Eric Rosenberg is a finance, travel, and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full-time. He has in-depth experience writing about banking, credit cards, investing, and other financial topics, and is an avid travel hacker. When away from the keyboard, Eric enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and little girls. You can connect with him at Personal Profitability or personally branded site, Eric Rosenberg.
You can tell this joke of the day thing is new because I said the wrong joke on the show. But that is funny so I guess the jokes on me!
Joke of the day:
A friend of mine is always going on about photography jokes. I just can’t shutter up.
What we discuss:
- Why bookkeeping is important for your photography business and how to do it
- When should you record your transactions every month?
- Why you need to look at your profit and loss (P&L) and balance sheet every month
- Which show do you like more; Shark Tank or The Profit?
- Should I register my business at all? If I do, should I use an LLC or something else?
Where to find Eric:
ARE YOU READY TO GET PROFITABLE?
Join Eric's free week long Personal Profitability Bootcamp
Transcription was done by Rev.com, using their AI (artificial intellegence) generated transcript. The transcript may contain spelling, grammar, and other errors, and is not a substitute for watching the video or listening to the episode.
Scott: Ever since buying a digital camera. I can only think of its positive points. There aren't any negatives. Woke up to episode 87 my name is Scott Wyden Kivowitz and I'm joined by my guest, Eric Rosenberg. Eric is a finance and travel and technology writer in Ventura, California. He is a former bank manager, a corporate finance and accounting professional who left his job in 2016 to take his online side hustle full time. He has in-depth experience writing about banking credit cards, investing in other financial topics and is an avid travel hacker, which I'm a kind of into a little bit. Went away from the keyboard. Eric enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and little girls. You can connect with him here and at personal profitability, his or his personal branded sites. Eric Rosenberg. So welcome Eric. Finally to have you on the show.
Eric: I'm excited to be here. Thanks for having me.
Scott: Yeah. So for everybody listening, I have been trying to get Eric on for a while. Things happened as you heard in the last couple of episodes with the water damage in my home studio. So but we're now here, and we're now recording, and this is gonna be a good episode. This is going to be a whole topic about finances for photographers in a variety of, of things even deeper than that. So I know it's a topic that not a lot of photographers like thinking about or talking about or even wanting to handle, but if you have a photography business, this is something you have to think about and have to do. So Eric is going to be great at breaking things down, simplifying it and making them more enjoyable than just thinking about finances. So it's going to be good. That's my goal. Yeah. So before we dive in Eric, what is going on with you? What is new? What, what do you have in the pipeline? Things like that.
Eric: This has been a busy travel year for me so far. Actually just got back from my 12th trip of the year as everyone's listening to this. I was just that fin con, that's a big financial blogging and media conference I go to every year and that's actually got what got me started in this online world. So I'm a huge fan of fin con and everything that happens there. I've also been, I've been all around the world. As you mentioned, I'm a big travel hacker, so I go to conferences. I been on some personal fun trips. Actually. I'm still recovering from a conference right now, so my voice sounds a little funky. But yeah, a lot of travel, a lot of good things. You know, I've been keeping my head down, working on my own business. I have a bootcamp I'll tell you guys about later that I'd love to share of that, that I have that came out not too long ago that helps people like you, a hustlers and entrepreneurs learn to level their business.
Eric: So that's what I'm all about really. So I'm actually just this conference I just got back from, I spoke on a topic very related to what we're going to talk about today. I just had a twist for online finance bloggers and podcasters. So same topic, just switching it up for photographers because a lot of what we do, I believe it or not is very similar. You know, it doesn't matter if you're running a little solo photography business or a multimillion dollar online empire or a fortune 500 company, a lot of the basics are, are the same. You know, they might have a few more zeros at those big companies than we do at Solo senators, but the basics are the same. And that's what I used to do for living was, was corporate finance and accounting. So yeah, I'm excited to be here and, and dive in with photography. Maybe I'll pick up a few tips about how to fix my aperture on my camera while we're doing nice.
Scott: So, you know, finances everything starts with keeping track of everything. You're the bookkeeping aspect. So can you talk about the importance of it? And, and really how do you do your bookkeeping what, what's the proper way really to do your bookkeeping and things like that?
Eric: Well that's a great question and a great starting place because you know bookkeeping is really just categorizing. Now I'm going to try to not use finance jargon today and I'm going to use words that like normal people think. So when you hear a term like chart of accounts, that is something I worked on a lot in my corporate accounting time. Chart of accounts is really fancy words for categories. So what we're doing with bookkeeping is we're taking a look at every transaction that has come through our bank account or our credit card. And it's very important you have separate bank accounts for your business than you do personally, even if you run your business as a sole proprietor. So even if you don't register with your state saying, you know, I am Mr photographer or Mrs photographer or MS photographer, we're wherever you fall on the photographer spectrum of, you don't have to register with your state to be considered a business.
Eric: All you have to do to be a business in the eyes of the IRS if you're here in the u s is make money. And so that's, that's really all that matters. Let the IRS thinks. Right. So one thing to keep in mind as we're going through this, there are a lot of benefits for you that will come because you did this later on and no one ever said, I ignored my finances and they just fixed themselves. And that's just, that's not the way the world works. So bookkeeping is the first step. And just knowing where you're at, it's just like if you use something like mint.com or personal capital or there's a whole bunch of different personal finance apps that can help you track all your bank accounts and credit cards and loans in one place, and you should do the exact same thing for your business.
Eric: So doing that, that's what we call accounting software bookkeeping software. The one I use is called QuickBooks. That's the biggest out there. It's from the company called intuit. They actually also make TurboTax and mint.com. So there, they're the big one in the industry, but they're definitely not the only one among solo business owners. Freshbooks is really popular because it's, it's a lot slimmer. It really just focuses on the things that you would probably need where quickbooks works for pretty much any kind of small to mid sized business and has things like inventory and all, all sorts of things that you might not need. So freshbooks is a little lighter and there's another one called zero. That's x. E. R. O that's really popular. I was at their conference about a month ago.
Scott: I believe that when I was first starting my business and I went with QuickBooks so I've been using QuickBooks for for years. But I think I tried wave was it w w e d and I, I if I recall correctly, when you set it up it even asks what type of business you are. And if you put photography it actually specially adjusted its, its categories for photographers. Way yield is which books did it, but quickbooks did the same thing but it wasn't as fine tuned for photography as wave was. But anyway,
Eric: As a wave, as a wave is a great, I'm glad you brought that one up. So wave is free. We're all the others that I mentioned cost money, but there's a reason I pay money to use one every month. So there's no, sometimes it's free. You get what you pay for. Wave is is good. It will definitely meet your minimum needs. But me with accounting experience, I wanted a little bit more power. I wanted to be able to tinker more. And I think the people who built these programs, quickbooks was probably built more with accountants in mind. So if you feel less accountant d a maybe something like freshbooks or wave might be easier for you. But W I check them all out and see what fits for you because what's really most important, like I said, you can't ignore it. What's important is you pick one that you're really going to use and it doesn't matter which one it is, as long as you use it and you update your stuff every month.
Eric: That's the schedule I'd recommend for everybody. And you know, when you're a corporate accountant, the busiest time of the month is what we call month end close. And that's the first few days of the month where you look back and say, here's everything that happened last month. We write it down in our accounting records. That's called new recording a transaction or for our purposes categorizing. And then you're off with your financial reports. So well it's really cool about any of these apps that I just mentioned is they will link to your bank account or your credit card and you can click one button and all of your transactions will just show up in your bookkeeping app. So all you have to do at that point is click in assign categories. So maybe if you're a digital photographer only, you don't use any film. Your equipment might be computer hardware, photography, hardware and equipment, like the lenses, things like that.
Eric: You'll want to have categories for each of those. So at the end of the year you can look back and say, Oh, here's how much I spent on cameras. And then on the other side, you'll do the same for income. You know, maybe you two different types of events. So you'll have a breakout for weddings and bar Mitzvahs or a breakout for nature photography that you sell online stock photography. There's all sorts of different ways you can make money as a photographer. So what's important to you is to differentiate how you make money. So you can look back and say, here's what's working well and here's what's not working well in my business. Because if you maybe really want to be a stock photography, maybe you think that's like the best way to make a living. You get to live like like Hank Moody did in Californication and just like wake up whenever you want and have this crazy party lifestyle.
Eric: And it was fun show, right? It's like that's like the lifestyle you want, but you realize looking at your books, you make 15 times more doing weddings and bar mitzvahs. And maybe that's not the thing you wanted to do. Maybe that's not what's exciting to you. But if it's what's working, the numbers tell you the story and you have to pay the bills, right? I'm a, I'm a writer, I'm a creative, just like you guys. We're all artists. And we want to think that we can be above money or our craft is so special, but we have to pay our rent or our mortgage, we have to eat, we have to have clothes. So by looking at what's working in your business, you can focus on those areas. And then once you've mastered those and you're getting the best results, then you can go back to the things you want to do in your business more, which might not be as profitable. But because you know, you have your profitable side covered, you have that freedom.
Scott: Let me ask you something. I record in quickbooks. I, well the way I use the, like the import from my bank account so I don't have to like manually do it. It just import and then I then I can categorize and everything. I have a reminder on my calendar the first day of every month to do my business finances. Is that the ideal time to do it or should I wait a few days for potential changes that come into the account? Like is she is the first okay or should you wait till the third fourth, something like that.
Eric: So if it were me, I'd probably wait until around the third or fourth or because of exactly what you said. If you have, maybe you use a an online invoicing service that you have a client invoice payment coming through and whatever payment system you use, like something cool about quickbooks is invoicing and payments are built in. They don't all have that built in or, and you do have to pay a little extra for payments with quickbooks or any payment processor probably. But maybe you have a payment that's made on the 30th of the month and you will get that on the 31st but it doesn't show up on your account yet until the first even if you have that let just one timing scenario where in your case it would work on the first you catch it. But what if it's a credit card payment?
Eric: It takes a couple of days to show up. If you update your books on the first, you are looking back at last months books and they're not complete, you're missing an income or an expense. Right. So what I do is, what I'd recommend for most people when you get your bank statement in the mail or email, whatever, however you get it, it's usually around the seventh ish, 10th ish of the month for most banks because they take, they have to have all those transactions processed. Like we were just saying there system delays and then they'll make your statement, send it out to you. So once you have that statement, you know your books are locked or your accounts are locked, nothing's going to change going backward. So I mean I'm kind of a Weirdo cause I left financing money. I'll update my about once a week, maybe even more. But at the time that's most important is that one about a week after the end of the month, you get, make sure everything from the prior month is categorized, right.
Eric: And then here's actually a little little accounting one oh one I call this kind of step five and a four steps of how to be an accountant for your own business process. I give a little talk on that. So the last thing you need to do after you've picked your bookkeeping software, imported your transactions, categorize them. The last step is called reconciliation, which is a really scary word, but it really just means comparing my big statement to my accounting and make sure they match. And if you use one of the online one is like with quickbooks online, I click a button and it will do it by itself. And just tell me if there's a difference. And if there's a difference, I can usually look at my bank statement and figure out, oh there's one transaction missing. But the reason you do that is at the end of the year you're going to use these other x.
Eric: There's two reasons. So one, you're going to use it for taxes. And if you over report your income and then you're paying too much taxes. If you under of what your income, then you are paying too little and that's a crime. So you want to do it right. And I don't, I'm not one to recommend underpaying taxes. I think you should just follow the rules. Do it by the book. I mean lower your taxes as much as you can legally. But that's also part of why we're doing this because as a business, if you're profitable, you can deduct expenses which lowers your taxable income. So I'm going to try to simplify that a little because I know there's a lot of big words. So let's say you make $50,000 a year as a within your photography business all in, and you spend $10,000 a year on gear and hosting and websites and business cards and marketing and have everything all in.
Eric: Maybe you pay for insurance for yourself through your business, y'all, all kinds of things. So at the end of the year, $40,000 of what you made as profit. Even though you brought in 50,000 in revenue. So the IRS as an individual, you don't have to worry about this, you just pay taxes on what your paycheck says. When you own a business, you have to say, Oh, do I pay taxes on the 50,000 or 40,000 and because you made money, because you are profitable, you only pay taxes on the 40,000 you can deduct the expenses. That's what a deduction means. So that's part of why we're doing this every month. So at the end of the year, you get every single possible deduction because if you bought $1,000 lens and your tax rate bracket is 25% if you forget to write that down in your books, that's $250 off your taxes that you, you missed out on.
Eric: So it's really important. I'd rather have $250 and give it to the government. I know. Personally, I think that, I think that transcends political parties and opinions. So that's, that's part of why it's really important to track this stuff. And the second reason other than taxes is what we were talking about. Knowing what's working in your business. You know when an example of that, when I was three months into full time self-employment, I'd just quit my job. I'm like any goods, good job with like any good smart dad with a six month old daughter and a stay at home mom. If I'd quit my job, sold my house and moved to southern California, one of the most expensive parts of the country. So I was very focused on my numbers and my books and three months in I was thinking, Geez, based on the projections I had done from when I was doing this as a side hustle, when I was doing it part time, I thought I'd be making about two to three times what I was, what I had made part time when I went full time because about two to three times the hours, but I wasn't seeing that.
Eric: I was making more definitely, but not at the rate I thought. So I looked at my books and I was staring at them because I'm a numbers guy and that's just, I guess I, I guess that's a curse and a gift depending on how you look at it. Yeah, and I was staring at the numbers and I noticed something just doing quick mental math. Part of my business, I was doing website development and that made me about 15 17% of my income and part of my business was freelance writing and that made me about 76% of my income, but I was spending about 20% of my time on writing and about 80% of my time on website development. So if you caught those numbers there, that's almost exactly the 80 20 rule. If you've heard of the 80 20 rule or Pareto's principle, who just smacked me in the face and said, Eric, here's your 80 20 so I quit doing the website development work, started doing writing full time only, and that meant walking away from a profitable business that was making me money.
Eric: But over that next three months, my income roughly tripled to over $10,000 a month for the first time ever. And it has only dipped back below that twice in over three years. So the story that I got from my accounting books, and yeah, they're numbers, but there's really a story in there and that's the story of Your Business and how well you're doing and what's working and what's not. So that's why we're doing it. That's why we're doing our bookkeeping and doing all these little, sometimes kind of boring technical things, categorizing our transactions, because that gives us the information we need to make the best decisions to succeed in our business. However we want to do that.
Scott: You know, one of the things that I like about quickbooks, especially if you import from the bank, is it automatically looks at the transaction and can, can give you suggested category for that transaction. And you can edit it. And not only can you edit it, but you can edit it and say for all future transactions for this, you know, if it's the same, you're buying from like my MailChimp. Right. For me, it's automatically categorizes dues and subscriptions every month. Right.
Eric: Me, it's ConvertKit. Same thing. Yeah. Are you Methodist? Yeah. Yeah. Yes. I domain names. I have a thing set up that if it ever says Google domains, that's who I use. [inaudible] Or GoDaddy, it'll auto categorize. They're not perfect, but they're pretty good. Yeah. So that's, I'll go to a restaurant and it'll show up as travel or I'll go to [inaudible] or who knows, you know, some kind of purchase might show up,
Scott: You know, I, I find so, so I have, yeah. So I have I have, you know, like food as if like like if I take a client out, right, for, for coffee or for, for lunch or something like that, I have that as a category. But then I have travel food if I'm out traveling for, for at a trade show or something like that. So sometimes if I travel and I come back and then I go to a restaurant here that's as travel food. Like I feel like quickbooks, it learns from you, but sometimes it's not smart enough to realize, you know, it's, it's smart but it's not perfect.
Eric: It's not a, it's not an AI yet. Yeah. Yet the machine learning is in there. But yeah. Yeah, it's good that you brought that up. Also that distinction between taking a client to a coffee versus getting your coffee if you're on the road at a conference or traveling for work, cause there could be different tax rates for those. So every type of expense for your business, that's the kind of thought process you should have. And how does this affect my business? You know, if you're driving a lot for, for client work or for any kind of kind of business purpose, you want to track your miles, that's another category you could track. Even if you're not deducting the gas, the IRS lets you write off a certain, it's about 50 cents a mile. It shifted, it changes every year. It goes up a little bit. But all these things you track cause it saves you on your taxes and helps you run your business.
Scott: I do have, I do have a suggestion for any photographers who do want to start tracking your miles, which I do recommend. There's a device called automatic and you literally plug it into the computer of your car where, where the a mechanic would plug into to diagnose, you know, the computer, you plug it in, you just leave it plugged in and it uses cell networks to track your car at all times, which has two benefits. One is you can literally track your car at all times. Know like you can if you park somewhere,
Eric: I have the original version. So the, the old automatic, they're super cool.
Scott: Yeah. And then the other one, the other advantage is you could also mark on a trip as business. So I can literally log into automatics website and export everything that I did that was business and have and give that to my accountant at the end of the year. And you know,
Eric: Take your 50 cents a mile. Yeah, another one, another app. That'll do that. That doesn't involve buying the device for your car is called Mile IQ. It used to be independent. Now it's owned by a company that it's Microsoft the end of the day. But they do a good job and I think they have a free version, which for most independent photographers would be plenty for everything you need it, it does just what you said, it'll track when you drive around, you just tap a button that says, oh that was work. Yeah. What's the way that I do it myself. I know I fly a lot for work. I know I'll go to conferences around the country. I've mentioned a few. So I fly out of Burbank or Santa Barbara or lax for each con depending on where I'm going and what the best flight deal was. So I actually have a spreadsheet cause you know, again, used to be an accountant and I tally each time I have a trip to the airport. So I put in my spreadsheet. I know from my house to lax and back is x miles, you know, 110 miles or something. So if I have five lax trips for work every year, you know, I can put a five there. And that's another way to estimate. So if you haven't been tracking perfectly, you can still go back, use Google maps or something and figure out how far trips were for work purposes. You can still claim those.
Scott: And I, you know, I, I might be wrong in saying this as well, but you don't have to be like exact, you know, it's not like the government's gonna come and look at your, your, your odometer every, every month. Like you don't have to be 100% exactly. Miles off. Yeah, you can round it. So
Eric: When I was, when I was in corporate finance, I was on Java, I was in a financial planning and analysis or FP and a on product lines that were over $1 billion. We saw us $1 million was a rounding error. So like if the IRS, they really don't care about five, 10 bucks they want, if it's a few thousand, they care. But they really care if your photography Gig was 30 miles away or 34 miles away. As long as you know, just guess your, do your best guest.
Scott: Before, before we move on to the next topic, I just want to say one more thing that I really like about quickbooks that really sold me on quickbooks. As somebody who's deep in the wordpress space and I used to work at an it security company, so I'm quite paranoid about security. And
Eric: I want you to look at my house now. I'm a techie nerd. I have stuff all over firewalls on my firewalls.
Scott: Good. So, so the, the two things like about, about a quickbooks one is two factor authentication. So it has that, but I know that like fresh books would have that and other, you know, companies would have that. But the thing that really makes me happy is they have the accountant access. So I don't have to give my accountant my login credentials. I literally add their email address, their account to my quickbooks, and they have access to certain things as an accountant. They can do what they need to.
Eric: A little a perk of that if you do hire an accountant. So that's one other thing that I, I'd say so I think most people, if you are smart enough that you have built a business around photography and you are here listening to this show and trying to improve, you are probably a person who could do this all yourself in an hour or less per month. I firmly believe that most people can do that. But there is no shame in hiring an accountant. I've thought about hiring an accountant even though I used to be an accountant just to save time. Just cause I'm busy and even though I could do it myself, I could pay someone else to do it and you write off that cost and it would just be done for me. The one that I've looked at would be $150 a month is a friend of mine and he does just online people like to do what I do, influencers, bloggers, podcasters, youtubers, that kind of thing.
Eric: But there are local accountants and online companies, even like bench, and there's one that I like called e data quick there. I'm based in the Philippines, so you can kind of outsource your accounting to them and they'll do all the bookkeeping and everything and just send it back to you. And because they're in the Philippines, they're super cheap. A bench there in the u s they do the same thing. They cost more. But the important thing is that it gets done. This is not something you can ignore in your business. If you remember the movie dodge ball was an awesome movie. There was a scene where Peter Fluor, the star has, he's in foreclosure and his gym and the woman from the bank comes and says, Oh, do you have your bookkeeping records? And he opens up a closet door and there's boxes of shoe boxes with receipts.
Eric: Start falling out like that. That does not run a business. That doesn't work. You can't do your taxes accurately, which, I mean, that's just a legal issue. But that aside, you can't, how do you know if you're doing well with your business? You know, I have I won't pick on this person by name, but somebody that I know is starting a business and they had all these clients and they were making revenue but they had never added up their costs. So they didn't know if they were profitable or not and they were using their personal bank accounts. So they really had no idea they could have been losing $50 on every gig and had no idea. So that's why you have to do this stuff. You just have to know if you're making money.
Scott: Speaking of, of profit and being profitable, what the heck is a p? And? L?
Eric: Yes. Great question. So P and l is a profit and loss statement if you had a business school. And other term for that is income statement. So the place that you will probably have seen this or you not probably, you may have seen this before, if you've ever done any investing or bought any stocks, every public company has to put one of these out. They have to release an income statement. So if you're curious right now and you've never looked at one, you can just search online for any big company and the term income statement and you will find it. It's out there. So that's just an example to see what they look like. But for you and yours might not look like Amazon's or Google or apple or you know, some giant company and a few, a few zeros less. But the basic idea is the same thing.
Eric: So it's going to be broken down into a couple sections. The top section is revenue. So that's all of the sales you make are all the dollars that come in the door. Then the next section is expenses. So that's you know, anything you buy, anything you spend money on. Then at the bottom, if you ever hear the term, the bottom line, here's where it comes from. You subtract all of your expenses from your revenues and the bottom line is your profit. So that's why it's a profit and loss statement. And if your expenses are bigger than your revenue, then it's a loss simply over profit statement and not a loss statement. But if it's a negative number, it means you need to fix something in your business, right. Or, or maybe maybe you had planned one month that you were going to buy a new camera and a few new lenses and you just know that month is going to be negative and that's okay because you planned for it, but you definitely don't want to have negative months that you didn't plan for because that's how you got a business. That's that, that that doesn't work. It's not sustainable. Yeah.
Scott: So a pop quiz. Which TV show do you like more shark tank or the profit?
Eric: I actually don't have cable so I don't regularly watch either. I like shark tank a little more I think. But I honestly, if so I do watch some reality shows that are maybe not like a Kardashians fan. Like I like I have a level of trashy shows I can watch my, the ones that I like are the gold mining one, gold rush and Gordon Ramsay's kitchen nightmares because they're business shows or hotel hell, that's another Gordon Ramsey ones. It's kind of the same idea as the profit. Just the different industries. I, I think it's really fun to look at different ways companies operate. That's why I went to business school twice. I, that's just something I was always interested in. And when I was a kid playing computer games, I was playing all the sim games and all the tycoon games trying to build businesses like lemonade, Sam Tyco, try and make money. So that to me that was just always interesting. I whenever I have [inaudible] sometimes I think it's a disease. Like I go to like even I go to Disneyland or somewhere like that. I don't live too far. And you, most people are there to have the magical experience and I'm looking around trying to see all the places they make money. That's just how I look at any, any thing where I go [inaudible] I trip over something and I'm like, oh, business idea. It's a shiny object, entrepreneurs syndrome.
Scott: But I'm, I'm totally totally doing that with like marketing aspect. Like, like why are they doing it that way? Or like, like that was a really good idea.
Eric: Yeah. Like that kind of thing. We got to do it for our own podcasts around this is a whatever business you have. That's another reason I like watching shows like that and or even your paying attention like that. When I'm out and about at a mall or anywhere, you're out in public pretty much. That's not a parks. You're there trying to make money off of you. I was thinking about that. A little kids. I'm like, where can I go? That is a place that's not about making money off of me for going there and I came up with the beach and the park.
Scott: Ah, not New Jersey. Not, not in New Jersey. They charge you to get on the beach.
Eric: Oh, we have to. We have to pay to park at the beach.
Scott: We have to pay to park and we have to pay to park and to get on the beach. Wow.
Eric: Yeah. That's like the opposite of California, California. There's actually a state law that you can't own beach or block access to the beach. So, even by the, you know, $5,000 a night hotels in Santa Barbara, they're still public beaches. They have to let you go there.
Scott: Wow. That'd be nice. Oh Man. New Jersey.
Eric: Well, we're friends in New York, New Jersey, California. I feel like we're all, we're all on the same playbooks, right? We're all friends.
Scott: So, so my last question to you is for the photographers that are just starting out in their business, even considering making their hobby into a business. And you touched on this briefly when we first started talking, should photographers registered there, sell themselves as a business like or a what point should they register themselves as a business and if they do, should it be an incorporation and LLC? What is the ideal two questions, should they and then which one and why?
Eric: Yeah, so that, that is a great point and a great question. And it is something every business owner needs to think about. And the answer actually depends on where you live. So there is a point in any business that you would want to register. That's probably going to be the point. You can make a full time living on it at that point. It doesn't matter where you live, you want to be registered. It doesn't matter if you're an expensive state or a cheap state. But before that point, there's a lot of deaths. Well, what F's, so if you live, I, I used to live in Colorado. I grew up in Denver. I was in Colorado about 25 years. So I started a few companies when I lived in Colorado. Registering a new LLC in that state was about 50 bucks and every year I think it was $50 and every year it's a $10 fee to keep registered.
Eric: When you file your annual form with the state in California, the minimum cost is $800 a year if you register a business. So if you're making $5,000 a year and you live in Colorado, I would say yes, you should register. If you live in California, I would say not yet, but hopefully you'll, you will grow and there will be appointed in the future in between. I lived in Oregon and there was I think 200 a year to start a business or 200 to start in that a hundred to renew. So they're at 5,000 a year. It's kind of a tougher decision, you know, is it worth that or not? And so is it worth it? So what are the benefits of registering said, why would you put that cost in to begin with? There are two big reasons you would register. So first is legal protections.
Eric: So if you are a, let's say you do weddings and weddings are just saying easy photography business to, to pick on. And let's say you do weddings and you are out doing a wedding at some beautiful place and you get down on one knee to take a picture. Someone walks up the aisle and one of the bridesmaids trips over your camera bag or your camera strap and breaks their arm. Like problem. Was that really your fault? Probably not. But you know, we could argue that it was your fault. You shouldn't have been there. We could argue she should have been watching where she was going. Doesn't matter. That kind of thing could happen. It's very unlikely, but it's possible. So what's going to happen in that situation? Maybe they're going to be nice and say, oops, I should've been watching where I was going and they will have three extra drinks at the reception, the get rid of the pain in their arm or whatever.
Eric: But maybe it's a broken arm and they decided to sue you because you are a business provider and you tripped them. So if you are not registered as a business, they are suing you personally. So that means they could go after your house, your retirement account, your bank account, your car, anything. If you are a registered business as an LLC or s Corp, those are the two you would think about as a small business. Probably you wouldn't want to be a c Corp. And that's more for startups that are planning to sell stock. Eventually your situations, you would probably wanna be an LLC or s Corp. So in either one of those cases, as long as you keep separate bank accounts and uphold what's called the corporate veil, that means not blending your personal and business finances. Really running it like a business. If they sue you, they're suing your business, not you in that situation.
Eric: So the bridesmaid that files the lawsuit, they can go after your business assets. So maybe they can seize your cameras or your laptop or something. Anything owned by your business but they can't go after your house. They can't go after your personal money. So that's why one, that's the biggest reason most people would want to register early on as to get that protection. And if you have any questions about that, you know you can talk to local small business lawyers, they'll probably answer some questions pretty cheap and you can even file yourself online. I've never, I paid one time a company to do it when I did an s corp but all the LLC is, I've done a bunch, I've done myself and I'm not a lawyer
Scott: So, so I get that. The reason. Oh yeah,
Eric: I was going to get one last thing, cause I know this is kind of a long winded answer with complex questions. So after you hit a point where you're making ballpark 35 40,000 a year, whatever you would, if you hired a photographer to work for you full time, whatever their salary would be. When you make more than that, if you are an LLC, that taxes as an s corp, which that's just a form you fill out or an s corp, either way you can pay yourself a paycheck and you only have to pay self employment taxes, which is like social security, Medicare, Medicaid, taxes that the employer pays, which if you've had a full time job, you see you pay a part and your employer pays part. When you're self employed you have to pay both parts. But when you have this s Corp setup and you are an employee, any income you earn over your paycheck, you don't have to put those payroll taxes on only your regular income tax rate.
Eric: So anything over that, you know, 35 40,000 a year, you pay lower taxes. That's more money in your pocket at the end of the year. So that's new businesses. Don't worry about that. And it sounds kind of confusing if you needed to talk to an accountant. You know, again, there's no shame in talking to a professional when setting it up, but if you're making more than, you know, let's say 35, 40,000 a year, seriously at that point, you definitely should register for that tax benefit. Plus the legal benefit, I'd say no matter where you live and have a long winded answer. Thanks everyone for not passing out on [inaudible].
Scott: Yeah. So, so I did an LLC for my business here in New Jersey and they don't charge me to renew every year. It was $150 to register. I have to pay if I want to ever to dissolve, dissolve the business. But the way New Jersey gets you instead of renewing every year is you have to submit a annual report, which is really, it's bogus. It's like, yes, yes, yes. You know and that, that's like a hundred and something dollars. So they get you almost the same amount as you did as you paid to register to do this online annual report that takes two seconds to do and they charge you a fortune. So,
Eric: And some states when you do a statement of information or acquire information from your balance sheet or your P and, l, so all those, those reasons for bookkeeping, there's more reasons to do it, you know, to have that accessible. But yeah, but definitely just Google or whatever your favorite search engine is, search for your state secretary of state. That is where you would file and create a new business entity. And that's where you can out what it costs. And there are websites that will just list out all the costs for you, but you know, don't feel like you have to pay someone like legal zoom. You can, but you don't have to. You can do this yourself. What's really important is that you know why or why not you are registering because you're like, like your books, you can't just ignore it and assume it will be right and fix itself. You have to take a few minutes because this is your livelihood and it's, God forbid the bridesmaid situation and someone sues you. You will be really happy you had that registration and maybe even insurance in place rather than just operating as a sole proprietor under your own name
Scott: For sure. So, so thank you, Eric for for joining today where I'm, I'm glad to finally got you on here and yeah, I think, I think you able to break things down simply for, for the average Joe Schmoe too, so I understand. So that was great. So thank you for that as well. You can find the show notes from today's episode where to find Eric and everything that was mentioned on today's episode at imagely.com/podcast/ 87. Don't forget to subscribe to the show on Apple podcast, stitcher or Spotify, Google play and whatever you listen to podcasts, including we are now pending at Pandora, so hopefully well hopefully by the time this goes out, we're approved at Pandora. We'll see what happens. I don't know. They just opened the doors, so I don't know how long it takes them to approve podcast. So thank you again, Eric. And until next time.