April is tax month, so we thought it would be a good time to ask local burlesque entertainer Black Maria, who just started her own company — Fastenating Things, to share what she’s learned about entrepreneurship.
Starting your own business
By: Black Mariah
So you have a good idea, a business, and you are ready to sell, sell, sell. Whether you are selling merchandise, a service, or a performance, steps to becoming making your company legit or even becoming a self-employed individual can seem like an overwhelming experience. Having recently started my own business, here is a how to guide to making your stimulus package.
First, to do anything as a legitimate, recognized business, you need to register your business name with the local county clerk’s office. You do not have to register in every county, but you do need to register in the county in which you reside. You will need a valid, government issued, photo ID like your driver’s license, State ID card, anything that proves that you are who you say you are. Go to your local County Clerk’s office and ask to register your business name or file a DBA which stands for “Doing Business As” or an “assumed name certificate”.
No you aren’t changing your legal name. This is just a state document telling the rest of the world what your business name is, or who you will represent. You will need to search the database in your County Clerk’s office to make sure no one else is using the business name you intend to use. If you do happen to find the name is already in use, you will have to choose a different name under which to do business. Once you have cleared the use of your intended business name, you will need to register the name.
You will have to choose what type of business structure you intend to use. Your choices are Sole Proprietorship, Corporation, or Partnership. All have their legal and tax advantages and disadvantages, and you will need to understand them to know what type of business structure you need. Also know that when you register your business with your county clerk, your personal information is sold to any company who will pay to use it! Your phone number and address of which you have registered the business to reside will be bombarded by companies attempting to sell their services to your new business. Merchant services, health insurance, burglar alarm companies, the Shriners, anyone who will pay for your business’s phone and address will be calling you all hours of the day. Better upgrade that phone plan now!
A Sole Proprietorship simply means a business with a single owner. Under a sole proprietorship the individual names on the DBA will be the only person allowed to open the bank account for the business, and file all necessary paperwork regarding the business. In this case, you will use your own social security number for your Employer Identification Number (EIN). This is the number under which you will file taxes for your business.
A Partnership or general partnership is just like a sole proprietorship only with multiple owners. All individuals must be present at the time of filing a DBA to become a partner. All of the company’s assets and losses are divided equally among the partners. Liability for the company is also divided equally among the partners. In this case, you will need to apply for an employer Identification number (EIN) which you will be issued a 9 digit number. Even though all profits flow through to the partners and are reported on their income tax, a tax filing identification number would be required to open a checking account and apply for a sale and use tax certificate, rather than using one person’s Social Security number, an umbrella EIN covers the company. There are other types of partnerships, which are Limited Partnership (limited liability but limited input regarding management) and Joint Venture which is generally for a one time or short term project. In all cases, a partnership, although easy to form, should take the time to draw up a partnership agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed.
Sole Proprietorships and General partnerships are the easiest and least expensive to own. Profits from the business or proprietorship flow directly through to the owner’s personal tax return. The owner(s) are in complete control of the business and have the authority to keep or reinvest the profits. Disadvantages are that in either circumstance of business ownership, each have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. In layman’s terms, if your business fails with debts against it, or your business is sued for whatever reason, the litigants can take your company’s assets as well as your personal assets to cover all damages and loss. It is also more difficult to raise capital for a Sole proprietorship or general partnership as their assets are usually limited to personal investments and small consumer loans.
If you are a simple company and don’t intend to have any large liabilities (clients could have an accident while on your property patronizing your business or suffer loss from your product) then the Sole proprietorship or general partnership may be the way to go. My business is making and selling pasties, tiny top hats and burlesque related costumes. My products so not pose any danger to the consumer, and I don’t own a physical store front so the there is no property liability where an accident could occur. I also don’t intend to have any large debts (investment in high dollar equipment or loans to purchase merchandise). I have a sole proprietorship and that works quite well for me.
The other option for creating a business is a corporation. There are a couple of different types of corporations, one you may have heard of in the burlesque community which is an LLC. An LLC is a limited liability company. That means that a company member’s liability is limited by the amount they invested in the company. Your (and your co-owner’s) personal property and assets are not at risk in case of business debts or legal obligations. This is the best choice if there are any investment risks in your business. Dancers can become injured, patrons can fall and become injured, venues can take your deposit and fold before your doors even open, and clients can neglect to pay you for your performance. It’s a negative possibility but a very real possibility. When time, or money is invested in the prospect of a contracted business transaction, limiting your liability in case the worst happens, is the best choice. Taxation is different per the type of corporation, but if this is the route you intend to go, definitely know what your tax responsibilities are before you even make the first sale.
After you have registered your business and filed and received your EIN number if necessary, you will need sales and use tax permit. Sales and use tax permit will allow you to conduct business and collect sales tax for your retail goods, services, leases and rentals. You must have a sales and use permit as a legal business to sell anything. Your Sales and use permit gives you the advantage of purchasing goods at wholesale cost with the intent of resale, as well as purchase goods or services tax free if they are intended for resale (because you will be collecting Sales tax on the item when you sell it to your customers). What you can’t do is use that sales and use tax permit number to purchase items or services for your personal use or consumption. Everything dollar you sell to a customer must have the state and local sales tax collected with the sale price. You will be required to keep detailed records of your transactions as this will reflect how much sales tax you will be responsible to pay to your county clerk. Most county clerks require businesses to pay sales tax quarterly. You will need to figure out your sales for each quarter ending, and figure out the sales tax you will owe. Some counties offer a discount for paying your tax early, but all will impose a hefty per day penalty for delinquent sales tax owed to the state. Business owners must pay close attention to their sales tax owed as fudging or guessing the numbers is a quick way to get an audit from the IRS.
Payment options are the best way to double and even triple your income. From experience as a vendor at many shows in the area, the option for my customers to pay by credit card has opened up the potential of income tremendously. Cash sales are strictly limited to the exact amount in the customers on hand disposal or the off chance there is a nearby ATM machine. Opening up your payment possibilities to credit cards assumes some risk, the risk is very small in comparison to the lost sales you would have by only accepting cash. If you would like to accept credit cards, you will need to set up a merchant services account. Each service is different and the fees are as diverse as the merchants themselves. Do your homework and invest time and research before signing a contract with any of the Merchants. Make sure all of the fees and billing dates are clear and you know exactly how much the merchant is going to charge you per month to accept credit. You can get monthly fees down to $10 per month and some can negotiate no annual fee and a small percentage per transaction. It’s your money, so make sure you are paying the least amount of fees you can for the service. Merchant services can offer you endless possibilities for accepting credit cards, from the manual carbon copy credit machines, to wireless, to a card reader that hooks into your laptop through a USB connection. Some Merchant services even offer an iPhone app to run credit cards through your phone on site! Consider the environments you will be selling when choosing the type of equipment you will need; if there will be phone jacks with a line available to you to use, power outlets, any sort of internet connection at all, or will you be selling in a store front, or not in public at all, maybe everything you sell is online. In any case, the merchant services can tailor your equipment needs to your selling environments.
Finally get your name out there! Branding and marketing is vital to getting your business competing with other businesses for your client’s dollars. Branding your company is directly responsible for the success of your business. Stick with one logo and font style, as this is the way to make you a memorable vendor to your customers. Consider Coca Cola with the solid red and white cursive text logo. Coca Cola’s recognizable to even consumers who do not speak English. Business cards leave a visual impression on potential clients, have some on hand at all times and always hand 2-3 to potential customers. One business card is for the customer, and a few for the customer to pass along should they encounter anyone who happens to need your services. Always place a card or flyer with the product you sell to the client. Websites and social networking have replaced in person business networking meetings, and vendor booths and e-commerce sites have replaced store fronts. The advantage of the World Wide Web has changed the way we do business and by alleviating the need for leased space or any operational overhead, it has opened up the opportunity of owning your own business for many more people!