So I wanna start a business....

Factual Questions
1

Or at the very least, I would like to incorporate. But I’m clueless in Minneapolis when it comes to the ‘how’.

Fast background:

For a while now I’ve been helping friends and family with computer-related problems and installing/upgrading computer components just for the fun of it. But the better I get at it, and the more I realize people have serious problems with doing this stuff on their own, the more I’ve expanded the who and what I’m helping out on. Now I charge people I hardly know for doing things I find fun.

It’s great deal on my end and I enjoy it. But friends have brought up scenarios that might get me in trouble. Say I charge someone to fix a computer and instead of running smooth and fine, it starts on fire and burns down their house instead (I work with Windows, so this is a real possibility.)

On top of the litigation angle and the tax issue, I’ve also been pondering whether or not to turn this into a full-time job with employees and everything. Hell, why not.

The problem? Friends and acquaintances say it cost hundreds, if not thousands, of dollars to do- lawyers, forms, red tape, all sorts of things you need to hire others out to do.

Is that true? In terms of incorporating, do I need to hire someone to start this process? Where do I look? How much is too much to spend on this? If I can do it on my own, where do I start? Can I find the resources on the net? (I’d like to do as much of this on my own as I can, I’m not making serious enough money on this to justify big-time expenses.)

Once that’s done, what should I do for the next step? Just plug in a neon sign over my door and an open sign? Or get a storefront, or… or… I really don’t know. What makes sense?

How have others around here done it? What should I watch out for? What resources are available on the net? (I’ve looked on my own, but I get quickly swamped with information overload and stop.)

Any ideas, stories, or directions to head are welcome.

2

I would say that the first step would be to get thee to a bank. Ring your local banks and ask to be sent their business start-up packs (they all do them and you don’t have to be a member to be sent them. A lot of them do CD Roms now too). These packs contain loads of useful information on just how to go about this and what the requirements are. If they’re good, they’ll have checklists, average costs lists and general advice.

I’m sure you’ll get lots more advice here. Good luck!

Fran

3

Start with the Web site for the state of Minnesota. Several state agencies there should be able to help you. My dealings with them has only been with the Dept. of Revenue to get a sales tax number (I’m in Wisconsin, but I plan to sell my goods in Minnesota this year).

I have on my shelf a binder titled “Starting and Operating a Business in Wisconsin.” There might be a similar publication for Minnesota.

You might also try the Small Business Association – I’m guessing their URL would be http://www.sba.org .

As for costing hundreds or thousands of dollars to start a business, not necessarily. I have two businesses – both are sole proprietorships, which you can basically start just by deciding you want to be in business. Of course, incorporation, liability insurance, employees, and all the other bells and whistles can cost you money. You would need to research whether you legally (or sensibly) NEED all those things. But for a simple service business such as yours, you could always start out as a one-person sole proprietorship, and add the other things as income allows. I’ve been given to understand, however, that the fairly new limited liability corporation is fairly easy to do your self and has financial advantages. My own computer guy is an LLC, and his business is just him.

Good luck!

4

Also, get thee to a bookstore and check out the business section. There will be tons of books on starting a business, and they all have extensive resource lists. And those resources have other resources . . .

5

“Get thee . . .” ::shakes head:: Look everybody, I’m channeling Fran!

6

Sheesh. One more reply, then I’ll shut up. (The new, improved board makes posting so easy!) I want to emphasize that you should actually go to a physical bookstore, not surf over to Amazon. You will want to really browse and see which book has the type of practical information you need. Look at the table of contents, check the index, look at the body text. Pick out two or three if need be. You will want ot buy these book rather than get them from the library. You will refer to them again and again. I still use the references I bought way back when from time to time.

7

I generally discourage clients in your position from jumping into incorporation until they are well on their way to viability. The paperwork involved isn’t justified by the minor threat of litigation you face and tax advatages don’t accrue until you have established substancial income. Wait until the benefits are clear in your mind before taking on the additional burden.

Incorporation itself can be accomplished at a reasonable cost but the maintenance is a hassle.

There are lots of web sites for those starting small businesses that can provide far more detailed and well organized advice then I can provide here. These look like decent places to start:

http://www.midnet.sc.edu/smbiz/smallbus.htm
http://www.businesstown.com/
http://hainesbiz.org/starting.html

8

Good suggestions so far. Thanks.

Hey, Scarlett, wanna be my rep? You sound like a woman that could get people seriously interested in whatever it is you’re selling. Well, that, and the fact that I think you could talk their ear off doesn’t hurt either- “I’ll buy! For God’s sakes, I’ll buy!! Just let me get back to what I was doing!” -smile-

Seriously, thanks for the info so far.

Ned, “You generally discourage clients…” What business are you in?

9

For insurance, talk to an insurance agent.

For legal stuff try Nolo.com, Nolo Press (alot of their books are in bookstores too, for the state you are in). Nolo has tons of books on this stuff.

10

Incorporating
Incorporating gives you the benefit of a) protection from litigation, and b) easy division of the company among owners. I suspect that neither of those are real problems for you. If you do want to incorporate though, it’s very easy and cheap. The best place I’ve seen is http://www.incorporate.com.

Growth and Financing
Growing the business (both acquiring new customers and paying people to do the work) costs money. So, you can either grow very slowly, or find some money to build things. Are you lucky enough to have some money? or a good credit rating and an existing credit line? or a rich aunt? If none of those work, you’ll want to find a financial partner such as a bank. I’ve always felt that the SBA reeks, but others are more generous in their opinion; you may want to check them out. Another option for raising capital is to sell a percentage of the business to someone, but venture capitalists aren’t typically involved in the sort of business you’re setting up. Unless of course, you propose to build this to hundreds or thousands of employees. If by chance you are interested in that route, I can help you a lot there, but that’s a very serious undertaking.

Assuming you’re taking a modest growth approach, here are some suggestions, none earth-shattering:

Acquiring customers
Word of mouth: Big advantage: cheap. Tell everybody you’re currently doing business with that you’re now taking this to a new level and are actively looking for customers and could they recommend anybody who might need your services?

Cold-calling: look at the sort of people you’re currently doing business with and figure out what’s common about them. Then pick up the phone book and start calling businesses that are similar, try to find the right person who would be interested in your service, and sell, sell sell.

Advertising: Print a flyer and deliver it to all the businesses in your target area.

The above are all practically free. If you’ve got a bit of money to allocate for Sales, you could buy a list of potential customers and send them a mailing. A yellow page ad isn’t a bad idea. A web site is a great idea, but for your service, geography is key and finding customers in Croatia isn’t really of value, so I don’t know that I’d spend a lot of effort marketing over the web.

Hiring
In your business, you’re going to find that if you can’t keep a person busy, it’ll drain you of cash so quick it’ll make your head spin. If you’re starting this on the cheap, you should probably find another person or two that you can trust and bring them in as partners, where you all share the money made, but no one draws a salary. If you can find people who will do contract stuff or work hourly it’ll be great in the early stage, but I’m not sure you’ll be fortunate there.
As soon as you’ve got a full-time employee, immediately sign up with ADP or the like to do payroll. The cost is tiny compared to the tax and paperwork crap you’ll have to deal with otherwise.
There are a few thoughts. Good luck…

11

Law, however I should say an accountant could provide equal or better advice than a lawyer on the question of when incorporation is worthwhile. It really is important to get good advice on this decision. To give you an example, where I live there were (until a few years ago) enormous advantages to holding off incorporation until the value of the business was over 100k to take advantage of a loophole that allowed you to shelter an equivalent amount of income.

12

Thanks guys. I’m checking the links and taking notes. Every little bit helps.

On a side note-
A special thanks goes out to Bill H. Bill, I’m glad to see you don’t hold a past disagreement against a person. For that, I add an extra thanks. If the opportunity ever offers itself up to me, I’ll do the same.

13

I too own several small businesses, two incorporated and the others not. There are tax advantages both ways, at least get an accountant/tax advisor to help you get set up and on the right track. If you have significant personal or business assets, incorporation is usually the way to go. If yer poor, don’t worry about it.

Yellow page advertising is the only effective advertising I’ve ever found other than good old in person cold calls, leaving excellently designed and quality business cards, lots of them.

I made lots of mistakes in the begining, still do. I lost a lot of money on my first business until I searched out a mentor, someone who has a successful, long term, established business. A willing mentor will save you countless mistakes and many dollars.

One begining book I found full of GOOD information is “Small Time Operator” by Kamoroff. Nolo press, as mentioned before has good, simple leagalistic information and all of their books can be ordered off the web. However, if it was me… I’d order from my local bricks and mortar bookseller and while you are there ordering/purchasing the book, give them a pile of your brand new shiny, well designed and well thought out business cards and offer them your unsurpassed services and personal attention in exchange for the books you need. Make certain to keep all receipts of course, because they are 100% deductable!

Word of mouth and your integrity are always the most effective advertising.

14

CnoteChris wrote

Hey, no reason a disagreement in one area needs to spill over to others.

On the business side: If you decide to do this full time, and especially if you decide to hire folks and really run with this, you should do a little research on basic financial stuff. Especially watch your cash flow and margins.

Cash Flow
You can have a really cranking business with lots of profitable work going on and go bankrupt. It happens all the time. The potential problem is that on the one hand you’re collecting money from customers, and on the other you’re paying vendors and employees. If you take too long to collect and don’t take long enough to pay and you have no cash reserves, you can be out of cash. And it doesn’t matter if customers owe you big; if you can’t make payroll or pay your vendors, you’re screwed.

Margins
Margin is what you charge minus what you pay. It’s pretty obvious, but you want to charge as much as you can and pay as little as can. It’s not hard, especially for someone just getting into things, to end up doing work that you don’t make much money on, or even lose money on. Make sure you understand what your true cost of servicing a customer is, including stuff like rent, phone, employees time when they’re on your clock but not with a customer, time you spend working to get new customers, etc. If you watch the margins carefully, you’ll discover which types of work you perform are actually the most profitable for you, and that’ll enable you to focus the business better. (note to others: yeah, yeah, I know I’m mixing fixed and variable costs; we can cover that another day.)

15

bare-

You bring up some interesting points.

First, the idea to incorporate, for me, is simply to protect myself from liability, at least at this point. If I start working on something and it breaks, I want to be protected from possible lawsuits. Not that I think I’d be sued right and left, I tend to think people are less litigious than what is normally thought. But if one did sue me, they could conceivably wipe me out.

Given your response, and the others, it makes sense to talk with a lawyer/accountant. Better to save some time and money now, than down the road.

Second, the idea of a mentor has always intrigued me. I mean, who better to talk to than someone who’s already been there and gone through the crap? My only question is, how the hell do you find them? Do you just call someone up? Or do you join groups that they would frequent? Furthermore, and this is the real intrigued part to me, what’s in it for them? If I find someone in the field I’d like to get into, why is it in their best interest to help me out? At some point down the road, I’d like to put them out of business. Wouldn’t they want to keep quiet on what made them successful? Or am I simply being overly cynical?

Third, in terms of advertising, right now I’m in the somewhat unenviable position of having more people asking me to help them than I can possibly manage. I’m an outgoing guy, and have no problem striking up a conversation with possible customers. For instance, two times yesterday, while doing things completely unrelated, people have asked me, “Oh, you know this stuff? Could you help me?”. I do what I can. But I say unenviable because it brings up the second problem- Some of what they ask me to do, I simply don’t know how to do. That happens as much as when they ask me to help on things I do know. My thinking is that if I hire someone else, or a couple of people who know what I don’t, I could branch out and keep busy.

That’s the real reason I thought of opening a business in the first place.

Bill H-

I tend to believe that too. I’m just happy to see others who believe that and act on it too.

Your point about margins doesn’t fall on deaf ears. I’ve seen it happen too. In my opinion, that’s one of the hardest ratios to figure out.

16

Sorry for the hijack! Just wondering as I’m sure lots of others are…

…what was the big feud between you two? A board search doesn’t yield much.

Don’t mean to pry, just curious! :slight_smile:

17

You prying son of a Bitch!* I’m heading to the pit with you!
It wasn’t a big deal- then or now. A simple disagreement that seemed to go on and on and…. There were never any threats, abuse, or anything exciting down those lines, just a disagreement.

Since he took time to write up a thoughtful and informative post to a thread started by the person who initiated the past argument, I thought it was important to point out that I appreciated his input now, in a completely different thread and topic.

I like to feel that I’d do the same if the situation were reversed. Nada more.

18

If you’re mainly worried about liability, then I would say you have two easier options (other than incorporating).

1. Form an LLC (Limited Liability Company). I did this here in NYC w/ one other partner. You may or may not be allowed to form one in your state, esp. since you are a sole proprietor.

The pros: flow-through finances (i.e., the money comes directly to you, and is only taxed once, not twice as in Corporations) and liability protection (you can only lose as much as you’ve invested in the business–not your house and car, etc.)

The cons: LLCs are still very new and experimental, and there haven’t been a lot of court cases to test out how effective their protections are; LLCs, while easier and less expensive to set up than Corps., still cost money. Here in NYC, for intsance, I paid $300 to register the LLC, around $700 to publish the necessary legal notices in the local papers, and continue to pay $325 each year for the privelege of running an LLC. Taxes can be a bitch–mainly because so many a–holes used LLCs and partnerships as tax shelters in the 80s, and I have to jump through a lot of silly hoops to prove my comapny is not one.

For me, it’s worth it to protect me a bit from litigation (we published books early on that could have pissed off some people and gotten us sued for defamation of character) and further legitimize the part-time business so that the IRS doesn’t declare it a hobby and nullify all of my past expense deductions.

2. Write the limitations of liability into your contracts. You may not be formally organized enough right now to be writing contracts for your jobs, but you should probably start. Then you just include clauses where the client agrees to hold you harmless in the event of any damage that occurs blah blah blah. This doesn’t cost you anything, and doesn’t add more paperwork.

19

I’ve found that a mentor doesn’t have to be in the same line of business. In your case you’d be looking for someone in a service-oriented business. Any family members? I think you’ll be surprised how readily successful businessmen current and former will be to share their time with you. Maybe it’s that entrepreneurial spirit that got them going in the first place, gives them a chance to live vicariously through you.

Despite Bill Gates, competition is good. I welcome it, it tends to keep me on my toes.

I’d advise going it alone at first. Business partnerships seldom work and employees are an incredible hassle. Be honest with potential clients, tell them what you can do for them and how much it will cost. When you hit uncharted territory or something you’ve never done before, figure it out on your own time or charge them a nominal fee for your learning experience

20
      • The couple people I know of who have started their own businesses doing this same exact thing had pretty much the same advice:
  • Run it alone, out of your home for as long as you possibly can. Any other way costs you money and (mostly) time.
  • For most types of (small) service businesses, you don’t need a storefront if you’ve got a cellphone.
  • The main problems of expanding service businesses are usually management issues. The above two won’t hire employees, but instead use contractors as they need them: they have a list of people willing to do this kinda stuff now and then for a percentage of the fees.
  • It’s a hard business to try to live off of: non-corporate/business clients don’t do regular maintenance or upgrades, so you are constantly fishing for new customers. - MC