscious. And your registered agent fees can be $100, $200 or more per year, just to have someone excuse me from receiving mail on your behalf, that you may not get anything for the first year or two.

So you're paying this money for a service that you may not use. So the registered agent is just the individual that's going to be notified. So if you utilize your own information yes, it is a public record so someone could review and find out where you live. But they would have to know that you formed a business to even know to go and look for that information. So if they're doing all of that and they may have a whole...You may have another issue to focus on. Because why would somebody want to know that bad what you're doing with the Secretary of State?

Deb Zahn: That's kind of creepy. But who even...I didn't even know this was a choice. So again, that's why this is really helpful to have someone by your side that actually knows what they're doing.

Carol Stewart: I mean, I had someone contact, oh, I don't want to do anything that has my name on it. When you're forming a business, there's a lot of things that are going to have your name and address on it. So it's hard to say unless you are going to use the third party agent. You're going to put your name and information on something. And so then that leads me to ask, “Well, why do you not want to do it? What's the reason behind the reason?” I understand for privacy. But you're going to be...for most businesses, you're the face of your business. So you're putting yourself out there. At some point, someone's going to know that you are the sole member of this business. So might as well get started as soon as possible with that.

Deb Zahn: If you're a consultant, there is no hiding that you're the one providing services even if you come up with a fancy name.

Carol Stewart: Exactly. So once you get the registered agent process, if you're using a company or you're electing to be yourself, you need to have an address in the state that your LLC will be formed in. Then you want to obtain your employer identification number also called a tax ID number from the IRS. I have observed an increase of people charging $60, $90, $110 to obtain EIN.

Deb Zahn: Oh goodness.

Carol Stewart: You can obtain an EIN for free on the IRS website on their portal. But when you don't know that, you're spending this money on an EIN that you could get yourself for free in 10 minutes or less.

Deb Zahn: Oh yeah.

Carol Stewart: You lost that money on something else in your business. So that's another thing. Then you want to focus on pulling all your filing forms together. So for example, we're using New York. So you would go to the New York Secretary of State's website and read and see what they need you to provide. So every application is different. Some states, so for instance, Mississippi, which is where I'm originally from, you can form an LLC in one day in Mississippi. From start to finish one day. As long as you have all the information. Their process is totally online, and you're able to make your payment and download your Certificate of Formation. Your Letter of Good Standing, if you need one of those to open your checking account. You're able to do everything online.

Some states, like for instance, California. You have to download the application. Hand fill it in, or do it as a PDF. Print it out. Get it notarized. Mail it in. Wait for them to review it and approve it. And then they mail it back to you. Mail you back a Certificate of Formation. Actual certificate in the mail.

Deb Zahn: Yeah, yeah, yeah.

Carol Stewart: I'm like, yeah. This is 2020. I need you to move into technology. But I get it. That's the process. That's what you have to work with. So once you have all those things together, then you know OK, this is what I have to pull together for my LLC filing for.

Deb Zahn: I think I do want to just highlight this. Every state is really different. So New York was sort of a mixture. They've gotten a little more tech-savvy recently, but they're multiple steps. There are also steps I know you consider if you're a sole proprietor. Or let's say, you're forming a consulting business with one or more people. Then there are other things.

So I had a dear friend who formed a business. I did not know her when she did this. I would have advised against it. She had other folks who were co-owners of that business with her and they filed and they had an LLC. But they did not have an operating agreement that defined the terms upon which you would, for example, if a member was going to leave, what do you do? If you're going to dissolve, what do you do? And that cost her $10,000 and a whole lot of heartache. And pain. And frustration later because she didn't know because it wasn't required. So she didn't know that she had to do it.

Carol Stewart: So that is step number six. Operating agreement.

Deb Zahn: I jumped ahead.

Carol Stewart: That's OK. That's OK. So an operating agreement is the core piece of your business because it tells you and anyone else that has that document or that requests that document, how your LLC is taxed. How it was created. Where the funds came from. What state of course it's going to reside in. How it was organized. It really can be as involved as you want to make it. Because an operating agreement, there's not a standardized format. So you want to, in this case, the more information you provide, the better.

Because if you have to rely upon the LLC in the future, like, OK, something happens. And your CPA says, "Well, hey, I need to see your operating agreement so I know how to file your taxes." OK, well, if you don't have one because only certain states legally require it. If you do not have one and you need one for something, for whatever reason, then it can create a huge problem. Because it's like, you have this big hole in the middle of your business.

Like you mentioned, the dissolving of business. When we start a business, we're hoping that we're not going to dissolve it. But sometimes things come up where you may have to. I had a partner that he formed a salon. So there were like five or six people working in that location. They did not have a contract with each other. They did not create an operating agreement with each other. When it came time to do taxes, it was like, “Oh, well, who's paying the taxes?” And it's like, “Oh, well, you're paying.” You being the one who set everything up. Came up with the idea. And then brought the others in.

When in actuality, you guys have worked together all year. You've made all this money. You've paid these different obligations for business. But there was nothing to say who was responsible for what. What percentage of the taxes each one was going to pay. What percentage each one contributed to the business. There was no record of anything. And the operating agreement would have definitely helped them with that.

I don't personally specialize in multi-member LLC formation. I specialize in single-member. I focused on the single member, one I've always been a sole proprietor or had one. I was the only owner for a business. For me, the types of businesses that I've had, I didn't really ever think about taking on a partner. And so I understand how taking on a partner can open you up to different situations.

So I personally have stayed away from that. But I know some people that have had a very good experience. And so the multi-member works for them. It just really depends. I mean, I've had friends who have done multi-member LLCs for real estate. And one of them is looking at purchasing a winery. And I'm like, OK, hey, ding, ding, ding pandemic.

So if you guys do this, I mean, it's a beautiful property and everything. But the property is an extreme discount because the previous owners couldn't maintain it due to the pandemic. So yes, you can get it for an awesome price. But how are you guys going to make money to pay the mortgage every month if you can only have 10 people in a building at one time? I don't understand how you're going to do it.

Deb Zahn: Go learn to make wine first. And again, I want to bring it back to consulting. It's the same thing when someone first starts out. You could decide that you want to be the sole person. You're the consultant. And maybe you work with others. But that's in some other type of arrangement, like a subcontractor agreement or something like that. Or a master service agreement where you figure out how you work together. But if you bring somebody into your LLC, that's a whole other ball of wax. And you have to pay attention to that in a specific way. Because if it's not on a piece of paper somewhere, and that piece of paper is signed, then I consider that opportunities for drama.

Carol Stewart: Exactly. Exactly.

Deb Zahn: Businesses can be enough drama. You don't need to invite it.

Carol Stewart: No, not at all. And sometimes we're making decisions not realizing that we're...Was it hitting the hornet's nest? We don't realize it until it's too late sometimes.

Deb Zahn: That's right. And now there are murder hornets so we got to be even more careful.

Carol Stewart: Oh yeah. Exactly. Exactly. OK. So the six states that require, I'm doing air quotes, "require" an operating agreement are California, Delaware, Maine, Missouri, Nebraska, and New York. So I suggest that everyone that creates a business, forms a LLC, creates an operating agreement. Because it keeps you compliant with yourself. It's written down. It's an agreement. So yes, technically, you're making an agreement with yourself. But you're saying this is how you're going to proceed with your business.

Your operating agreement is usually requested when you are opening your business checking account, which is another step. And people are like, "Oh, well, I didn't know I needed that." So you have to contact the bank that you're planning on opening the account with to find out what their requirements are to even open the account. A lot of times people think, "Oh, I can just go in, like I can go in and get a personal account?"

Well, it's not the same. Most of them are going to want an operating agreement. A tax ID. A copy of your filing for your LLC certification. So they're going to request those things. And some of them want more than that. In addition, you got to bring your ID. Whatever you're opening deposit is. Sometimes your opening deposit for business checking is going to be higher than your deposit required for a personal checking. So those are things that a lot of people don't think about when they're prepping to get all this together. So they go to the bank and they're like, "Oh, yeah, you need these five things." And they're like, "Yeah, I don't know what any of that is."

Deb Zahn: And if you get a loan, or something like that, there was something I was applying for that I was surprised that they needed my operating agreement. Thankfully, I had one. But again, this is why you have to have a solid foundation. This is part of what that is. And just know that you're going to need it at various times for various purposes. So this is not when to skip steps. There are steps in building a consulting business you can skip. I generally tell people what those are. This is not one of those.

Carol Stewart: No, definitely not. So step number seven would be annual reports. So it's not really an actual step that you need to complete during the LLC formation process. But it's something to keep in mind. So the annual report is you stating to the Secretary of State that your business is still active. You're compliant with all the obligations. You're meeting all the requirements. And you submit the report. Some states require you to submit a reporting fee. So I use the example of California. So in California, I had a partner that recently put everything together. She completed her LLC formation in about 12 days. And that was due to waiting on them to mail her stuff back.

Deb Zahn: Of course. Oh, California.

Carol Stewart: We went through and we did everything. And I was like, "Hey, you also have a tax obligation in less than three months." So within three months of forming your LLC in California, you have to pay an $800 fee. Well, you turn around and pay another $800 fee by April 15th. So I wanted her to have a clear understanding of that because, again, it goes back to when you're starting your business. You need to have this $1,600. You need to have that in your mind. They're like, hey, 90 days. I need to have this $800 and 90. And then in her case, she's going to turn around in less than six months and have to pay it again.

Deb Zahn: Yeah. And how would you know that? Well, New York, so here's the funny thing in New York. So my first LLC I ever formed was in New York City. As you know, you have to publish the formation in two newspapers of very specific types. Well, New York City newspapers, this is a big source of income for them. So it cost me $1,900.

Carol Stewart: Oh, wow.

Deb Zahn: It was painful, but I had no choice. The newspapers were thrilled. I moved upstate. Now I'm in a country setting, a rural setting, and had to do the same thing. And now it's $60. And so the variation can be tremendous depending on where you live and what steps the state actually requires. I love that you're highlighting some of that because I don't want new consultants to think, “Oh, this is easy. Yeah, I'll just go on the website and figure everything out because everything is different.” There's a lot of nuance that you may not know or choices you don't even know you're going to have to make.

Carol Stewart: Exactly. So to your point about the newspaper publishing requirement. So there are three states that require that. Arizona, Nebraska, and of course, New York. Some of the smaller states, some of the smaller counties, you may have to publish it in five, six or more counties. And then each county may have two or three newspapers that it has to go to. So your costs can add up really, really quickly. And unfortunately, there's no way around it. Because if you don't have that. If you don't meet that requirement, technically, they don't have to let you move forward in the formation process. They can shut you down. Because we can fine you. We can go through all these processes because you didn't meet the requirements for the state.

And so the annual report is one of those things. It's like, yes, it's not necessarily a, you're forming your LLC today, you have to pay it tomorrow. But depending upon your state and the city, the city, state, and county that your business is in, there are different little nuances that pertain to you, in addition to the type of business that you have. So for instance, if you have a business pertaining to food. We all think about food businesses. They have to be inspected. I have a physical office in Mississippi. Even though I'm not there, but I kept all of that due to the business credit formation. A whole other topic, but…

Deb Zahn: A whole other podcast.

Carol Stewart: But I had to have the fire marshal schedule a time to go in and inspect the office before they would give me the business license. And I'm thinking, OK, but my business is virtual. No one's going to trip and fall on their way to the Zoom and sue me.

Deb Zahn: And if they do, it's their cat. It's not your problem.

Carol Stewart: Exactly. I will say, "Hey, do you want me to call somebody for you?" But those are things that you don't think about. And so a lot of people start a sole proprietorship, another reason they choose to go that route is because the cost is usually substantially less. But the way that I like to look at it is you invest in your business on the front end to protect yourself. As you grow, you're already protected. You don't have to go back and do that.

Usually, for a sole proprietorship, you go to your county or city hall. And you pay your $30, $40. And they give you a piece of paper and say, "Hey, you're a sole proprietor. Woo hoo! Good to go." And then you don't have to think about it anymore. And it's like, for a lot of people, that is why they choose to go that route. And so for me, it was a combination. One of the ease, and then the second for not really having an understanding of what I was fully opening myself up to.

So I definitely understand why some people choose to go that route. And some people choose to remain that way. I mean, it's your business. So it's your choice. It's your choice of how you want to do things. But I would much rather have that protection in place. Like insurance you have it, but you hope to not need to rely on it. But you have it.

OK, so number eight is business license and permit. And that's kind of the same thought process as you want to make sure that your business is compliant. So you want to reach out to your city hall, or your county courthouse. Your clerk's office. Find out what their requirements are for starting your business. And you want to express to them the type of business that you are forming. Because some organizations, some types of businesses, they'll tell you, “Oh, you can do your paperwork but you don't actually need a business license.”

And then another state will tell you, “Oh, you need three different types of business licenses because you're a general contractor. You do on site improvements and you do something else. So you need three different types of licenses.” It just depends on which business you're opening. So for consulting, it's usually not as involved but you still want to make sure that you're expressing to them the type of business that you have.

And then the other question they'll ask, OK. Is it a home-based business? Because some cities and counties require you to meet certain ordinance requirements for your community. So it's all of these different pieces that you need to research and find out about and there's not one general place that you can go so you kind of have to have resiliency in the beginning and say, “OK, today I'm going to contact city hall or the county clerk's office and find out what I need to do for my business.”

Deb Zahn: That's right. And I'm going to have some ice cream next to me when I get stressed out.

Carol Stewart: Exactly. Take your notebook. Write down what they say. Ask them to email you the documents. If they give you phone numbers, that's great. You contact those people and say, "Hey, I was given your number by so and so from so and so's office, and this is what I'm trying to do." You may have to repeat yourself three or four times. But the point is, at the end, you're able to get what you need to move forward with your business.

Step number nine, we touched on a little earlier is opening your business checking account. Recap. You want to make sure that you have your operating agreement, your Certificate of Formation for your LLC. You want to have your EIN. But you also want to find out from that banking institution, what they require for you to open your business checking account. So sometimes it's a little more. Sometimes a little less.

And then lastly, step number 10 is to register with the Department of Revenue, which may not be called the Department of Revenue in your state. Some states call it different things. So you want to make sure that you are registered. That your business, your LLC is registered to pay taxes to the state. And again, if you don't pay your necessary fine, the necessary fees, then you can open yourself up to be fined. You can be dissolved.

So there are times when a secretary of state will send you one notice online if you are online. And one notice in the mail and then your business is dissolved. So it just depends on the state. Some states will let you go two, three months before they dissolve your business. Or they may never dissolve it but they gave you all these accumulation of fines. So it's one of those things that you just need to set it up and move forward with it.

When I talked to my CPA I was like, well, I want to know how I need to elect...We talked about earlier, how you want your LLC to be taxed. That's one of the questions that you get asked when you register your business with the Department of Revenue. And if you don't know that, that's a good time for you to make the right decision. So it's like, OK, it kind of forces you to answer those much-needed questions.

Deb Zahn: Yeah. I'm laughing because I remember being asked that question. And the answer was not clear because the definitions were not clear. And I had to go to my accountant to say, "What on earth do they mean by these things?" Because they assumed knowledge that I did not have. So I realize as we're talking about all of this, it might feel if there's any sort of new consultants or they're thinking of being consultants, this might sound like a mountain that you don't want to climb.

But it is a mountain you want to climb. And I think you've said this several times as we've talked, which is you set it up. You set it up correctly at the beginning. And then except for things that have to happen periodically, it's done. Now you can build your house. You got a solid foundation upon which to build it. But don't ignore these things at the beginning. The right time to do them is either as you're building your business, or as soon as you realize you didn't do them. Those are the two best times.

Carol Stewart: Yes. I mean, it's one of those things that we're hoping for prosperity and growth when we create a business. Sometimes that happens so rapidly that you don't get a chance to prepare. You set up what you set up. You push information out to the community. And then wake up to notifications. And sign up and all these things. And then three months have gone by and you've scaled your business exponentially. Then you're like, “Oh, I don't have an operating agreement.”

It's more difficult for you to...It's more involved for you to do as your business grows. It's quicker for you to do it on the front end because you have more time to focus on pulling the information together. It's not that you cannot do it if you've already been in business for X amount of time. It's just you have more time, usually, in the beginning. And that's when you can set everything up. Everything is fresh. You need to get this information. You need to go to a couple of different places to pull information together.

You're able to do that because you have more time. But as your business scales and we're speaking it into existence, your time may become short. So I always suggest that you do it as soon as you can. And that way you don't have to worry about it. Like you said, you don't have to think about it as much. You only have to focus on your annual or biannual or whatever your requirements are for your state.

Deb Zahn: That's great.

Carol Stewart: So that's the nutshell of the primary ten things.

Deb Zahn: That's a big nut.

Carol Stewart: The primary 10 things to do, but of course, like we said, from the beginning, there's no one size fits all to LLC formation. It all depends on your location. But that gives you the general overview of what you need to focus on to put together for your business.

Deb Zahn: And in my show notes, I will have linked to you. So if anybody is looking at this tall mountain and says, “I really need a guide. I need my Sherpa.” Then they know to reach out to you because I thought you either did this on your own, or you paid thousands and thousands and thousands of dollars in legal fees. I didn't actually know there was something in between. So that's tremendously helpful that there are people out there, including yourself who understand what the process is.

Let me ask you one last question. Because obviously, you have a day job. And then you have your passion. This real beautiful passion job. How do you find balance in your life with all of that?

Carol Stewart: So balance for me is once I leave the base, I'm on Carol time.

Deb Zahn: Nice.

Carol Stewart: So I usually get home about six o'clock. And I eat. I zone out for about an hour, hour and a half going out meaning I'm checking some emails. Checking some things on social media. And then I have a schedule. And so it's like, I may have my top three things for the day, far as for my business. And I do those three things. And then I'm done. I go to bed. I take a shower. Get ready for the next day. Go to bed.

And then I do the same thing the next day. So because of the time difference, usually eight hours or so difference between anyone that I'm interacting with after I get off work, I do work on the weekends. But only because my availability during the week is so limited due to the time difference. And so I have people contact me sometimes and you're like your schedule stays full, I can hardly ever get in whatever, whatever. And I understand that. So that led me to start creating digital products that people can access that information from me. So they can move forward in what they're wanting to do but they don't have to interact with me directly.

Deb Zahn: Smart.

Carol Stewart: So that's how I came up with the e-book. So the e-book that I just put out a couple of weeks ago shows in-depth information step by step of all the items that we discussed in this podcast. It includes the operating agreement template that we use. That is the attorney review document. It includes a business plan, which we didn't put on the business plan but having a plan is important. And then it includes the information, OK. Check your business name. Check your Secretary of State website. It includes that.

So it helps kind of guide you through the process. And that's how I work my day. When I'm working with a partner on a specific project, I do the same thing with them. Like, OK you can talk for 10 minutes, that's fine. Or five minutes and get whatever off your chest. But let's get down to this checklist. I'm a very organized and detailed person.

Deb Zahn: I can tell.

Carol Stewart: So it's like, "Hey, you were supposed to do three things. You did one. I need you to get those other two and then get back to me." Sometimes we don't...My mom always says we're major on the minor and minor on the major. So when you look at things that way, you're like, “OK, is this a high need task that I'm about to do, or am I just being busy?” Because there is a difference between being busy and being productive. So I try to limit myself and not do busywork. I want everything that I'm doing to lead to something else that's a higher level. And so that's how I kind of keep everything straight.

I make a lot of notes for myself because I like to write. So I write down my notes. I'll save them on my phone. Or I'll type them in a Word document. But my business is pretty much paperless. And so I was able to do that, of course, with planning and knowing what I wanted to create. And so I think that's important as well. Don't create something that you really don't want. You're putting it together. You're putting together your business. Make it what you want it to look like. If that changes, it's OK.

Deb Zahn: That's right.

Carol Stewart: Adjust and keep adjusting. So I think that's my overall how I work the balance out for me.

Deb Zahn: I absolutely love that. And I especially love that you came up with the idea of doing digital products, which give people access to your intellectual property and your particular form of fabulousness without having to have direct access. It lets you scale without having that scale come at the cost of Saturday at midnight when you're working.

Carol Stewart: Exactly. Exactly. And then it also gives the partner a lot of people like, "Oh, you can take my master class, right? Or you can take my whatever course." But if it's not on-demand, then it doesn't really help the person because everybody is not able to log in at three o'clock in the morning. Everyone's not in the same time zone. And so that was one of the things that I wanted to work on for us to provide. If we're saying we're for the people, we're here to help. We have to be able to show up at different places that they are in the process because everyone's not at the same point.

So that's kind of how we focus on getting everything done. And then I have a team that's kind of spread out. So my team is not here, of course, with me in Kuwait. Everyone is remote. I have some people that I work with that are in Sri Lanka. I got people in the UK...So it just depends on what's going on. So everybody's in a different time zone.

It's like we can't just limit ourselves to, OK, we can only do this if we're face to face. No. We need to be able to do it regardless. Especially with everything that's going on now. We don't know what the new normal is going to be, right? So we need to be adjusting and pivoting and planning as if whatever is happening right now will continue. Because we don't know.

Deb Zahn: We don't.

Carol Stewart: As it continues, then that's great. We can go back to what we used to do. But we don't know right now. And so I think a lot of people, they're holding themselves in this one pattern waiting for things to go back to normal. I think the reality is you need to adjust to whatever your new normal is for your business now. And then you can adjust again later as things level out.

Deb Zahn: Yeah. I would 100% agree with that. Well, Carol, I am delighted by this conversation. I wish we had had it two years ago. But that's OK, I stumbled through but everybody doesn't have to. And on my show notes, we'll have all the different ways to get in contact with you and a link to your e-book as well. So thank you so much for joining me.

Carol Stewart: Thank you. Thank you for reaching out again.

Deb Zahn: Thanks so much for listening to this episode of the Craft of Consulting Podcast. I want to ask you to do actually three things. If you enjoyed this episode or if you've enjoyed any of my other ones, hit subscribe. I got a lot of other great guests that are coming up and a lot of other great content and I don't want you to miss anything. But the other two things that I'm going to ask you to do is, one is, if you have any comments, so if you have any suggestions or any kind of feedback that will help make this podcast more helpful to more listeners, please include those.

And then the last thing is, again, if you've gotten something out of this, share it, share it with somebody you know who's a consultant or thinking about being a consultant, and make sure that they also have access to all this great content and all the other great content that's going to be coming up.

So as always, you can go and get more wonderful information and tools at Thanks so much. I will talk to you on the next episode. Bye-bye.

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