starting a small business

oceaneering · Sep 11, 2006

Anybody feel like sharing a little info on starting a small business and running a small business. On another thread we were discussing tax issues and it seems a few questions came up about resources to help get a small operation off the ground. Where do you go to get started. When you first decide to start a small business, (in my case it will be some form of construction, carpentry, ect..) where do you go. Do you register online for a business liscence or go to my local sba. Is it exspenssive. I see a lot of people form a LLC to protect them from liability. Does this protect them as an idividual from total liability or just debt from the business.
sole p, partnership, and corp seem to be types of a business the LLC is its own type but can be looked at as anyone of the three depending on certain criteria. at least for tax purposes. Is this acurate.
When it comes to a corps, what does S Copr, and C Corp mean.
Its says a husband or wife can run a business as a sole p. and the spouse can be an employee. Why is this better than a partnership with your spouse. Or worse.
Let me ask you for example. can a husband run a business as a sole p. Pay his wife a salary. That salary would be a exspense of the business. And then have the couple file married and single so her portion of the money can fall in a low tax braket. Would this be realistic, legal, worthwhile. What is married filing single anyway is that mean seperated.
Anyway that's enough questions for now. I look forward to your responses
Thanks Oceaneer.

CharlieTR · Sep 12, 2006

A few years ago I got a wild hire to start a business, so I went to the state's Secretary of State (Texas) web page called TXSOS. That was great, I was able to select a name, search for other similar names, and see if the name I wanted was taken. That was $35 for the name registration. Once had the name I registered the business name and paid $200 and now I was an LLC. The next step would have been to go to the tax office for Tax number, but I did not go any further. This site gave a choice of LLC, LLP, and others I can't recall.

Watch out for making family members company officers. I have a cousin that was listed as VP for his father's co. When he was 16 the IRS sent him a bill for back taxes in excess of $100,000. Officers are liable on taxes should something go wrong.

MadReferee · Sep 12, 2006

Regarding LLC's, here are some links that might help. They also have pointers to several other links that may be usefull.

Forming an LLC

How LLC's work

Choosing between an LLC and a Corporation

Dougster · Sep 12, 2006

MadReferee said:
Regarding LLC's, here are some links that might help. They also have pointers to several other links that may be usefull.

Forming an LLC

How LLC's work

Choosing between an LLC and a Corporation

Very helpful. It looks like I cannot form an LLC here in Massachusetts without a second willing participant in my new business, limiting me to an "S" corporation only (unless I want to submit to double taxation). Is that still true? Or is that information out of date?

Anyone else here from the People's Republic of Taxachusetts???

Dougster

oceaneering · Sep 12, 2006

CharlieTR said:
A few years ago I got a wild hire to start a business, so I went to the state's Secretary of State (Texas) web page called TXSOS. That was great, I was able to select a name, search for other similar names, and see if the name I wanted was taken. That was $35 for the name registration. Once had the name I registered the business name and paid $200 and now I was an LLC. The next step would have been to go to the tax office for Tax number, but I did not go any further. This site gave a choice of LLC, LLP, and others I can't recall.

Watch out for making family members company officers. I have a cousin that was listed as VP for his father's co. When he was 16 the IRS sent him a bill for back taxes in excess of $100,000. Officers are liable on taxes should something go wrong.

That's an interesting post charlie. Maybe I will start a business up in my sons name, file whatever deductions I want and let the IRS bill him. He's 9 he needs to learn what responsibility is.
Of course i'm just kidding.--- I would really use my daughter she's 2,( less likely to be found competent to stand trial).
Why did you not get your tax id# and start a business.

AlanB · Sep 12, 2006

These are the questions that really helps if you have a good business team around you that can answer these things.

While the info on TBN is excellent, and primarily accurate, I would only venture into something like this with competent local help.

For us, a good CPA is the base. For many it is their Banker. We try not to use the banker so much..... But they are important to have in your corner. LLC, Inc, Sole Proprietership,,,, those are things you need to look long and hard at and make sure that you understand the ramifications that go with each. (and the long term reporting requirements)

Check with your local SBA, sometimes they have counseling services available. SCORE, service core of retired executives can be a real asset. Although, just like anything else, sometimes you get great ones that are a great fit, and sometimes they just suck.

Check with your local colleges and see what they have available.

There are numerous books out there not to mention all the magazines.

If you can get an experienced Mentor that will work with you that is one of the best things. Maybe a guy 2 towns over that you will not compete with but is willing to share, or I had a guy that I grew up around and he operated a very large commercial woodworking shop when I was starting out and he helped us out considerably. Again, the right fit is important.

Many folks hire business consultants, we have been down that road a time or two, again, like so many other things, find the one that fits and it can be a great deal.

Our CPA helps us keep all our licenses straight, keeps us straight with city and county and state and federal taxes. As well as keeping our multi state taxes straight when it applied to us. Acts as a general business consultant as we look at things (after all, he is a small business himself) and really helps me to put things into black and white perspective at times when we look at the different options. Just for example...

Say you get an influx of work, more then you can handle at the moment.

Do you
Hire an employee?
Hire a subcontractor?
subcontract out the work?
Buy bigger equipment to do this job?
Pay someone under the table to work for you to get through this?

A good CPA can walk you through these options and more, and point out the pro's and con's of each, then you have to decide what to go with.

Oh, and I keep talking about CPA's, just like the other things, you have to find that one that fit's you and your situation.

I do not want the CPA firm with the big name, staff of hundreds, large advertising budget etc.

I have the guy that is in his mid 50's, operating in his hometown, out of a remodeled house, has another accountant and sometimes another CPA working with him and an office staff of a couple of folks, reasonably priced,,,,

That I can call up and say, hey Dan,,,, I am thinking of................ does that sound reasonable? And we will have a conversation and he will give me some guidance without clicking the clock over and billing me in 5 minute increments. Just as he calls us and say's can you guys look at this tree and give me some options for a flower bed and a wall for out front.

Good luck

oceaneering · Sep 12, 2006

AlanB said:
These are the questions that really helps if you have a good business team around you that can answer these things.

While the info on TBN is excellent, and primarily accurate, I would only venture into something like this with competent local help.

For us, a good CPA is the base. For many it is their Banker. We try not to use the banker so much..... But they are important to have in your corner. LLC, Inc, Sole Proprietership,,,, those are things you need to look long and hard at and make sure that you understand the ramifications that go with each. (and the long term reporting requirements)

Check with your local SBA, sometimes they have counseling services available. SCORE, service core of retired executives can be a real asset. Although, just like anything else, sometimes you get great ones that are a great fit, and sometimes they just suck.

Check with your local colleges and see what they have available.

There are numerous books out there not to mention all the magazines.

If you can get an experienced Mentor that will work with you that is one of the best things. Maybe a guy 2 towns over that you will not compete with but is willing to share, or I had a guy that I grew up around and he operated a very large commercial woodworking shop when I was starting out and he helped us out considerably. Again, the right fit is important.

Many folks hire business consultants, we have been down that road a time or two, again, like so many other things, find the one that fits and it can be a great deal.

Our CPA helps us keep all our licenses straight, keeps us straight with city and county and state and federal taxes. As well as keeping our multi state taxes straight when it applied to us. Acts as a general business consultant as we look at things (after all, he is a small business himself) and really helps me to put things into black and white perspective at times when we look at the different options. Just for example...

Say you get an influx of work, more then you can handle at the moment.

Do you
Hire an employee?
Hire a subcontractor?
subcontract out the work?
Buy bigger equipment to do this job?
Pay someone under the table to work for you to get through this?

A good CPA can walk you through these options and more, and point out the pro's and con's of each, then you have to decide what to go with.

Oh, and I keep talking about CPA's, just like the other things, you have to find that one that fit's you and your situation.

I do not want the CPA firm with the big name, staff of hundreds, large advertising budget etc.

I have the guy that is in his mid 50's, operating in his hometown, out of a remodeled house, has another accountant and sometimes another CPA working with him and an office staff of a couple of folks, reasonably priced,,,,

That I can call up and say, hey Dan,,,, I am thinking of................ does that sound reasonable? And we will have a conversation and he will give me some guidance without clicking the clock over and billing me in 5 minute increments. Just as he calls us and say's can you guys look at this tree and give me some options for a flower bed and a wall for out front.

Good luck

That's good advice and I can't wait to go get started talking to a cpa, developing a friendship, like your describing and saving money. And I learned so much about the taxs thread that now I know what questions to ask them. Or at least I have some ideas of what I would like to achieve. I get my taxes filled every year at the same place. I don't know if they are a cpa or a tax preparer. Never considered it. I have asked questions in the past and didn't understand the answers. I mean they told me it was just over my head. Now I have a better idea of what they will be talking about. That and I;m one of those people who just learn more from a person who can break the truth down. I get caught up with all the jargon. So thanks for the replies and insights.

Mike120 · Sep 12, 2006

Check these out:

Business & Small Business

Small Business Administration

Small Business Resources for the Entrepreneur from Inc.com

Small Business and Self-Employed One-Stop Resource

Small Business Lawyer, Attorney, Law, Legal Help - FindLaw for Small Business

The Small Business Advisor - advice for starting and operating a small or home based business

Just remember, when you work for someone else you generally only have one boss, when you work for yourself you have many: Customers, Banker, CPA, Insurance Agent.............

AlanB · Sep 12, 2006

Well, I guess I would say, if your present place left you feeling like that, then it is not the right place. To me, it is their job to explain it too me in terms I understand. I would find another place that was a better fit. Our guy gives me whatever service I need. At one point that was full explanations, and laying it out by the numbers.... I think last year the wife brought home the tax paperwork with a sticky SIGN HERE arrow on it................. That was the only question I had at the moment

And Mike 120 brought up another biggie that I forgot about (and god knows I wish I could forget them) but a good insurance agent is very important.

I personally wish I could have 1, but so far, I have never found the place that handled all my needs. I have it narrowed too 2, cars, house, etc. etc. with one. Business Liability and Biz equipment with another.

While from my viewpoint insurance is insurance, they looked at those different needs as very different items. Kind of like my mom would say Car parts,,,,, but you would want to know if you are taking it too a Xmsn shop or an engine rebuild house.

randy41 · Sep 12, 2006

Dougster...i think you are mistaken.
Limited Liability Company Information

Limited liability companies are unincorporated organizations having one or more members formed by compliance with M.G.L. Chapter 156C. Generally members are not personally liable for the debts, obligations or liabilities of the LLC. If formed properly LLCs will be treated as partnerships for federal and state tax purposes.

2nstonge · Sep 12, 2006

Good info from AlanB.

Oceaneering, when I started my business (home improvement/handyman) I managed to get my lawyer, CPA and insurance agent in the same room at the same time. I laid out the realities of my personal situation, my business plan and my goals for the next couple of years. Then I sat back and listened and learned while these 3 guys bandied about the different types of entities and the pros/cons of each for my specific situation.

The meeting went about 90 minutes and only the lawyer billed me for his time. I now meet with these guys every 3-6 months (2nd year in biz) just to keep them abreast of changes to my business and do a review/plan session. In my case an LLC was the best option from a liability protection point of view.

Bottom line is I would do all the reading and self-prep you can stand while interviewing lawyers, CPAs and insurance folks while developing a business plan at the same time.

Good luck, -Norm

Dougster · Sep 12, 2006

randy41 said:
Dougster...i think you are mistaken.
Limited Liability Company Information

Limited liability companies are unincorporated organizations having one or more members formed by compliance with M.G.L. Chapter 156C. Generally members are not personally liable for the debts, obligations or liabilities of the LLC. If formed properly LLCs will be treated as partnerships for federal and state tax purposes.

Thanks Randy. This does appear to imply that Massachusetts law has changed... even if the form you fill out still asks for the names of at least two persons. Maybe they can be the same? Or maybe the form is obsolete?

Clearly, I have to investigate this further. Thanks for checking!

Dougster

2nstonge · Sep 12, 2006

I would run this by a lawyer and/or CPA...it smells a little fishy.

If I interpret it correctly, one person can create an LLC, then this one person LLC gets a company credit card, charges up $10000's on 'stuff' for 'the business' and then disolves the company...but no one's personally liable or on the hook for the debt??? I lived in MA for 40+ years before relocating to VT, I would envision lines of people in MA signing up their LLC tomorrow to take advantage of that deal!

For my LLC in VT all business income (or loss) flows thru to the personal tax returns of the members of the LLC (need at least 2 people to form one) and the % to each member is determined by the operating rules of the LLC. LLC members that have signature authority and may potentially realize a gain from the LLC are also on the hook personally for any debts incurred on behalf of the LLC - even if those debts are signed for by another partner.

-Norm

Dougster · Sep 12, 2006

2nstonge said:
I would run this by a lawyer and/or CPA...it smells a little fishy.

If I interpret it correctly, one person can create an LLC, then this one person LLC gets a company credit card, charges up $10000's on 'stuff' for 'the business' and then disolves the company...but no one's personally liable or on the hook for the debt??? I lived in MA for 40+ years before relocating to VT, I would envision lines of people in MA signing up their LLC tomorrow to take advantage of that deal!

For my LLC in VT all business income (or loss) flows thru to the personal tax returns of the members of the LLC (need at least 2 people to form one) and the % to each member is determined by the operating rules of the LLC. LLC members that have signature authority and may potentially realize a gain from the LLC are also on the hook personally for any debts incurred on behalf of the LLC - even if those debts are signed for by another partner.

-Norm

Believe it or not, states requiring at least two people to form an LLC are in the extreme minority. If Massachusetts has indeed changed from two to one, I think that leaves maybe one state and the District of Columbia.

Dougster

randy41 · Sep 13, 2006

i'm not so sure that credit card companies would issue a credit card to a newly formed llc that would have very much of a credit line associated with it.

2nstonge · Sep 13, 2006

randy41 said:
i'm not so sure that credit card companies would issue a credit card to a newly formed llc that would have very much of a credit line associated with it.

I had no problem getting one - because I'm personally liable for the financial activity of the LLC. I also have truck and equipment loans in the name of the LLC...guess I should have started in MA - zero liability of the biz goes belly up.

Alan L. · Sep 13, 2006

"The meeting went about 90 minutes and only the lawyer billed me for his time"

Thats why lawyers drive BMWs and CPAs drive Accords.

randy41 · Sep 13, 2006

i would have billed you....but i would have for sure told you i was going to before.

2nstonge · Sep 14, 2006

I expected all of the meto bill to me. And it still would have been worth every penny.

In my thinking, the CPA and insurance guy get more billable hours/business from me throughout the course of the year. The lawyer only has X hours available and all of it has to be revenue generating.

-Norm

Dougster · Sep 14, 2006

2nstonge said:
I expected all of them to bill me. And it still would have been worth every penny. In my thinking, the CPA and insurance guy get more billable hours/business from me throughout the course of the year. The lawyer only has X hours available and all of it has to be revenue generating.
-Norm

What would help me most right now would be if one or two of you business-owning folks could give me some wild, crazed idea of what I can expect to spend in assorted government and professional fees to set up this 1 or 2 person tractor/ loader/ backhoe and winter snowplowing-based business... probably as an LLC since it does appear that the MA two person rule no longer applies. I mean... are we talking $5,000???... $10,000???... $20,000???... $50,000???... more??? Maybe someone can at least give me a range? At some point, it's going to drive me straight to the SBA for some kind of loan... or just stop this thing dead in its tracks.

Same question for business insurance. I've been told that that big bad backhoe on the back of my compact tractor is going to croak me good as that makes me an insurance-risky excavating business and not just an everyday landscaper (think: mowing lawns). I've also been warned that if I also offer tree removal, it will get even worse. I didn't think it could get any worse.

My strategy will be to limit risk as much as possible through tight written contracts and absolute caps on damages (other than for gross negligence or criminal behavior), but I know some activities require huge liability coverage... such as L.U.S.T. removals.

Come on... Anyone out there brave (or reckless) enough to throw out some numbers?

Even pure guesses???

Dougster