starting a small business

[randy41]

A lawyer should charge you about $400 to set up an LLC. So if you're in a big city it'll be a little more.
You'll need to find out if you have to collect sales tax for what you do. That's a specific to your state issue.
If you are going to have employees you're opening up another whole rule book.
I dont know much about insurance.
I reckon a few phone calls would get your questions answered.

 

[2nstonge]

Ok Dougster, I'll jump.

I'm in southern VT but do some biz in western MA, but my LLC and all insurance expenses, etc are in VT which I know is a very different picture than MA.

I'm a solo operator (no, read NO, employees). My LLC has 3 distinct but intertwined businesses; home improvement/handyman which encompasses everything from repairing a storm door to remodeling kitchens; small scale tractor (with BH) & landscaping work (trenching, gravel drive repairs, tilling, tree & brush removal, etc), and 10,000 sq ft of a big azz ugly barn that serves as a shop and garage for my truck & trailers with enough room left over that I also store vehicles during the winter for other people. Everything I do has a tight, lawyer reviewed, signed contract. Don't matter much if you get sued - if you do you may as well cry 'uncle' early and get it over with.

Setting up the LLC was cheap - under $500 including all the state & lawyer fees. Annual maintenance of it is a bit pricier, CPA fees for LLC tax returns and mandatory state reporting runs around $2k. A minimum of $2mil in liability insurance is a must plus the usual insurance for truck, trailers, tractor, attachments, tools plus the insurance for storing vehicles and their attendant clumsy owners on my property...I get a good deal in VT but having lived in MA myself I'd expect you to pay thru the teeth for even a portion of that. Only your insurance agent can give you valid info for this.

You gotta talk to your town (or towns) where you want to work & find out what they need for permits, licenses, insurance...definitely a PITA but only that leg work will give you the info & numbers you need to determine if it's a viable venture. Even thinking about employees and all bets for $$ amounts are out the window. Want sticker shock? Get a price for workmans comp insurance.

Anyway, strictly speaking professional fees and insurance - under $3k got me into business and about $4-5k each year keeps me in business. Your mileage will definitely vary.

Good luck, -Norm

PS: first thing you'll want to do - put "Dig Safe" on your speed dial. 1-888-dig safe, Dig Safe System, Inc..

 

[Dougster]

Ok Dougster, I'll jump. I'm in southern VT but do some biz in western MA, but my LLC and all insurance expenses, etc are in VT which I know is a very different picture than MA.

Excellent information Norm... thanks for taking the time to lay it all out. The insurance numbers are my biggest concern of course, but I *DO* understand that Vermont and Taxachusetts are very different worlds.

One big question: Why do you need so much insurance coverage on a one-man operation... i.e., $2 Million... when you have already incorporated in order to limit personal liability? If you can afford $2 Million of coverage, why not just remain a sole proprietor and keep things simple? Or can I assume from this that the business itself is worth that much? Or maybe the incremental cost of higher coverage is not that great? Or maybe Vermont law requires this much liability coverage for what you do?

And BTW... do you remove residential underground heating oil storage tanks? Does your insurance cover that activity?

In my case, the entire business... all equipment and related investments... will only be worth about $100K or less (excluding land development aspirations which will be under a completely different, completely separate, multi-partner LLC). Why should I insure myself for a lot more than my incorporated exposure (except as otherwise may be required by law)? Wouldn't I be tempting a frivolous mega-lawsuit? Perhaps the old rule that you only need enough liability coverage to equal your personal wealth does not translate well to the business world. As you can probably tell, I am not a big fan of over-insuring one's self. Never have been.

I am also intrigued at the relatively high annual maintenance cost for a one-person business. Perhaps I shouldn't be, but I am. And I'm sure it will be much higher for me here in Taxachusetts. I suppose there is a huge heap of paperwork... even if business is slow or worse. Maybe I should forget about plowing and tractor work and become a CPA myself? Can I get there somehow starting with an engineering degree and 18 years of large project finance-related experience? Sadly, I never went back and got my M.B.A.

Lastly, I hear you loud and clear on the employee thing. But at some point, even with only modest success, it will be unavoidable. My future son-in-law is already expressing serious interest... and he has far more heavy equipment operating and snowplowing experience than moi! And after all... I will need backup!

Dougster

 

[2nstonge]

Why do you need so much insurance coverage on a one-man operation... i.e., $2 Million... when you have already incorporated in order to limit personal liability?

An LLC isn't a missile defense shield - it's merely a speed bump if you've done something really bad & someone wants to come after you personally. I started with $1M in liability but started taking subcontract work from bigger general contractors and they asked for $2M in liability. The cost difference was minimal so why not? If Uncle Fester breaks his neck after he trips & falls into a hole I dug because I didn't have the work site properly marked off I'd rather my insurance company wrote him check than me handing over my house keys to the guy.

And BTW... do you remove residential underground heating oil storage tanks? Does your insurance cover that activity?

Absolutely 'NO' to both questions. I've had that done and the contractor needed a special license with state & fed EPA dudes looking over his shoulder the whole time. I can't imagine what his insurance costs are...how much does it cost to clean up the local aquifer if he springs a leak in the tank during removal?

I am also intrigued at the relatively high annual maintenance cost for a one-person business.

There's certain state filings and state/fed tax returns whether I'm one person or ten and whether the business is booming or not. My CPA has a fixed/flat rate for preparing those docs regardless of what numbers he's plugging into the blanks. That fee and my insurance premium is 90% of the cost.

Lastly, I hear you loud and clear on the employee thing. But at some point, even with only modest success, it will be unavoidable.

I'm putting this off as long as possible. I don't have a full time need yet so I hire other guys as subcontractors; they invoice me, set their own hours, etc, Made them sign a 'Hold Harmless' agreement as I'm not sure these guys carry insurance, pay taxes, etc.

-Norm

 

[450EXC]

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.

You can start off cheap. Sole Propierter = $ 0, Hire small bookkeeper = $ 300 startup and go.
I researched all tax info I could find. Took night class for basic bookkeeping, etc.
Make some money then ramp up. It's important to not spend every $ and bank some for future cost, emergencies, etc.

Insurance is different. $ 2k for liability ? $ 1k ?

Equipment ? Loans for new. Or my buddy started an excavating biz with old stuff her found cheap and paid cash.

A cash flow projection would help to envision where your money will go.

Edit: That said I agree an LLC/Corp, CPA, Biz consultant is better... but cheap is an option.

 

[AlanB]

I will jump in here again,

You are set on the LLC deal, and it is probably right for you, we are sole propieter (sp) anyway, we are liable.

Someone else here said it, don't think that LLC makes you bullet proof. Again, talk to that lawyer about liablilities and I think you will find that you are on the line pretty much any way you slice it up.

When you speak with your insurance guy, tread very carefully as to what you do, don't do, how stuff is described etc. Insurance can get very expensive depending on how it is done and described, you also run the risk, if you ever try to hide something, of finding that your insurance does not cover that aspect when you need it. (Ie,, you have a one ton truck that you just insure as a pickup, when in fact it has a dump truck bed and you are hauling gravel)

1 million too much,,,, we mow, lets say we launch a rock and hit a child in the head, goes into a coma and does long term damage. How fast will the 1 mil be gone? Even the 2 mil will just get that kid started. Many commercial places are going to 2 mil as a base.

I had a different answer then what the other guys gave from your question. The instant thought that came to my mind was you need to back 35 to 40% of your Gross out too taxes. I think they answered your actual question, but,,, that is a number that you need to think about when doing this stuff (and mostly pricing stuff)

One of my pet peeves is the people that go,,,, well, my "dump truck" is paid for so I do not need to charge for it's use, just my time......

This is the buy high sell low quick road to bancrupty that many folks in this business take and find themselves out of business and in debt or bankruptcy while devaluing the work that others that are trying to cover everything do.

One other thought of note.

We have been through the employee's no employee's dance a number of times, and heck, we are still on the floor as we speak.
This can be a real, real sticky deal that should be a topic on it's own.

We currently have one employee, and one person we 1099 when we need help. Again, talk a lot with your CPA as to what makes a person an Employee. There are some different definitions out there that your situation (and really their situation) can make a difference. Also you may want to check the workmans comp insurance stuff as well, it gets real complicated.
I cannot verify this so it may be urban legend, but the two brothers doing concrete work for me in Fl told me they had to carry workmans comp because there were two folks, but neither of them could draw against it because they were listed as owners..... Things that make you go hum.....

 

[450EXC]

I'd watch that AllanB guy - He rides his bike REAL slow. Just kidding, I love you guys. I let the local expert practice on my water falls. It's a jaw dropper, very cool.

 

[RonR]

I'm not in your area, but I'll share my story.

I started a side biz of doing light dirt moving and rototilling, etc. Now that I'm retired, I'm trying to kick it up a notch.

Cost to start was almost zero. CPA walked me through the steps and he does my taxes for minimum upcharge (sole proprietorship, so it's just more forms on my existing taxes).

I've had 30+ years of being around machinery and operating forklifts and backhoes and dozers. But when I tried to find liability insurance for my BX2200, it was TOUGH. No one wanted to write it since I had no commercial experience and it had a loader, which increases the liability of excavation. Only after I explained thoroughly that I couldn't dig basements or trenches, etc, did I find a policy coverage of 1 mil.

I won't bid on some jobs, like one realestate place wanted me to backfill around a house (easy), but they wanted me to raise/level the A/C unit. That would be easy to do, but I didn't want to chance breaking a line and being asked to pay for all the refrigerant leaked out. Too risky for me. Made them a little mad, but I don't need to look for trouble.

Part of my insurance agreement was NO EMPLOYEES. Sometimes, I contract my son to help me, but I don't want the added exposure of employees and dealing with the paperwork, etc.

I've spent a lot of time working on my bidding skills, since many of my first jobs were me working for FREE (didn't bid enough). I'm hoping to wear this Bota out by working it, so I've got a long ways to go...............

Ron

 

[AlanB]

450EXC (as in KTM I bet) Had me really scratching my head then went and looked at my public profile..

Yep, I ride real slow, but crash with the best of em!

You should try it sometime.

Kind of echoing along what RonR said, that is why you need a good relationship with those folks mentioned earlier, they can steer you in the right directions.

Oh, and don't think that you will not loose money on some jobs. We have had several where we were just happy not to lose our rear.

Experience is often the best teacher, but,,,,, it can sometimes be a costly course.

As you are going in to this, let me share a couple of thoughts I would suggest you take to heart and think about as you launch into this,,,, you will think them funny now, but sometime later, you will go crap, he is right.

The secret to small business is to only work 1/2 days, the good news is that it does not matter which 12 hours you pick.

You will reach a point, where you cut your prices to get work..... DO NOT DO THIS..... As the man said to me, I can go to bed at night, Broke and Hungry, or TIRED and broke and hungry....... Don't need to work just to be TIRED.

This is one of the hardest ones to get across to new business owners until it has bit them a couple times.

When you have that bad feeling about a job or customer,,, stop then,,,, it will not get better. Like RonR said about the AC,,,, some people would fall into the customer chiding them into doing it,,, then it would go to crud... Or what happens more with us, you just get this feeling about some people that they will be a pain,,,, and trust me, they always are. Better to just walk if that is what your gut tells you to do.

Oh,,, and I will let you in on a big SECRET that really makes a difference in business. ANSWER YOUR PHONE and RETURN PHONE CALLS, but turn off your phone when meeting with clients. It will pay more dividends then you would believe.

Oh, and after looking at my public profile. You are probably scratching your head about my occupation.

Business is the wifes. I am the maintenance guy.

*** Hanna Bechard *** A Woman's Touch *** Clarksville ***

 

[2nstonge]

I cannot verify this so it may be urban legend, but the two brothers doing concrete work for me in Fl told me they had to carry workmans comp because there were two folks, but neither of them could draw against it because they were listed as owners..... Things that make you go hum.....

Yep, called an "owners exclusion" on my Certicate of Liability Insurance the Workers Comp box is checked and coverage amounts are shown - but as the owner of the company I filed an 'owners exemption form' which absolves the insurance company of any responsibility for me but it makes my business legal in the eyes of the law that my company complies with workers comp rules. The exclusion is only available the owner(s) and not employee.

-Norm