What do I need to know about starting and running a (very) small business?

I do know a number of people who do this type of work. You would need to set your business up as a LLC- limited liability corporation. Develop a business plan and guidelines, description of services offered, etc. You will need to pay your taxes on a quarterly basis. You might want to check with your local small business administration and see what sort of classes they offer with regards to licensing.

I think this is a great idea. Three years ago, I did a similar thing—a small one person business: parent coaching. I took a class at the community college about small business, it was fun and somewhat useful. But the most important thing I learned was, you have to give something away for free to get started. It might be a free hour of consulting, or classes, or whatever. What happened to me was that I went to a community college to talk to the parent classes, and instead I was hired to teach the classes. But I still have the business, and will begin to work on this more next year (when I assume the community college will have to cut their parent ed. classes).

Check with the state you live in to find out what you have to do about permits. There are people there to help (or used to be).

This kind of entrepreneurial action is going to be what helps us get to a healthy financial community.

I am not too sure about the need for an LLC. You will have to determine if the extra expense is worth it for your particular situation.

I would encourage you to set up a separate checking account that is business only. Just set it up in your name w/ your SS#. If you tell the bank it is for a business they may try and rope you in to paying for a bunch of services you don’t really need.

The big thing you are going to want to do is pay quarterly tax estimates. Also, be aware of what municipalities you are working in and how much you are earning in each….they will want their bite of the tax apple too (if they have taxes on earned income….)

Depending on how involved you are going to get in to this, you may want a separate cell phone that is business only as well as a PO Box.

There is a chance depending on your sex and race that it could be fairly easy to qualify for a government grant to start your business. Grants are great because you don’t have to pay them back.

It might be worthwhile to speak to an attorney so you don’t misstep in a way that costs you a large sum on your taxes.

Here is a website that will tell you everything you need to know about starting a business:
http://www.sba.gov/smallbusinessplanner/index.html

1. Get an FEIN. So you don’t have to give your ssan to everyone you do business with.

2. DO NOT pay quarterly taxes (yet). Instead set up an interest bearing savings account and put away 20% of your income for taxes (amount may vary depending on where you do business)

3. Get business cards, with a business phone number (do not answer “Hello” but with your business name)

4. Make a contract to use before you render any service.

5. Keep records on every $ you bill, receive and spend. Keep track of mileage and transportation expenses, and anything you use in the business including things you already own.

6. Get a tax dude about the first of December at the latest. Most likely, with a good Tax Dude, you will not have to pay taxes for several years.

@DrBill In what legal scenario would a tax dude be able to find a way for a business owner to avoid paying taxes for several years?

I am mystified w/ furrowed brow….

In the first several years, most business will have more deductions than earnings when you figure in deprecation.

You would have to have a ton of overhead for that to happen.

In the scenario that Augustlan is asking of…she will likely be working from home, have no production costs, etc. so minimal overhead.

You do not have to have overhead to have thousands in write-offs, deductions and deprecation.

A local business had $75,000 in sales, and wrote off $63,000, paying $0 Tax, and leaving a $60,000 carryover. He put $60,000 in his pocket tax free. His overhead was $562.

OK. I guess I am missing something. For me, overhead usually = write offs. So, in the example you give, I am curious as to what the write offs were…..

@DrBill Could you give us more about this case? It sounds to me like too good to be true. What kind of write offs are involved?

Thanks for all the input everyone! I’ll be checking back regularly for more. :)

This is definitely a viable idea – I started the exact same business three years ago, and within about a year I had as much work as I could handle (then we moved across the country, so I’m mostly starting from scratch again – but at least this time I know it will work!) Here’s my two cents:

- Obviously, you should check on the laws wherever you are, but in most places you can work as a freelancer, under your own name, without having to officially create a business entity at all. If you decide you want to call your business something unrelated to your name, you’ll probably need to file a “Fictitious Business Name” with either your city or county. I wouldn’t worry about creating an LLC, though – for what you’re planning to do, you can function just fine (and with a lot less bureaucracy) as a sole proprietorship.

- Definitely set up a separate bank account, and use that for all of your income and expenses – it’ll make doing your taxes much easier, since you’ll have everything in one place. If you’re just working under your name it can be a personal account, but if you’ve got an official business name, you’ll have to get a business account (or have people write out checks to you and not the business).

- After you’ve worked for a few months and have some idea of what your income is like, definitely read through the Estimated Tax forms to see if you owe anything – I didn’t know that I was supposed to pay quarterly taxes when I started my business, and I got hit with some pretty nasty fines the first year.

- And the best advice I can give you: Tell everyone you know about your business. The more excited you are about it, the more excited your friends will be, and they’ll end up passing your name along to their friends. With the exception of one job, every client I’ve had for the last three years found me through word of mouth. It’s the best marketing there is for this kind of work!

I’ve got tons more I could tell you, but this answer is already really long. If you want more info, send me a PM – I’m happy to help!

I think it’s great
you should also make a website

@sdeutsch Wow… first hand experience! I can use all the advice you’ve got to give. :D

I cannot give specifics about a client, but as an example…

If you buy a computer for your business, (even if your business buys it from you) you can deduct the cost of the computer as a

1. business expense (100%)
2. take a depreciation write-off (20% per year for the next 5 years)
3. deduct the interest you pay, for as long as your loan.

At the end you still have the computer and have taken deductions for 2 to 3 times its cost. If you have the computer in your home, you can also take the home office deduction, which includes a % of your mortgage, utilities, maintenance, taxes, repairs, etc.

This is only a tip of the iceberg.

See this IRS publication

A home office deduction can be used only if the area in question is used exclusively for the purposes of business. This, along w/ other oft cited easy business deductions, (e.g. the notion of buying a large vehicle such as a Hummer, etc) are audit flags for the IRS.

I would look into liability insurance and maybe even getting bonded. Liability would protect you if someone tried to sue you. A bond would protect them if you messed up.

How small is very small? If your business makes less than $600 a year, I don’t think it would count as a business. I did read that any money made selling things on ebay is considered taxable, so maybe I’m wrong.

Here is a link to some information about LLC: http://www.pro1040.com/llc_tax_introduction.htm

@YARNLADY Well I sure hope to make more than $600/year, but I have no idea how well this business will go in this area. Thanks for the links. :)

@augustlan – I held off on the LLC. First, it can be pricey and the cost was a lot for the start-up of my business. Second, I do suggest getting bonded because it could open you up to bigger jobs.

I have seen a few of the businesses like you are suggesting around my area. In fact, I’m considering hiring one person that I have interviewed, to do a few jobs for me. I have radiation starting and need to get some things done and may not have the energy to complete the work. (packets out to some of my clients – information, training manuals, things like that.) I am considering having her do the running, picking it up from the printer, assembling the packets and then sending them out. It would save me a lot of time and energy. It’s perfect for someone like me. I generally don’t have loads of paperwork, but when I do have things, it seems to get big, fast!

I have a lot of other advice, but they are lengthy! I’ll send you a PM, see if you need any other info. It can be stressful, at first, but it is so worth it!

Thanks cak! I’m definitely interested in more advice, so PM away. :)

I would hold off on the LLC also. You can get a DBA with your company name for very cheap down at the local chamber of commerce. The main benefit of an LLC is to limit your liability, but that can also be done with a solid contract.

Within the contract, you want to be sure to establish the types of work you are offering, regular working hours, overtime rates, what actually constitutes overtime, expectations of both parties, definition of hard costs that would be covered by the client as opposed to your business. If you are handling financial statements, there should be a clause about limiting your liability against residual damages.

For example, if they give you bad numbers and you prepare a report which they use in some application then get sued for having faulty numbers, that cannot be assigned to you. I forget the exact terminology for this but will see if I can remember.

You do want to get business liability insurance and should probably get a business account so that checks can be made out to your company name. I would not bother with paying estimated taxes until you know what you could be making. You should, however, make sure that you save 30% or more of your income so that you don’t have to come up with a hurtful amount when you do figure out what you owe.

I can’t imagine you being able to come up with enough expense to make the business deductions worthwhile yet, but do save all your receipts. Travel expenses include mileage, so be sure to track how far you drive to each job if you go anywhere.

Sounds like cak has some good info for you.
Good Luck!