Start A Small Business

Posted on Oct 3, 2010

The next step on my Web Programming journey is to start up my small business. Believe it or not, my minor at the university was in business administration and I managed a restaurant for 7 years, so I’m not completely ignorant in these matters. What I don’t know is how to START my own business. So I’m going to take good notes and share what I learn with others.

The information that I share here will be specific to Lexington, KY, USA, but the methodologies used should work for other towns as well.

Learn

I am always striving to grow and learn. I try to learn something in my field and learn something that will help me be a better… (person, parent, leader, etc). I strongly recommend that you READ. Pick up a book on small business or leadership or something in the field that you’re going into. Instead of vegging out in front of the TV at night, pick one or two nights and learn something new. One book that I recommend for someone just starting out on a new business venture is 48 Days to the work you love by Dan Miller. If you’re a business, marketing, and sales whiz and are at the top of your field, but don’t know what you’re doing financially, I recommend checking out [Dave Ramsey]. He has some free resources online and you can pick up his books at the library. He mainly deals with personal finance and those concepts can be applied to a business. He also talks about business stuff sometimes.

Regardless of what you want to learn, LEARN!

Make A Plan

I once heard that failure to plan is a plan for failure. You can’t just jump in and expect to succeed. So make a Business Plan. Here are a few resources:

• [SBA Small Business Planner]
• [BPlans]
• [Entrepreneur Business Plans]
• [Inc Magazine Business Plan How To]

As part of your plan, you’ll need to do some of the following things, so these things will help you with your plan. Or your plan will help you with these things. Depending…

Decide on a Business Structure

Decision #1 – You have to decide which type of business structure you want. Basically, the more involved the business structure, the more paperwork and cost you incur, but the less liability you have personally.

Here are the basics in my own words:

Sole Proprietorship: Your business is tied to you personally. The paperwork is more simple. If someone sues the company, they are suing you. If you screw up, you are liable. There are no partners. This is what I recommend for someone starting a new business. You can move up to a corporation once you really start making some money. (Disclaimer – If you’re well-established and have a big net worth, go ahead and move up to the corporation or LLC to protect your personal assets.) This type of business is easy to start and easy to close. However, it’s harder to get employees to work for you.

Partnership: This is more complicated. I do NOT recommend you do this. If your business structure requires that multiple people are involved, I recommend that one person own the business and the other get profit-sharing or that there are two separate business entities. Partnerships are like being married, and divorces are messy and expensive and happen more often than you think.

Limited Liability Corporation (LLC): This is an extremely flexible structure that is good for partnerships, multiple business holdings, single business entities, etc. If you’re moving up from a sole proprietorship, I’d recommend this as a next step. The paperwork required is still much simpler than corporations and you can do what you want with the profits. The tax structure isn’t taxed like a corporation – it still acts like a sole proprietorship. But you still get the protection of “limited liability”. If someone sues the business, it’s separate from your personal assets. They can still sue you as the owner of the business. The liability is LIMITED, but not completely separate. Be aware that the LLC is tied to its members. If you sell the business, it will have to be refiled under the name with the new owners. The current LLC is dissolved. Also, you are required to pay self-employment tax, Medicare, and Social Security.

Be aware that an LLC does NOT protect you from owing on business debts. If you choose to make purchases on credit for your small business, your creditors will require you to sign PERSONALLY for those purchases. If the business fails, you will still be personally liable for those debts. However, any purchases made by the business – should it fail – will fail with the business.

S-Corp: This is a special type of corporation that has certain tax advantages. The owner is a shareholder. In an S-corp, the shareholders can avoid double taxation. In other words, when your business makes a profit, it gets taxed. Then, when you take a draw or get a paycheck, you get taxed on your income. Double taxation. This creates a business that is a completely separate entity from its owner. This makes it easy to sell or transfer the business. However, there are stricter laws on how you run your business. For example, you have to keep meeting minutes.

Corporation: If you really get big and choose to take on shareholders, you will need to become a full-on corporation. This requires a lot more paperwork and a different tax structure. Oh, and lawyers and accountants and double taxation… Have fun!

Non-Profit: These are usually for educational, religious, or charitable organizations. The good news – you don’t pay taxes! The bad news – you have to jump through a lot of hoops and red tape.

Here’s an informative link on [Business Incorporation].

Decide on a Business Name

To me, this was one of the hardest steps. How do you figure out one little word or phrase that defines your business? Here is some good advice that I found on business.gov.

Whether it’s a clever moniker, a personal tribute, or simply picked out of hat, your business’ name will frame its identity. The significance of choosing a name can sometimes be a tricky undertaking. You may find it helpful to keep alternatives in mind during your selection process. If you’re having some trouble selecting a business name, here are some tips to consider.

Imagine how the potential name will

• • Look (on business cards, advertisements, with a logo)
  • Sound (ease of pronunciation)
  • Be remembered (connotations the name may incite)
  • Distinguish you from competitors (avoid trademark infringements)

You may want to avoid

• • Embarrassing spellings, abbreviations, profanities, potentially offensive undertones
  • Implied associations with organizations/people the business is not connected with

#1 – Make a Keywords List

So sit down with a pad of paper and do a little freestyle word associating. Think of all the words you would like your business to be associated with. Think of images. Think of descriptive terms. Think of animals and colors. Go to an online thesaurus. Think of business endings like “Designs” or “Company” or “Solutions”. Make a list of your favorite words.

#2 – Search for a Web Domain

The first step to finding out if your business name is available is to find out if the web domain is available. I recommend going to [Godaddy] for a standard web domain search. If you need some help getting creative, [Wordoid Web Startup] is my favorite source to help you create new web names that sound like real words. If nothing else, it’s a fun resource.

#3 – Do a Google Search

Once you’ve decided on your name and made sure the domain is available, do a general Google search. Search for funny spellings and anything similar to your name. Make sure you are unique or at least unique enough for your tastes.

#4 – Do a Registration Search

Once your online search is complete, do one final search. Check with the [USPTO] (US Patent and Trademark Office) and make sure there are no registered Trademarks for your new business name. Then go to your state’s Secretary of State website to do a business name search. Here is the [Ky Business Name Search] page. There is a link to your state’s Secretary of State page on the [Business Incorporation] page.

Decide Where Your Business Will Be Located

My business is going to be a web design and development business. For that, most of the work will be done in my home, but I will be meeting clients outside my home. I do not need an office. You need to ask yourself a few questions.

• What are my local zoning laws for running a business in my home?
• Do I want to associate my home address with my business?
• Is there a repeated mathematical advantage to renting a space in a neighboring state or city?
  • For example, I live in Lexington, but live on the outskirts of town. If I were going to be doing a lot of business in Georgetown – a neighboring town, I might want to have an address there. Particularly because Lexington charges businesses 2.75% tax on all revenues. If I were doing business in Georgetown and had a friend that could lease me a desk in an office for $50 a year, I would want my business to be located in Georgetown so I didn’t have to pay that tax. The minimum tax in Lexington is $100 a year.
• Do I want to get a P.O. Box?
  • As a side note here, I once read that if you’re having trouble getting shipments to a P.O. Box, instead of listing your address as “PO Box 1234”, list it as “1234 PO Box” and a lot of places will ship it.

Some things, like getting a P.O. Box can be changed later. Others must be decided now.

I called my zoning office. Because of the structure of my business, I am able to obtain a “Home Office Certificate of Occupancy”. This means that I can legally run my business from my home without having to get it rezoned.

Register Your Business Name

My steps are going to continue for those choosing to create a Sole Proprietorship. Some steps will be the same no matter the business type, but some will differ. Hopefully, I’ve given you enough resources to get you started on the other paths.

#1 – Buy Your Domain.

Get your domain quickly just in case someone decides to snatch it up because you’ve made some activity on it. Decide who you want to host your domain. I use [GoDaddy]. I had a friend recently recommend [iPage Hosting] and [Just Host Hosting]. I haven’t looked into those, but they were highly recommended. On GoDaddy, you can purchase the domain directly through them. Do a Google search for web hosting to find the link and you’ll usually get their current domain discount.

#2 – Registering Your Name

If you are starting an LLC, a Corporation, or a Non-Profit, your business name will be filed with the state when you file your Articles of Incorporation or whatnot. If you are the sole owner of your business, its legal name is your full name. If your business is a partnership, the legal name is the name given in your partnership agreement or the last names of the partners. However, if you run your business under a different name, then you may have to file a “fictitious name” registration form with your government agency.

A fictitious name (or assumed name, trade name, or DBA name, short for “doing business as”) is a business name that is different than your personal name, the names of your partners or the officially registered name of your LLC or corporation. You will need to register this name in order to open a checking account or do any business under your chosen business name.

In Kentucky, Corporations, a non-profits, LLCs and partnerships (general, limited, and limited liability) must file a Certificate of Assumed Name with the Kentucky Secretary of State. A sole proprietorship needs to file an assumed name certificate with the county clerk’s office where the business is located.

For specific information for your state, go to the [Doing Business As Registration] page of business.gov.

#3 – Get Your Trademark

You can go back to the [USPTO] and pay to register your trademark if you like, but in the present internet age, you’re pretty much covered. Unless you came up with something really clever that’s going to make you a lot of money, I don’t recommend it.

Get Your Licenses and Permits

Depending on where your business is located you will almost certainly need a license to operate your business. And depending on your type of business, you may need a permit.

There is an excellent tool at [Business Licenses and Permits] that will help you to find out what licenses and permits you will need. Below are the ones that I have to work through.

#1 – Tax Registration

Employer Identification Number (EIN)

Employers with employees, business partnerships, and corporations, must obtain an Employer Identification Number (EIN) from the U.S. Internal Revenue Service. The EIN is also known as an Employer Tax ID and Form SS-4.

Kentucky Tax Registration

Businesses that operate within Kentucky are required to register for one or more tax-specific identification numbers, licenses or permits, including income tax withholding, sales and use tax (seller’s permit), and unemployment insurance tax. Contact the following agency for more information about business registration and your tax obligations:

Lexington Tax Registration

Obtain a Local Business License and Register to pay Local Taxes. Lexington has a nonrefundable $100 annual fee that is applied as a credit towards your account. You must pay 2.25% of your revenues to Lexington and 0.5% towards Fayette County Schools.

Things also get a lot more complicated if you have employees. I don’t at this time, so I’m not adding any of that information here.

#2 – Permits

If you have a certain type of business, you may need special permits. For example, food-related businesses need special food handling permits. Check out the [Business Licenses and Permits] resource that I mentioned once above.

Money

I’m not even going to get started on the types of businesses that need start-up capital. If you’re starting a business that requires an up-front investment, I STRONGLY recommend that you know what you’re doing. Most small businesses fail and blah, blah, blah. Don’t be stupid and fail on borrowed money or mortgage your personal home or anything.

I’m starting my business from scratch. Literally. I’m scratching up a little money to pay for the domain name and license fees. I’m scratching up a little money to drop into my business fund to cover basic expenses. A business is a tool to use your skills to earn money, not an excuse to buy crap and write it off your taxes. But enough about that.

#1 – Open a Separate Checking Account

This checking account is for your business only. Put a set amount of start-up capital in there. For example, $500. The only money that goes into this account is for the business. The only thing you pay for is stuff for the business. Don’t buy the latest thriller from Amazon from that account because it’s handy. Open the account in your name, “Doing Business As” your business name.

As your balance creeps up from business sales, you can pull your original start-up capital out tax-free. If you go deeper in the hole, you can add more money out of your pocket to keep it afloat. If you have to do this too much, you have a problem, not a business and you should strongly consider another line of work.

This checkbook becomes your Profit and Loss statement. As the balance goes up, that’s your profit. It IS your income minus your expenses. It’s a low-tech way of recordkeeping for your business. I do recommend that you do a better job of recordkeeping. Get a copy of Quicken Home and Business. (You DON’T need the latest copy. Get a refurbished copy of last year’s or the year’s before cheap. You’re a broke small business person. Don’t waste the money!)

#2 – Open 2 Savings Accounts

One for your profits and one for your taxes. When you start making profits, pull them out of your checking account. around 25% go in the tax fund and 75% into the profit fund. Then you can take money out of the profit fund and take it home.

That’s pretty general and there’s a lot more to it than that, but it’s a simplification of the process. Depending on your profits and your state and local laws you may have to file quarterly or even monthly tax estimates and send in your money then. Just make sure you keep good records. And whatever you do, don’t ever pull profits out of your business without setting about 25% aside for taxes. You don’t want to be caught without that money when it’s due.

I Hope This Is Helpful

I hope this post has been helpful to someone. If you have more info, questions, or comments, please add a comment to the page below.