September 28, 2011

How To Start Yourself a Wee Business

My sister is in the process of getting set up to sell her photography and has been asking me questions on how to get started.

I figured I would share the steps with my blog friends, just in case you were looking to start selling things of your own and want to know how to get started... Legitimately. ;)

1. Pick a Name! This is the hardest part. And for myself in particular, I wish I had picked one that wasn't so "one thing". "Little Bit of Knittery" doesn't let me expand much since I am thinking now about sewing and paper things as well. Take some time and think of something that could allow you expand without people going "Well, that doesn't fit." Or you could just use your birth name!

2. Set a Budget for Opening Expenses. I'm putting this as number 2, because this might determine if you can even start a business right now. You will need to consider the price of
  • -your FBN (see #3) and the process of that
  • -if you have to pay fees for a seller's permit (#4)
  • -any inventory or equipment you might need
  • -the price of rent if you'll need a building
  • -website hosting and maintenance if applicable 
  • - the price of at least business cards (Extra Notes)
  • -merchant account fees (for things like accepting credit cards)
  • -accountant fees if you need one
Write down all the things you think you'll need to start up and add them up. This is what you'll need to get started and if you don't have that money, you'll probably have to wait some time until you do have it. For me, I just needed the money for the FBN since I have rooms full of yarn already. I would highly discourage taking out a loan to start a business. Going into debt before you've developed an income puts you behind the 8 ball before you've even started, and there's no guarantee you'll be able to meet the required payment.

3. File a FBN statement. FBN stands for "Fictitious Business Name" and in other places might be known as "Doing Business As (DBA)". Whatever it's called, you will most likely need to file a statement. Around here that means sending in the statement to our County Clerk's office with the fee ($35 now, way up from when I start my first business 6 years ago). If all goes well, you'll get the paperwork back with the fancy seal and then here we must run the declaration in an approved newspaper once a week for 4 consecutive weeks (for an additional fee) so that people can contest it if they want to. I've started two business since I turned 18, and I've not had a problem either time. You can call your local offices for information on what you need to do in your state/county. If you choose to use just your real name, then you won't need a FBN.

4. Apply for a Seller's Permit. This little piece of paper means you legally get to sell stuff! Work on this after you get your FBN, since the business name you chose will be part of this. It might be different in other states, so check with your local offices on what they require and who actually needs one. For example, when I was designing websites I didn't need one because I was selling a service, not a product. But now that I have "tangible goods" I am required to have a seller's permit and collect and pay sales tax. For us, applying for the permit is free, and they were super friendly in helping me get set up and answering my questions. Once you're approved you'll get all the lovely papers and brochures of what you need to do, and your filing schedule for when your sales tax is due (at least that's how it works in California). There's a little more than might go into it, but that's the basics.

5. Keep Track of Your Spending & Income. Because the IRS ISN'T super friendly, and you don't want to have them on your back. The bookkeeping is not as scary as most people think, but it is necessary for filing taxes each year. You can either do it through software (I have Quickbooks just to make it easier) or in a check register. In a very basic sense you just need to keep track of your income (what people pay you) and your expenses (what you pay for things like office supplies, inventory, postage, etc.). It's a little more involved than that, but it would take to long to really get into right now, and you can easily look up the requirements from the IRS and by talking to a friendly accountant. Oh, and make sure you keep your receipts to back it up!

6. Get Started! Put your stuff out there! Start selling! Go for it! :)

Extra Notes:
  • You don't need a ton of advertising to get started. Business cards are nearly a must (and you can print those yourself!), but I consider word of mouth to be the best advertising. If you present a professional product or service and treat your customers with respect, they will tell their friends. It's worked for my dad for 19 years - he's never advertised. You can also gets lots of free "advertising" by using Twitter, Facebook, and other social media.
  • One trap I've noticed people fall into is the "I need expenses so I don't have to pay as much in taxes!! That's the point of being in business!". No, the point is to make money, isn't it? Let's get into this for a second, just because I want to. ;)
    Let's say you made $500 for the year and the tax rate is 10% (yeah it'll probably be higher than that, but go with me here). On that $500 you will pay $50 in taxes.
    Now let's say you bought a new sewing machine at the end of the year for $150 to "lower your taxes". With this expense, you would now be paying taxes on $350 ($500 - $150*), which comes out to $35 (10% of $350).
    So... In order to save $15 on your taxes, you had to SPEND $150... I would rather keep the $150 and pay the extra $15 in taxes. (Again, a little more complicated than that, but you see my argument.)
    *The amount gets deducted from your taxable income, NOT from the taxes due.

    My point is, carefully consider the expenses you pay for. If you really need it for the business, go for it! (It's much more effective to use a sewing machine than sew everything by hand.) But if your sole purpose of making a large purchase is to "save money on taxes" really think about if you're saving money or not. The taxes might be worth paying if you still have more money in your pocket at the end.
  • Please, price your things fairly. For handmade, that is very difficult when people are used to $.50 pairs of socks from China. But consider the price of your materials, the packaging, and how much time it took you to make it. Think of your work and your market and come up with a price you think is reasonable, but don't undersell your work! You're worth it, trust me. :)
Happy Businessing,


From Beyond My Kitchen Window said...

You are so smart Meg! I bet your sister is grateful for you and to you.

Allison said...

What an informative post! I love this business side of you - one that I am sorely lacking. Friends compliment one another perfectly, yes? :)

no spring chicken said...

Sage advice Meg. Very valuable post, especially this time of year when I think creative people start realizing their potential for extra cash!

Blessings, Debbie

William said...

I didn't realize you knew all of this. I'm going to put this on my list of "why blogs are amazing and helpful" list for a friend who recently claimed that all blogs are a waste of time.

Staci at Life At Cobble Hill Farm said...

Very well written and informative!! So true about not going into debt when you first open. It's so worth it to have a start-up fund that you've saved for instead, even if it means a super-tight budget. :-)

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