HOW TO: Start your own business

[faulkner132]

I see this asked a lot in the forum, so here is a write-up of everything you need to do to officially start a new business.

Preface:
I am not a tax attorney or accountant, I've just started two on my own and these are the steps I followed.
Why start your own business instead of just doing it on the side?

Your own protection. It only cost's $50 to sue someone in the US, and if you are not protected as an LLC or LLP, people can go after your personal assets. Granted this most likely will not happen, but hope for the best and plan for the worst. If you are protected, they can only go after what your LLC or LLP owns.
Tax benefits. This is huge. Any mileage, cost of supplies (i.e. computer parts), software, domain/email hosting fees etc. you use for your business is considered an expense and you can get a percentage refund on the cost.
Example: you need a new computer to test your latest X. The computer costs $1,000. This $1,000 is a cost to your business so at the end of the year you will get whatever your tax rate is back on it (i.e. 25% tax rate, you would get $250 back).
One day you could be bought out.



Ok, here are the steps I followed, if someone else has had to do extra, please let me know so I can update the steps.


Go to the IRS website (www.irs.gov) and under the Business section you should find a link for starting your own business. Fill this out and you will be assigned a Federal Tax ID (EIN). I would look into an LLC (if you are by yourself) or an LLP (if you have partner(s)).

With the EIN number you now need to register in your State as a business. The information/requirements will vary by State, but you can usually find it on your respective Secretary of State's website. Either print the form and mail it, or complete it online.

If you are going to be selling physical merchandise you need to obtain a business vendor license from the county you live in. Unfortunately, you will probably have to walk into your county's courthouse to do this, but call first, as it will vary. You will also be responsible for collecting and paying sales tax for any physical sales you make.

Open a Business Bank Account at a financial institution of your choice registered in your business' name. This is key if you want to take advantage of the tax benefits of running your own business, and it will make your accounting a lot easier to keep track of.
Insurance. Some people don't want to get it, but if you are doing anything which may involve risk to customer data, I would highly recommend it. Common examples being website hosting, cleaning PC's of malware (especially if you do it for businesses), and application development where your programs are not freely given away. It is for your own protection in case something does go drastically wrong and it is usually only ~$30 a month for up to $500,000 coverage per incident.

Keep track of ALL of your transactions. Give a receipt for everything and always remember to keep a paper trail!


That's really it... it probably takes 2-3 hours of filling out paperwork a year (if you keep good records), but it is well worth it.

Pluse, you can always get a CPA to help you if you are unsure about anything (see Preface).

Hope this helps!

[Dark Nova]

nice thx for the tips

[edfair]

If you are in a state that has income taxes, you need to register with the state income tax unit.
State labor departments also get a piece of the action each quarter.
If you have equipment of any kind the property tax people in your county will want you to register.
If you are selling you may wish to get involved with the sales and use tax unit of your state's revenue department.

How about upgrading the estimated time involved to a couple of hours quarterly and several hours at yearend.

And you made one mis-statement regarding equipment purchase: you don't get a rebate, you get a partial or full deduction of cost of equipment against the income earned. You don't get into depreciation until you exceed 10K of purchases per year.

[EzyStvy]

http://www.sba.gov/img/header_title.gif

"Starting a business can be an exciting venture offering many rewards. However, you must be prepared and you must understand the basics."

(Free Small Business Startup Guide)

http://www.sba.gov/starting_business/

[faulkner132]

If you are in a state that has income taxes, you need to register with the state income tax unit.
State labor departments also get a piece of the action each quarter.
If you have equipment of any kind the property tax people in your county will want you to register.
If you are selling you may wish to get involved with the sales and use tax unit of your state's revenue department.

How about upgrading the estimated time involved to a couple of hours quarterly and several hours at yearend.

And you made one mis-statement regarding equipment purchase: you don't get a rebate, you get a partial or full deduction of cost of equipment against the income earned. You don't get into depreciation until you exceed 10K of purchases per year.

Ed, thank you for elaborating on some additional requirements. I didn't want to go into that detail on my simple how-to-get started list. I imagine most people will run their businesses out of their house, so you really don't have to worry about too much.

http://www.nolo.com/article.cfm/objectID/D557CF7D-3BAE-4550-93F37C97C455A2D4/111/182/241/ART/
This site has some good info about taxes, but essentially an LLC works pretty much the same way personal income tax does.

You don't have to worry about a lot of stuff if you do not have employees, which I did not go into, because I have never had employees. I also run the businesses out of my house, so, essentially you just need to keep an inventory of your equipment so you have a paper trail of you assets and what you are writing off.

Again, I stress I am not a tax attourney or a CPA. I don't want it to seem complicated, because it really isn't. I sat down with an accountant the first year I filed just to be sure.

[edfair]

I've run mine out of the house for 32 years. Full blown "C" corporation. Defined contribution pension plan. One employee, me. President, treasurer, and janitor.
Didn't raise the issue of multiple business license requirements, of multiple property tax authorities, or multiple state taxing authorities, all of which I have run across.
Granted that it can be simple, but things have a horrible habit of getting complicated, and calling that to people's attention was the purpose of the previous post.
Then you get into financing. Borrowing at the beginning will probably require a personal guarantee to the bank which puts your home or other assets at risk. Best to have some sort of business plan and some advice from somebody that knows the business. I had 8 years of part time experience to build up contacts and acquire parts and machines prior to getting fired by my last employer. So my plan was already in place at no risk, other than going hungry. Even so,it got hairy. Started in '73 and went through the '74 bank crisis and the 22% interest bubble and money becoming unavailable. A good part of the business was equipment leasing, and the lack of money shut down some really attractive deals.

[faulkner132]

Ed, I do not doubt the fact you know more about this than me. My target audience was really those who are looking to do PC repair/maintenance and commercial development work. These are the posts I typically see and the kind of businesses I have started.

I think it is very important in this day and age to be protected even if you are just doing work on the side.

[cameront]

Not a clue why I'm discussing this but what the hell!!

This is my advice...

"the difference between those that have and those that have not, is ....... those that have, have got of there arse and done something!"

[edfair]

Agreed that anybody doing repair should be protected. And I hope you were not offended by the additional stuff I appended.
Although it started as equipment leasing and servicing the business has become one of hardware support and system builds, networking support, and system administration from DOS to XP and Unix. About the same as many of the freelance posters might be involved with.
The importance of a liability shield was brought home when I sued for some services (about $1000) and was hit by a countersuit for $40K. An adverse judgement there could have been rough without the protection. Would have been rough with it, but the judge forced us to kiss and forget it.

[faulkner132]

And I hope you were not offended by the additional stuff I appended.
Absolutely not! You just went into an area where I had no practical experience... only what I have read. Like I said earlier, after 32 years, you are going to know better than someone who has been doing it for 2.

BTW - I live in Tucker, GA too... small world.

[edfair]

Unless the county has reformed their business license application process you also got to interact with the zoning commission, or they did it for you.
Those are the people who tell you what size truck you can park on your driveway and what kind of signs you can put on the property. They also put restrictions on whether people can bring computers to you.

In my case, since it was long before home businesses started to flourish, they couldn't understand that a company could exist on a bookcase shelf with all activity taking place in customer's offices. The company existed from a Buick Skylark, where the parts and tools were stored.