Series – Starting a Business 101 – Intro

Get ready to cover your eyes once a week if you have no need for this topic.   If, however, you do plan to start a business in the next couple of years or this is a topic you are passionate about, pull up a chair and grab a cup of coffee.

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Let’s talk business (if you are an international reader, this will pertain to business in the US).  In this series, I will cover the basics to starting a new business.

Introduction – Why make it complicated?
Week 1 – Choose a name for your business.
Week 2 – Determine the legal structure.  (Sole Proprietorship, Partnership, LLC, etc)
Week 3 - DBAs and business licenses.
Week 4 - Get a federal tax id number.
Week 5 – Determine your federal, state and local taxes.
Week 6 – Record Keeping.
Week 7 – Other good information.

Shouldn’t starting a business be easy?  It should be easy.  It is not always.

Don’t you just sell stuff and tada, you have a business?  I wish.

If it’s so hard, wouldn’t that discourage people from starting small businesses?    It isn’t always quick and easy, but it is something you can do.

A Little About Our Experience
Like most people starting out in a new business, I made my share of mistakes and learned a lot of lessons along the way.

We have started businesses in three states now.  Yet, I honestly just now feel like I have my mind wrapped around it all.  It can get complicated fast.

My first impression of starting a business was sort of skewed.  We started our first business (an LLC) in the state of Utah.   Utah is awesome -  the state makes the process easy and streamlined.

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Believe it or not, in Utah, you simply go to a state sponsored website and it steps you through the entire process.  Once you have completed of the forms, the site automatically notifies the proper state agencies and sends you a packet advising you on what to do with your local governments.  And, it doesn’t cost too much.  The cost for this is $22-52.   Then, the tax information was all left to our CPA, so it wasn’t a huge concern.  We were spoiled!

Later, we moved to Arizona and there is not anything automated there.

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It was a little more expensive and terribly confusing for newcomers.  Though we executed the process of starting the business ourselves, we hired a CPA to advise us.  I remember leaving that office with my brain fried and needing a nap ASAP.  There was so much information that was just over my head.   Suddenly  you needed to know who to contact, what to fill out, where to send what, and what order to do things in.  There was no map or website to step you through the process.  We had to figure it out.

Several years later, we moved, and restarted our business in Texas.

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We were a little more prepared this time, but again, there was no automated process.  It was a similar track through the wilderness like it was in Arizona, but even more expensive.  In Texas, the fee for starting an LLC is $300.  (Don’t let the fee scare you as you don’t have to be an LLC.)  So there we were again, in the trenches, figuring out what to do, who to contact, what to fill out, where to send what and in what order.  And, believe me when I say, it is a tangled rat’s nest.   One agency does not conveniently lead you to the next.

To give you an idea, below are some of the government agencies that work together on the Utah site that I mentioned.

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Why Write This Series?
So, I figured I would try to sift through some of the bureaucracy in order to help you get your head around the general process.  Of course, there is no way I can cover every topic related to this, so this is just a general overview that is meant to help you wrap your head around the process.

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Too often, new business owners regard this process as just extra junk to do; as stuff that can wait.  They fail to complete the necessary steps such as claiming a business name, choosing a structure or securing all of the necessary permits. Instead, we rush it and just do it, especially when it comes to online businesses.  However, this rushed approach, though tempting, can create lots of problems.

Being Uninformed Can Cost
It is important to have a grasp of things.  Let’s look at an example of how being uninformed can cost.

My friend, Sarah, didn’t file monthly sales tax forms in Alabama.  She is a brand new business owner via Etsy.  She had no idea how to set up the business or what sales tax permits were needed or how to charge sales tax.  She just happened to make some jewelry that people wanted to buy and soon her Etsy shop was born.

This year, she would have owed around $50 total in sales tax. But, because she was uninformed, she did not know about her state’s requirement to file sales tax reports monthly.  One day, she came home to a notice on her front door.  As a result of not filing on time each month, she was notified that she would be charged a $50 late penalty for each late month to not only the city, but also to the county and state for the late filing.   That means she owed $1500 in all for January through October of this year in sales tax penalties. She didn’t even make that much in profit!   Scary stuff.

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I hate that it has to be complicated and that Sarah, who just has a small business (sole proprietorship), has to pay $1500 in fines. She didn’t know how it worked, much less that in AL you have to file and pay sales tax monthly.  In my opinion, all first year business owners should just get warnings – they are learning how everything works.

But, unfortunately, that is not the case.  And, sadly, there is not a suitable page or site that I know of that truly steps you through it all, outside of what Utah offers. Do you have one in your state?

Why would I want to be so helpful to possible competitors?
I’m not one of those competitive designers out there who believes that I must get all the business and there is no room for others, they will just take my business.  Instead, I enjoy love helping others get started and be successful.  I believe there is room for us all and that we have a lot to learn from one another.

If you want to start a business, but you never have… and you don’t live in UT and aren’t planning on a move there…  I hope this little starting a business 101 series will be useful to you.

If by the end, you are still confused or overwhelmed, there are services out there, such as LegalZoom, that can help you get all the proper documents filed for a price.  And a CPA can do that and help you with all of your tax questions.   However, even if you go that route, it’s good to have an understanding of the basics that need to be done so you can ask good questions.

Disclaimer
As a disclaimer, I am not a CPA, lawyer or business expert. I am simply sharing what I’ve learned in case you have no idea where to start.

If you are an expert and want to help guide, I’d be honored to have your input.

Who all is joining me on this series about starting a business?    What has your experience been?  I’d love to hear how things work in your state.

kristysig

14 Comments :

  1. So excited for this series! Looking forward to learning all I can. Thanks!

  2. I am looking forward to read the next series, so excited! Thanks for sharing, Kristy!

    Jessie
    http://www.mixandchic.com

  3. I’m really excited about this series Kristy, thank you for sharing your knowledge! I just dissolved my LLC in New Mexico and am in the process of starting a new one in WV. This series will be really helpful I know.

  4. I’m so excited for this series! I live in Tennessee and have been thinking of starting my own business for about a year. It’s still going to be a while before I’m ready, but I don’t think there is enough real-life, step-by-step info out there for us newbies. From what I’ve seen from Tennessee’s state website, they seem to have a one-stop-shop for forms, but you still have to read everything very carefully and make sure you don’t miss any steps.

    I’m curious to read more about what level your design “hobby” was at before it became a full-fledged business. Did you already have a clientele? How do you advertise for more business?

    • Absolutely. All good questions. I’ll try to answer those in subsequent series on such topics. A very quick short answer is I never took advantage of hobby deductions. And, by the rules, as soon as you expect a profit, you cannot do the hobby thing. An activity that is carried on with the expectation of making a profit is considered a business and not a hobby. Even if you only make a profit every few years, the activity may still be considered a business.

      I did design for free at first while I honed my skills, and quickly that became actual work for friends. Then through referrals, it became non-friend work. Then, it expanded from there. Main way of getting more business has always been referrals and the blog.

      Does Tennessee have just a one stop shop for forms or is the actual process automated and guides you step by step like in Utah? Or, do you have to know which forms to fill out, even though they are in one spot?

  5. I have an accountant friend who helped me and I was able to figure out some stuff online. I sent one form to the county and they called me about something on the form and ended up deciding I needed to go through the state since my sales were mostly online at least for now. They were very helpful and answered all my questions. I had the option of choosing to file sales tax monthly or twice a year. If my sales tax totals go over a certain amount per month I will have to switch to monthly but for now I don’t have to do it till December. but that is coming right up – I need to get online and figure out what I’m supposed to do in December!
    One thing the people at the county and my accountant kept telling me was that I did not need to file for a fictitious name. i thought I did but they didn’t think so. ANd I didn’t need it till I went to the bank to set up a business checking account. I had to have the form. So just get the form. My question now is if I should go another route too so no one else can use my biz name. A fictitious name doesn’t insure that no one else can use the name. I’d love some more info on this and if it is a good idea to go ahead with. I’m in Ohio.
    I honestly didn’t think the process I went through was as bad as I thought it would be. Now if I can jsut figure out how to do the sales tax! My income taxes I am letting my accountant handle!!
    I’m looking forward to your series – any help understanding everything will be wonderful. It is the most intimidating thing about starting a biz!

    • Great comment. Yep, we’ll talk more about the dba name stuff. It varies by county, but in general, unless you are using your legal name or the legal name of your llc, you will need to get a dba. But, perhaps that is different in your area. We’ll talk through it more in that post. Thanks again for the great comment!

  6. Kristy, I am spoiled too because Colorado was so easy & I had been there for such a long long time. Not happy to hear AZ was that difficult. I was afraid of that & have been wondering. I won’t get set up here until 2013. Looks like I have my work cut out for me here. Looking forward to seeing more of this.

  7. Loving this series! I am already in business and still trying to figure it out! The government certainly doesn’t make it easy for small business owners to start out on the right foot! I’m sure we all want to do the right thing and avoid fines…if only we knew what that was! And I never learned this stuff in design school! It is definitely some “on-the-job” training! Looking forward to reading more! I find the wholesale purchasing and taxing a bit overwhelming…tax on services? goods? delivery? Uggghhh! I should have married an accountant! Thx
    Joanne @ Homestyling101

  8. I’m really looking forward to this series. Thank you again for your generosity of spirit! It’s rare to find someone willing to give away what can be sold, and I couldn’t agree more with your philosophy of there is more than enough to go around. Your reputation will grow with the knowledge you’re willing to share, and bless people along the way. Thanks!

  9. I just stumbled upon this series today and plan to read the entire thing. I am in the process of trying to decide whether or not to open my open business that is probably more like AZ or TX. The story about your friend’s Etsy shop of tax horrors really put the tax portion of business into perspective for me as well!

  10. I am so excited to find this blog series. I am a seamstress/crafter/diy/rental property owner. I am 52 at the end of this month. My degree is in Textile Science because I wanted to be a textile designer. There was very little pay in the route I would have had to go back in the early 80′s, so I went into Pharmaceutical Sales and stayed in that field until 2002. My passion is being able to share with others knowledge I have gained from sewing over the years – started when I was 7 – and possible getting young girls and males if they want, interested in working with their hands and not living on TV and computer games. Basic Home Ec stuff that is no longer being taught in schools in my area.
    Thank you so much for posting this series. I hope to gain some business knowledge to cross my fear of doing something wrong!
    I really like your blog and site!

    • Thanks so much for leaving a comment. There are going to be some lucky people out there. I would love someone knowledgeable like yourself to show me some stuff – I wish I knew someone down the street like that. I have the sewing machine and desire, just not the confidence and haven’t taken the time to really dive in and get great at it… So, I do only little easy projects. So good luck!! I hope it goes well for you. And, I’m so glad this series is helpful!

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