The Pain and Pitfalls of LLC Setup

How Accountants Can Simplify Compliance

Setting up an LLC can be a hassle. Various state regs, administrative burdens (aka paperwork) and client confusion about entity formation can create chaos around what should be a not-so-painful process.

Clients tend to take on LLC setups because it’s something that needs to get done at the start of (or before) a business launch. The problem is that a lot of business owners don’t know how to set up an LLC correctly. By the time it gets to us accountants, it can be a hot mess.

Firms can easily avoid the pitfalls and common pain points (client-made messes) by using the right LLC platform. At the same time, intuitive, powerful solutions allow firms to avoid wasting time while offering yet another valuable service to clients.

The fact is that clients are already asking for this service. But many firms simply don’t want to offer it based on perceptions of complexity and clients’ self-made LLC messes (like being out of compliance). But just take a moment to think just how streamlined LLC services could be when you own the process.

Why LLC Setup is a Time Drain

Setting up an LLC means you have to know the rules for each state, fill out the right forms and make sure everything is in on time. It’s why so many clients make a mess of the process when they try to do it themselves. By the time it gets to the firm, you have to sort through the compliance issues.

There are also the ongoing LLC requirements, such as yearly reports and taxes. Multiply this work across all your clients and the level of tediousness just keeps growing.

How it Steals Time from Higher-Value Work

Everyone knows that client advisory services (CAS) represent the future (and the now) with its recurring revenue stream and the ability to build strong, loyal client relationships. A disjointed LLC service only takes time away from higher-value work. And no one wants that.

Accounting professionals are not just number crunchers. They’re a trusted partner, advisor and coach to their clients who support clients with tax planning, financial forecasting and cash flow analysis. Stealing time away from CAS is not optimal.

Outside of a streamlined LLC process, a firm can easily spend hours filing forms and tracking deadlines. This misallocation of resources can hinder the growth of both the accounting firm as well as clients’ businesses.

Common DIY Mistakes

A lot of small business owners attempt to set up their LLC primarily to save time and money. However, when clients handle setup independently, it often leads to making critical mistakes, including:

• Filing in the wrong state. Entrepreneurs sometimes choose a state with lower fees or perceived benefits without understanding the implications of forming a foreign entity in their home state.

• Using incorrect addresses. Clients may use post office boxes or inappropriate addresses for registered agents, which can lead to compliance issues.

• Skipping operating agreements. Many DIY setups overlook creating operating agreements, leaving businesses vulnerable to disputes among members.

• Missing deadlines. Filing annual reports or other required documents late can result in penalties or dissolution of the LLC.

These mistakes not only create headaches for accountants tasked with resolving them but also expose clients to unnecessary risks. When clients realize their errors — often when it’s too late — they turn to their accountant for help. This, of course, only adds urgency and complexity to an already demanding firm workload.

A Better Way Forward for Firms and Their Clients

Given the challenges, firms should consider leveraging third-party services that specialize in LLC formation. Top-rated tools streamline the process by handling filings in minutes and tracking deadlines for compliance. These platforms also allow accountants to either refer clients directly or manage the setup process themselves with minimal effort.

Just consider a few benefits:

• Accountants can ensure accuracy and compliance without dedicating extensive time or resources

• Clients benefit from a seamless experience while avoiding common pitfalls

• Firms can earn referral fees that offset labor costs associated with entity formation

• Firms can avoid the time drain of DIY LLC set up to focus on higher-value advisory services

This approach not only reduces administrative burdens but also positions accountants as proactive problem-solvers, delivering yet another efficient and much-needed solution to clients.