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.
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.
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.
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.
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.
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.
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.
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.
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.