Is your blog growing to a point of being a business?
[This is part of the Escaping the 9-5: My Road to ProBlogging series.]
At some point in your blog’s growth you might have wondered this question:
Should I turn my blog into a business?
Typically what you’re thinking about is creating a more formal entity of your blog as it relates to an S Corp, C Corp, or a Limited Liability Company [LLC].
But how do you start thinking strategically in those terms and how to you move forward in the wisest manner? I hope to shed some light for you with this blog post!
Let’s jump in:
Treat Your Blog Like a Business from Day 1
Let me first start off and say that even if you never turn your blog into a formal business it definitely pays to treat it like one, even from the very beginning.
In this blog post here I lay out 3 guiding principles that will help any blogger take their blog to the next and will pave the way to become even more profitable long term:
- Financial Management and Reporting
- Goal Setting
- Review and Refinement
These things, in and of themselves, doesn’t mean that you’re ready to jump right into making your blog “official” as a business but it’ll keep you on the right track as well as provide a guidepost for how well you’re doing.
But that still doesn’t answer the question of “when” right? Well, we’ll get there! Let’s first hit up the “why“:
Why Incorporate a Blog?
The answer to this question is really the same as with any business that you may have thought about starting: Incorporating a business (instead of doing 1099 contract) can give you many benefits as it relates to your overall protecting of your assets as well as many tax advantages.
Here are some of the highlights as to why you’d consider it in the first place:
- Protect Yourself and Your Personal Wealth – Both corporations and LLCs allow you to separate and protect your personal assets and money. This is a good thing as a blogger if you’re covering content that might be a little bit “touchy” or do a lot of investigative journalism that “might” get you in trouble. Let the corporation (in this case your blog) take the liability for business debts, legal issues, and other such obligations.
- Increase Your Credibility - Some argue for and against this but generally speaking adding the “Inc.” or “LLC” to your business and blog can increase authority and credibility within your space. Your visitors, customers, and even potential partners might treat you a bit more seriously as they see you’re serious about your blog and business. In some cases some businesses won’t do business with your blog unless you’ve got something like that!
- Brand and Name Protection – Other competitive businesses, in most states, can’t file your exact corporate name or LLC in the same state.
- Perpetual Existence – This is a fancy way of saying that your blog will continue to exist even if the ownership or management changes. To some this gives them greater freedom to and opportunity for them to sell the business (or blog) or assets related to the blog. You can also increase owners and partners with this model as well.
- Tax Advantages – There are tax advantages galore as you can elect to be taxed as a corporation as an LLC and as a corporation you can avoid double taxation by electing Subchapter S tax status.
- Business and Blog Expenses – If your blog and business is growing then you’re probably spending a few dollars here and there to continue to grow it so you’ll be able to deduct blog expenses now as a business. Things like salary for yourself and others and more. Things like medical, life, and disability insurance premiums are tax deductible too.
- Raise Capital and Support – Thinking about going “big time” and raising some capital to help fund your blog’s growth? Corporations can raise capital by issuing stock, bonds or other securities! Sweet.
There are even more advantages but these are some of the much more obvious ones that people cite.
Please note that I am no expert here, so please consult your own legal and business counsel when you decide to move forward! I’ve done it more than a few times but that doesn’t mean that I would feel comfortable with someone paying me to help them set it up!
S/C Corp or LLC for Your Blog?
This is a question I get a lot as well and I’ll tell you that I’ve always started with a Limited Liability Company [LLC] for my blogs as it’s a bit easier to get started and a lot more flexible with varying different circumstances. Also, you don’t have as many reporting requirements by the state and local levels.
But, for your knowledge, here’s a grid to help you understand the differences a bit:
| LLC | S Corp | C Corp | DBA | |
|---|---|---|---|---|
| Recommended For | Owners wanting the simplicity of pass-through income taxation and the liability protection of a corporation with less formalities. Great for passive income and real estate investments. | Owners wanting the liability protection of a corporation, with the simplicity of pass-through taxation of income | Owners needing maximum tax and ownership flexibility, combined with liability protection | Owners wanting to legally do business as a particular name without having to create an entirely new or amend an existing business entity |
| Ownership | Members | * Shareholders * (restrictions against corporate shareholders, nonresident aliens, and > 100 shareholders) | Shareholders | Owners |
| Personal Liability | Members typically not liable for debts of LLC | Shareholders typically not liable for corporate debts | Shareholders typically not liable for corporate debts | Owners are personally liable for all debts of the business |
| Formalities & Record Keeping Requirements | Annual state reports | * Formal board and shareholder meetings and minutes * Annual state reports | * Formal board and shareholder meetings and minutes * Annual state reports | Must renew your application and publish (if required) every 4-5 years depending on state |
| Taxation | * By default, no tax at the entity level if properly structured * Income/loss is passed through to members (as in a partnership or sole proprietorship) * May opt to be taxed as C or S corporation. | * No tax at entity level * Income/loss passed through to shareholders | * Taxed at entity level * If dividends distributed to shareholders, dividend income taxed at individual level | * No tax at entity level * Income/loss passed through to shareholders |
| Tax Reporting | Income on Form 1040, Schedule C OR Form 1065 & Schedule K-1 for profit distributions | * Income on Form 1120S * Salaries on Form W-2 * Profit distribution on Schedule K-1 | * Income on Form 1120 * Salaries on Form W-2 * Profit distribution on Form 1099-DIV | * Schedule C * If Partnership Schedule K-1 |
| Management & Operation | * Flexibility similar to a partnership * An operating agreement typically outlines management duties * Optional board of managers | * Managed by directors, elected by shareholders * Day-to-day operations run by officers appointed by directors | * Managed by directors, elected by shareholders * Day-to-day operations run by officers appointed by directors | * Managed by owners |
| Formation Requirements | State filing | * State filing * Subchapter S election with IRS typically required within 60 days of formation. To select, simply check one-question option on LegalZoom's questionnaire | State filing | * State or county DBA filing required generally before using your DBA, and in some cases within 30-40 days of your first business transaction * Some states require a published notice in local newspaper along with proof of fulfillment |
I hope this provides some guidance for you! As I mentioned before, I’ve always started with a LLC and then moved to an S Corp later as things grew or as needed.
Are You Making $6,000 a Year from Your Blog?
Ok, so you’re sold on the reasons why you would want to incorporate your blog and you’re pretty sure the type of corporate structure you want to start off with. So when are you going to make the jump?
Here’s what I typically counsel bloggers who are eyeing the business route of for their blogs: Make $6,000 in Annual Revenue.
For the sake of simplicity I use this figure because it assumes that you’re making, on average, $500 per month from your blog.
This is a great and easy goal to gun for but there’s also some reasons surrounding why I choose this number:
- If you’re consistently making $500 per month you’ve got something that’s working “right” about your existing content strategy, execution, and delivery.
- From my perspective you’ve “got what it takes” and you generally know what you’re doing when it comes to monetization (or the beginnings of making money from your blog). You may not be optimal but you’ve got some good money coming in!
- You can now generally afford the cost of establishing your business. The cost of doing so can vary widely from doing it yourself completely and just paying the file fees (a few hundred dollars) or having a professional come in and do it for you which could be a few thousand dollars easily.
- Generally, you should be able to get you EIN (Employer Identification Number) as well as you Federal Tax ID number, with some professional guidance and help for filing, for less than $1,000. With $500 coming in per month you can generally afford this cost and you expect to make it back in a few months time.
Use this as a baseline for your thinking and goal setting as your blog matures and grows over time. Of course, like many things, there is huge flexibility here and you can do it sooner or much later if you’d like. In fact, you never have to incorporate at all! There’s no pressure, naturally.
But, I have found it to be very helpful and I’ve benefited from the tax incentives of a small business and have saved myself more money than the cost of setting the business up in the long run.
Will TentBlogger Go LLC?
The short answer is “Yes!” This blog is not currently not in the black as it relates to what I’ve spent on it so far but in due time (hopefully) it’ll start making a few dollars here and there.
I will, based on the counsel that I’ve given you, wait until I’ve crossed the $6,000 a year mark before I make it into a formal LLC. When will that happen? I’m not too sure and I’m ok with not knowing exactly!
But you guys will be the first to know.
What About Health Insurance, Benefits?
I actually wrote a post covering how I got health benefits as a blogger and health insurance for my blog.
Check out this post here!
[This is part of the Escaping the 9-5: My Road to ProBlogging series.]
I make $0.00!
How would I be able to make money off of my blog when I just do it for fun? I would like to make some money maybe, but I don’t want to run it like a business…
Check out John’s series on setting a money making goal. That should get you started on making some money off of a “just for fun” blog.
http://tentblogger.com/make-money-blogging/
beat me to it!
Just trying to be an active community member!
you could do it in many different ways. have you seen this series?
http://tentblogger.com/make-money-blogging/
$6,000 huh? Well if I do the math, subtract the 0 and carrie the 0, I only have $6,000 left before I hit that mark. lol. But seriously it would be awesome to make money off my blog. I just started in last week so I’m in no hurry. Baby steps!
Great post John
thanks bro. that’s where i started… so no sweat!
Great post. Lots of good info here for people that want to make that leap to running their blog as a business. I see these posts becoming a potential e-book at some point. Keep up the good work friend.
I guess I have a question at the moment, should I wish to go down the path of registering my blog as a business, where do I need to register it? Where I live, or where the site is hosted? It makes more sense if it is based upon where I live.
i have always done where i live and reside, but there is wisdom to register it in other places, like delaware which has unique protection laws for LLC’s, etc.
You can register a business in any state. The registration of a business is not anything like registering a website.
The easiest thing to do is to register your business in the state in which you live. If your blog gets profitable enough that you should begin worrying about registering in various states for tax or legal reasons you will have enough money to hire a lawyer and an accountant to help you with it!
I don’t want to recommend a particular service…but there are several “Online Legal Services” that make this a breeze.
Great post, lots of great information!
sure thing amber!
If only this were relevant for my blog! Great information regardless!
I appreciate the advice on the dollar amount at which I should go LLC. I’d been researching LLC but hadn’t heard any numbers yet. I’ve still got a LONG ways to go!
all good! you’re on your way!
Ok, so I’m a bookkeeper, and here are a few things that may help: Life Insurance is only deductible if the business in the beneficiary. Meaning, you can’t take out a policy, make your spouse the beneficiary, pay it from your business account and think you’ll be able to write it off. Not gonna happen. Also, since I mentioned a business account: ALWAYS KEEP YOUR BUSINESS FUNDS SEPARATE FROM YOUR PERSONAL FUNDS. (Clearly I’m passionate about this little tidbit). Even if your business only does $200 a year in transactions, it is imperative that you set up a separate account and KEEP those funds separate.
An EIN is the same thing as a Fed tax ID number and can be gotten at irs.gov for free. You follow a few steps and they instantly give you your number. And your Secretary of State office is the best place to find out what you need to do in your particular area to register, and most states have an online registry as well. If you are selling something, you’ll also need to register with your State Department of Revenue, as well as your city/county department of revenue. And finally, you’ll probably need an occupational license as well – even if you run this out of your home. Whew – and that’s just scratching the surface!
But totally agree – definitely the best route to go! [Especially for your bookkeepers who also prepare your taxes
] The protection alone is worth the few registry fees.
dana,
wow, this comment is awesome! would you consider writing a guest post on a few of these things to help bloggers get started even better?
Oh wow. Thanks for the offer. I haven’t started a blog or anything yet (I’m one of those research everything beforehand types and I’m LOVING your site for this reason) but I’d love to write about this. I set up companies on a daily basis, and unfortunately, I also “fix” companies who weren’t set up properly. Since I also handle the billing at the CPA firm I work at, I can tell you that it is SO much more costly to not set your company up properly the first time. I can’t even begin to relay how many hours (and dollars) it can take to redo a company set-up. I’d be more than happy to save people from some expensive errors!
can you email me? me@john.do
Interesting thoughts on this post! As I own my LLC now for 2 years – been wondering if I should start blogging as my company as well… For now, I just own the names (www) and twitter… Will start thinking of growing the business through blogging. Maybe it’ll help to bring in more clients and have their followers also join the blog! I’m getting a good vibe and idea from this…
Thanks always!
it will definitely bring in more clients! (if you do it well).
Think again, Jorge. You own neither the internet address nor the twitter user name. Your rights, if any, are more a kin to a renter in an apartment. You own your clothes, furniture and little more. Read the fine print.
That however does not diminish the power of an s-corporation (in the USA).
Bookkeepers are not management accountants; neither are CPAs. Nor is your street corner lawyer. Management accountants do not have walk-in practices. Corporate attorneys are not hanging out their shingles down the block. Management accountants and corporate attorneys work for big, guaranteed money within corporations. Others on the outside rarely understand the intersection of law and taxes nor “the big picture”.
Proper structure and paperwork allows for a plethora of legal deductions when done within a properly formed and operated legal entity.
Liability insulation and tax advantage are the foremost reasons to organize. Beware: one size does not fit all–in other words, what is good for your neighbor may not be the best for you. So what “they say”, or what you heard, has no relevance. LLC’s are the rage but not what everyone needs. They have their place–high risk businesses.
The threshold for organizing any commercial activity is the intent; the intent is to make money. If that is why you bowl, you should have a bowling company. If that is why you blog, get chartered, organized and structured. (Started entity number 515 today.)
Corporations purchase insurance on employees all the time–actually it has tax advantages greater than mere deductions (structure rules). If there was not a deduction, corporations would not spend the money on insurance. Generally except for public stock issues, small corporations can use the same rules/deductions as the big guys.
Licensing is a big issue in some jurisdictions. You probably heard about the kids’ lemonade stands that were shut down by local government officials for not having proper licensing. If you practice something that requires an occupational license, your educational background probably alerted you to that requirement.
If you sell physical items in the state in which your business has a physical presence, then you need to understand your local, county and state sales taxes–something you should be familiar with from shopping at stores in your area.
Cities have licensing also–identifying your home as a place of business may be problematic. (Not if your organizer knows what is going on.)
Payroll is a challenging area; be cautious and get an organized system like QuickBooks to avoid missed dates and penalties and to do it right. (Actually Quickbooks is destroying the need for CPAs.)
Finally, the liability protection (and deductions) survive ONLY if you document your company properly during operation. Otherwise any mediocre judge or average attorney will break your company (aka, pierce the corporate veil). That is covered in Corporations 101. The rewards for operating correctly are worth it.
And as Dana says there is much more that seasoned corporate veterans know and understand. If you find one, keep him/her.
wow, this is such good stuff! thanks so much doctor!
So…Quickbooks is destroying the need for CPA’s huh? We read this comment and came up with a quick list of things that Quickbooks doesn’t do for you…that you need to know:
Sales Taxability and Situs requirements
Property Tax Regulations and Reporting Requirements
Capitalization Thresholds
How to properly account for inter-company transactions
How to allocate purchase price when purchasing another company
Choosing a depreciation method for book purposes (Straight Line/Double Declining Balance/Sum of the Years Digits)
Explaining the difference between book and tax depreciation. (And why it matters.)
Allocating Restricted or Unrestricted Assets in an NPO
Determining an inventory accounting method (FIFO/LIFO/etc.)
Payroll for jurisdictions that require city level income tax reporting and remittance.
Not all bookkeepers and accountants are “management accountants” this is true. However, Ben and I have been on the inside of large and small companies as accountants. We HATED wasting away inside of these large corporations. So…we took a big pay cut and started Dime. This guaranteed money stuff is hooey. Most major companies have laid off internal staff and the accounting department is one of the first places to get raided.
We don’t do this because of money…it’s about relieving our customers of having to worry about all that crap I just spewed earlier in my comment. We work with 8bit where @tentblogger is an owner and he has never heard us utter any of those words one time.
The reason is simple…John doesn’t need to waste his time using Quickbooks…his time is most valuable crafting content here and working on awesomesauce at 8bit.
Ben and I simply love accounting. We like arguing in the office about the best treatment for this and that. We debate complex accounting strategies. And we do it because we love it. Just because we aren’t sitting in a high-rise in downtown Atlanta doesn’t mean we aren’t just as skilled and talented.
Ben and I often say that we would put our bookkeepers up against any other firm in the world. I truly believe that.
Honestly, it isn’t all that complicated to start a business and the consequences of making a few mistakes in your set-up aren’t really as scary as @doktorthomas would have you believe. There are very few things in accounting and finance that are true emergencies that deserve immediate attention.
If you are overwhelmed Ben and I would love to buy you a cup of coffee and talk about your business and how we can relieve you of all the stress of worrying about the accounting.
love you guys. my accounting is “easy” since I don’t really do any of it.
#WINNING
DIME rocks.
Your accounting perspective is interesting. My legal half loves the little mistakes (that you are okay with) that pierce the veil, especially in tort cases. My accountant half likes no errors, math or documents.
As for CPA day-to-day need, I do not run the schools who are dropping the curriculum. Reduction does not equal eliminating. MBA, boys.
If I am buying and selling a business or doing public offerings, you’ll be right there with me. Quickbooks doesn’t do that, but most small businesses also don’t do those much.
While anyone can charter a business, a smart owner wants one that can withstand judicial attack and holds up against plaintiffs and narly attorney assaults. Ones with errors do not. Saw it from both sides of the bench.
Jurisdiction shopping is not done by Quickbooks either. Also, where (location) to hold assets is not covered by the Intuit up-dates. Where your assets is not always where to charter or hold that capitol. Each business type has better qualities; the choice is driven by the business and then by the owners.
If a city had taxes, I bet the business owner would have notice of it, since few go from pre-employment to business owner.
In an audit and its appeal, you CPA boys or your attorney peers are handy; Intuit doesn’t go to those venues. But the majority of small business don’t experience them very often (00.014%???). Accidents in business are like a plague. Little errors make plaintiff attorneys rich.
Of course, you have a vested interest in defending (your) bookkeepers and your CPA business. You should believe in yourself, as I believe. As for complex accounting strategies, I prefer simplicity and low resistance; they are much easier to defend and hard to attack.
For those who want valuable assistance at the front end, we can do lunch. If an accounting/tax problem develops requiring Ben or his admitted argumentative associate, you’ll be referred over to them promptly. Any reciprocation?
- – -
Anyway, austinklee, now that you have had chance to cool off, reread the post. I think you miss-focused on one phrase. You can do payroll with Quickbooks without a bookkeeper, CPA or a lawyer. Many professions are experiencing technological advancement. I didn’t say CPAs were dodo birds; Quickbooks lessens the need (assuming one can run it). As with other professionals, an informed technological public can and is doing more. Don’t kid yourself; in the era of www, business is war.
doktor,
thanks for your insight. appreciate the perspective! DIME has done an incredible job of “mucking” through the very strange startup business that i operate and if there’s one thing that’s for sure it’s this: They get stuff done, they fix what is broken, and they love their clients.
and for serious…. i’m not the “easiest” client!
#smh
Y’all are funny.
Watch this and then you can continue your silly argument.
best. ever.
John, seriously some good post! can not stop reading. also I was wondering about your thoughts on the idea that blogging actually is providing you with a sort of passive income. What I mean is that although this series may be yesterdays news people like me are still finding it for the first time
it takes some time and i’ve learned a lot through making mistakes….. if i can save you a few times then i will!
Excellent post! So, if it’s so important to keep your blog business expenses separated, what happens to your costs if you don’t reach a viable $income threshold for 10 months – because, really, there’s no way to know in advance when/if your efforts will blossom? Is waiting to achieve an annual revenue goal going to limit the ability to offset your pre-development cost?
it dpeends on what those “costs” are karina. could be smaller or larger for each person.