Things you should know:
- I am not an attorney.
- I am not an accountant.
- If you are not interested in starting a business, this article will most assuredly bore you to sleep.
Still here? Great! Carry on.
For the first time in my life, I’m going to try my hand at business. After reading books, listening to podcasts, and telling others what I think of their ideas, it’s time to make it happen.
I want to try something new.
A couple of years ago I decided to try and “advance my career” by getting all manner of computer certifications to supposedly make me more marketable. So for four months I knocked out the Network+, Security+, and CISSP certifications. How did it affect my work or pay? Nothing changed. I looked around at other jobs. I even applied to some but no traction. Honestly, I realized I didn’t want an IT or computer security job. Neither really excited me.
Last year I went back to school. MIT offered an electrical engineering class online. I, along with 125,000 people, signed up for it. Five thousand of us passed. I learned a lot and it felt great completing the class. I like rigorous academia mostly because it gives me new thoughts to apply to the world around me. I asked myself if it was the right time to go back to school. I decided that the timing was not right. Two to six years later I could emerge back into the real world with just a head full of knowledge working for a gigantic widget maker. No, it just didn’t feel right.
I want to make something, I want it to help me produce an income, and I want to make a difference while doing it. At this time I’m going to try and answer these desires by starting a low risk business. I’ll learn, plan, and give it a shot like I’ve done the past two years with my other ideas. I’m starting this new venture with a couple of things in mind.
- I’m not quitting my day job to start a business. There will be none of this throwing caution to the wind insanity. I’ve never done this before and I’m not about to risk my family’s steady paycheck over it.
- I will not borrow money. There have been a few people telling me, “The best way to start a business is with other people’s money. That way if it fails, you aren’t out anything.” Bull. What I would be “out” is respect if I treated other people’s money that way. The only money I want to touch from other people is the money customers give me for superior service.
To start a business, all you really have to do in the Federal government’s eyes is sell something or provide a service for money. Ex: If Bob sells a set of pigs feet to his brother Darrell and his other brother Darrell, Bob can call that a business. It can be reported on his federal taxes as such. Bam! You’re a business.
Although the federal government would be mostly satisfied with this arrangement, the state/city/county likes to complicate things a bit. They want sales tax, fees, business property tax, etc. They are not satisfied until you’ve gone to a permit office or a court house and signed things, however in Virginia the government has simplified the process. You can get most of this process done by going to the Virginia Business One Stop.
For $20 they’ll walk you through setting up a business from choosing a business type, to getting a tax id number, to registering for collecting sales tax. It’s all fairly simple to follow.
A Business Type
Before you go through the One Stop process, you will want to choose a business entity type. There are 3 common types:
- Sole Proprietorship – This type requires a minimal amount of effort to establish and taxes are easy. Income taxes from a sole proprietorship are claimed on your personal taxes. The downside is if someone sues the company, they can go after your personal money because there is no legal difference between you and your business.
- Limited Liability Company – In this arrangement your business is its own legal entity. If someone sues your company then your personal money is safe. On the other hand, It costs more during the registration process to establish an LLC.
- Corporations – In a corporation the company is owned by shareholders. It’s a lot of paperwork.
For my first attempt at this, I’ve chosen the sole proprietorship. My products are low liability, so the probability of being sued at this juncture is low. Also, I’m not going to pay for an LLC when I don’t even know if this venture is going to work in the first place. One piece of advice I was given was to wait until I’ve made at least $10,000, to acquire an LLC.
EIN (Employee Identification Number)
As you progress through the One Stop process, you will find that your business is going to need a federal tax number. If you chose sole proprietorship, you have the option of just using your own social security number. Don’t do it. The tax identification number will be handed out to everyone and there is even a possibility that it could be published in a public government document. Also, getting an EIN from the IRS helps keep your business and personal finance separate. Just a quick note, for some reason the IRS will not issue an EIN on the weekend (even online).
County and City Documents
If you are doing business using a name other than your own, you must register a fictitious name with the state and with your local government. For instance, if your name is Bob Smith and you want to do business as Roadside Pig’s Feet, then you must register the name Roadside Pig’s Feet. Registering with Virginia is easy and is done in the online process. When you’ve finished registering with the state, they will give you documents to take to the city or county. These documents will allow you to register your fictitious name with the local municipality.
I had to go to two offices to finalize everything. First, it was off to the courthouse to register my business name and second, I had to visit the permits office to ensure I could run the business I wanted from the location I wanted. Two weeks later I received my business license in the mail.
One of the last steps in the process is registering for sales tax. If you are providing certain goods or services, you are required to charge your customers sales tax. Certain customers are sales tax exempt such as government entities and other companies who are just going to resell your product. Virginia requires small businesses to pay this sales tax online through their website. After registering at http://tax.virginia.gov, you will be required to file sales tax every month even if you sell nothing. During the registration process, you will be given a certificate that gives you the right to collect sales tax from a customer.
More to Come…
I expect the next few months to be crazy. I’ll be updating this blog from time to time with more details on the business. At the moment I’m learning about manufacturing but more on that later.