Author Topic: Starting a small business basics  (Read 7664 times)

Offline David Dakota

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Starting a small business basics
« on: September 12, 2014, 02:57:31 PM »
Hey all.

I wanted to pick your brains about how to start a small business at home. I have several ideas rattling around in my head to turn into small businesses but am not sure where to start. After hearing some of the recent shows by Mark Shepherd and such, I am more eager than ever. I am trying to spend as little as possible and want to know what the essential things to start up are for licensing and tax id and all that stuff. Any help would be appreciated.   

Offline fritz_monroe

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Re: Starting a small business basics
« Reply #1 on: September 12, 2014, 06:13:50 PM »
I'm watching this one.  I have the same questions.

Should I set up an LLC?  Do I need a lawyer or accountant?  How about software like Quick Books, will that get me off on the right foot?  Anything I need to look out for?

I first started thinking about it when Jack talked about his son doing above ground pool cleaning.  That's something that can start on the weekend and would be a great job for my son during the Summer.

Offline fred.greek

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Re: Starting a small business basics
« Reply #2 on: September 12, 2014, 06:29:18 PM »
LLC for "protection", but you have to act appropriately or lose it.  Insurance anyway. Check zoning, home business regulations, city, county, state, federal.  (Remember the family that got in hot water for selling rabbits without a free federal permit)… 

Offline The Professor

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Re: Starting a small business basics
« Reply #3 on: September 12, 2014, 10:49:04 PM »
First off, before you do ANYTHING, work up a business plan.  Even if you're going to do everything yourself.  Start with initial idea and complete the plan with an Exit strategy.  Go ahead and buy one of the larger professional software programs.  They may have sample plans on your particular business, including special licensing, etc.

Then, if you still want to do your business, find a professional bookkeeper/accountant that specializes in small business.  This will prove INVALUABLE the first time you file your corporate taxes.  Have them explain to you, very carefully, how much money is going to be confiscated from you by the various agencies assigned to do such things.

Seek an attorney. DO NOT LISTEN TO ANYBODY HERE who tells you to get any specific type of corporation (S, C, Close-C, LLC, etc.). If something goes wrong, it's not THEIR ass on the line.  Have your corporation set up by an attorney who specializes in setting up small corporations and who explains to you in excruciating detail what your responsibilities and protections (or lack thereof) are.  For example, I currently have two Close-C's and one LLC.  Each was carefully chosen due to the products/services being provided and the protections I needed from them and they needed from me.

I know it doesn't sound like fun. It isn't.  But I'll give you some personal examples.  I've started five businesses, none of which cost me more than $10k to begin with.  The first two flopped.  Not because I couldn't sell or deliver product, but because of poor planning. I tried to save money by trying to do everything myself.  The third time, I sat down and wrote a detailed and comprehensive Business Plan and paid the money up front for lawyers and an accountant.

My first two failed because I failed to plan on issues that were brought up by governing agencies (State and Federal revenue services).  The last three are still running because I spent the time and money to plan everything, including when to get out of the business and not lose my ass (i.e., an Exit Plan).

No matter how small your business is, you NEED to know these details.  One small oversight and you could find yourself in a situation that affects you far after your business closes.

Just some suggestions.

The Professor

Offline David Dakota

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Re: Starting a small business basics
« Reply #4 on: September 13, 2014, 05:15:51 AM »
Thanks for the tips so far. Very good food for thought. I see the advantages of doing these things and this type of info and examples are exactly what I am hoping to generate on this thread. Those who have the experience and have made these mistakes can share with those who need that coaching.

I really miss the 5 min with Jack podcast and I hope he does a show soon about the ins and outs of starting a business, but here in the forums is where we can hash out the fine details on a personal level. I feel this is extremely important to me and is something I need to take advantage of.

Haven't listened to this episode of Tom Wood's Show yet but might have some great tips for those of us who are on the cusp of a small business ourselves.
    http://www.voicesofliberty.com/audio/the-100-startup-what-moves-you/

Thanks again.

David Dakota

Offline JLMissouri

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Re: Starting a small business basics
« Reply #5 on: September 23, 2014, 08:05:58 AM »
A lot of small businesses are still sole proprietorships, and depending on your business idea it may very well be a viable route. An LLC only provides limited protection in a lot of situations and may not be worth the hassle. Only way you will know is to do the research.

I turned a profitable hobby into a profitable business and later went into a partnership with my brother on another profitable business. A lot of businesses fail because the people who started them didn't know the business they were in. I have been self employed for years, the freedom has made me unemployable.

I think everyone should be self employed, but it does require a fire inside and major motivation. There are so many ways to make money that anybody with the will can make more money working for themselves than being employed.

Most states have a website that will walk you through the steps needed to start your business. If your in California get ready for the red tape, in Missouri it is easy and straight forward. I filed a Doing Business As form, got a federal employer ID and a sales tax license and was ready in less than a week for a sole proprietorship. If you form an LLC or a corporation it will take longer, but may be worth it depending on what you want to do. There are also a regulations by cities and sometimes counties depending on how regulated of an area you live in.

Biggest thing is to just do it, figure everything out by jumping in.

Offline mnotlyon

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Re: Starting a small business basics
« Reply #6 on: September 23, 2014, 09:53:51 AM »
Hey all.

I wanted to pick your brains about how to start a small business at home.

Most small businesses fail because of lack of capital or too much debt, assuming they went through the planning stage properly as suggested by the Professor.

To eliminate this problem, start small. If it's possible, don't quit your day job until you're making enough money on your new business that it can support you. This makes the step into full time work much safer. Remember, "business" loans are really personal loans. You sign the paperwork with your name in most cases. That means if your business goes bankrupt, your house is probably on the line.

Open a checking account for your business. All business transaction are processed through that account. Personal transactions are NEVER processed through that account. If you are going to receive a paycheck, or disbursement, you right yourself a check from that account to keep the accounting clean. If you're not incorporated, the account can be opened as a DBA (doing business as).

Incorporating is an unnecessary expense for many (not all) small businesses. If you are in a business that gets sued a lot (like doctors for instance) you better incorporate. If you have a lot of personal assets, you better incorporate.

Hire a GOOD accountant right from the start. I decided they were too expensive when I opened my business. Instead, I spent 8 hours per quarter filing my quarterly taxes. A number of times I made mistakes that caused me even more head ache. I later learned that I earned more money working at my business during those 8 hours than paying my expensive accountant to do the job properly the first time.

Did I mention starting small, and without debt? Running your own show has a high learning curve. Small businesses make small mistakes. Large businesses make mistakes with zeroes behind them.

Offline mxitman

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Re: Starting a small business basics
« Reply #7 on: September 27, 2014, 11:35:06 PM »
the simple legal one man show way;
  • file a business with the state agencies (tax,business,etc)
  • file your business with the city or cities you work in (if required)
  • file for your EIN
  • open business checking account (keep everything separate other than initial deposit)
Keep records and receipts all separate, as stated before if you pay yourself just write a check from your business account. from there it's up to you and what details in your business...even if your making and selling stuff you can report this as "other income earned" on your taxes without opening a business if it falls under not collecting local tax or under certain dollar thresholds. Online out of state sales for example...

Offline RuggedCyclist

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Re: Starting a small business basics
« Reply #8 on: November 16, 2014, 06:58:54 PM »
There's a book called Small Time Operator that I would highly recommend if you're starting a small business. It covers legal issues, bookkeeping, and the other boring technical details important to running a business. And the author manages to incorporate humor into it!

Offline UncleTater

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Re: Starting a small business basics
« Reply #9 on: December 08, 2014, 05:05:02 PM »
Depending on what business you're going into, you may be able to do it as a "hobby" for a little while to build up experience, supplies, etc. The following is from IRS.gov...

Activity not for profit.   You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Enter this income on Form 1040, line 21. Deductions for expenses related to the activity are limited. They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit.

Offline David in MN

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Re: Starting a small business basics
« Reply #10 on: December 08, 2014, 05:36:40 PM »
 :popcorn:

Offline annmedford

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Re: Starting a small business basics
« Reply #11 on: December 23, 2014, 07:00:07 AM »
I'm interested in following this topic too. I know Jack said he will not give direct financial - legal advice, but i'd love to hear more about how he and Dorothy have set up Nine Mile Farm. As a pure example it would be valuable to so many!

Offline mxitman

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Re: Starting a small business basics
« Reply #12 on: December 23, 2014, 02:36:11 PM »
I would be interested too maybe someone can call it in to Jack and find out. I'm setting my farm up next year as an LLC, that will be renting the 1/2 acres of pasture/farm land from us, we will also buy into the CSA that will provide for our veggies/meat/eggs etc from said farm. I'm doing this mostly for tax purposes and to get a benchmark for my schedule F for future opportunities for farm grants & farm use history for buying AG land & forestry timberland.

Offline annmedford

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Re: Starting a small business basics
« Reply #13 on: January 05, 2015, 05:59:02 AM »
mixitman, we are considering something very similar on our homestead. Do you already have a csa set up? What state are you in? A business friendly one?
We are in Maine.
regards
Ann

Offline ModernSurvival

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Re: Starting a small business basics
« Reply #14 on: January 05, 2015, 08:18:26 AM »
Guys I will see what I can do but let me just say the following list of things one more time.

1.  You don't ask Jack, forum members or anyone on the internet if you should set up an LLC, go sole proprietorship, do a C corp or form a non profit for your venture of ANY kind.  This is a question for a CPA AND a Tax Lawyer, where BOTH know YOUR specific situation.  The end, over, done, no other answer EVER EVER EVER.  Got it, good,  ;)

2.  Unless you want to actually go big with farming, (big for us anyway as in full time income) sometimes when  you pay the man a LOT of money over and over and over for so many things, ya just sell some eggs and put the money in your pocket and move on the way you might if you were selling your neighbor your old reloading press because you bought a new one.  Right now we are not making money anyway.  The eggs don't pay for the entire feed bill at this point.  This would not even be hobby income, it would be hobby loss.  Perhaps it will get big enough that I will want to claim the loss some day, get it,  :P

My honest hope is in time I create an enterprise here that Dorothy will fully manage and who knows may be my son might get motivated and become involved in the planned nursery business.  I can get more space cheap if needed.  But at this point I am not worried about a schedule F for NMF, it isn't large enough and I personally won't individually be trying to buy a farm.  Anything I do like that will be with PermaEthos.

The truth on that end?  This is part of why we have a partnership (in the form of an LLC), Kevin is awesome with numbers, does our accounting, has great business contacts on the legal and insurance side of things.  He brings us proposed solutions and the team decides what to do. 

There are two ways you can follow what I am doing.

1.  Exactly - This means you start it really as a "hobby", you don't go big or even paperless if you get my drift  ;) and you figure out things.  You determine if it is going to work for you, you get some customers, you sell some eggs or plants or tomatoes or whatever.  You sell ONLY direct to consumer, no middlemen, you just do it.  If income actually warrants it you then TALK TO A CPA and a TAX attorney, set up a structure and grow from there.  That is all!  You do this so you actually get your ass in gear and get something done, test the local market, etc.

2.  Not Exactly - This means you are growing 500 broilers or something out of the gate, strait to doing a schedule F, etc.  This means you talk to a CPA and a Tax Attorney up front.  This is the Mark Shepard model, this means one day you want to apply for a loan and buy a real farm, etc. 

So you either grow into a business or you start with a business, the choice is yours.  Option two tends to cost more money and unless one person can go close to full time likely won't fly early on. 

Does this all make sense?

Don't get me wrong I am all for people smartly leveraging debt to buy/build farms.  In fact with Ethos we have learned that the .Gov makes doing stuff with your own money not that great when it comes to farming.  If you have 100K to improve/build/buy a farm, tax wise as stupid as it sounds you are better off putting it into a CD and borrowing it.  This is way to complicated to explain here.

To start to though let me explain it this way, if you plant a tree on your farm it is NOT an expense.  It is an "improvement".  There is no immediate deduction you have to depreciate it like a building over 30-40 years depending on certain rules.  If I borrow money to plant a tree my payments on the debt are an expense, right now, today, at least the interest is!  And in the first few years, almost 100% of a debt is what, interest.

Hence you are ahead if you borrow 100K, deduct almost all of the cost of payments over the first five years, establish cashflow, technically operate at a loss for the first 3-5 years, then pay off the debt with your 100K that sat and got .75% interest or some shit in a safe CD over those 5 years then you are if you pay cash up front.

Again to fully understand how things like this work for you you MUST talk to experts.

And well, perhaps I could be a little more blunt with tax concepts in a private venue ;)

Offline IronTeaCup

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Re: Starting a small business basics
« Reply #15 on: January 06, 2015, 04:42:47 PM »
This is all awesome to read! I have just started with my education in the library and will be doing lots of reading till I get a handle on more stuff like this. For now I just need to read up. Also if anyone has heard of S.C.O.R they are some business people wanting to help small business owners and stuff like that. I have tried to use them but I havnt gotten a response yet.

Offline viking

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Re: Starting a small business basics
« Reply #16 on: January 08, 2015, 08:37:06 PM »
 :popcorn: