Wife is starting a small business here in NJ...any advice?

[Subliminal]

Hey guys/gals,

After much thought, my wife decided to quit her job and start her own business. It'll be a small business, mainly for graphic design/marketting for small businesses. Catalogs, fliers, advertising, etc...

Anyway, I know nothing about her responsibilities, as far as taxation and the like goes, and was wondering if anyone had their own business here in the state and would share any glimmers of wisdom with us.

Thanks!

damon

 

[AnDom1]

Damon

My advice would be to FIRST decide what form the business would take...S-Chapter Corp, Limited Partnership, etc. To do that you need to know the financial and tax ramifications of each. So, I suggest you talk to an Accountant and once you understand what's involved, hire a Lawyer to properly set it up.

In the meantime, research every aspect of the business you are entering from what kind of place and equipment you'll need to how you plan to attract customers. All this, plus the usuals like phones, etc. cost money and you need to know how much. Develop a WRITTEN PLAN and if necessary, review it with your Accountant.

Dom

 

[JohnS_323]

Not to discourage you but Phyl has owned a software development business here in NJ for the past 14 years. When she first thought about starting it up, every business owner we knew told her that she shouldn't do it. At the time we blew it off thinking that they were just jaded and that she had a better business model, blah blah blah. Well, after the first year we knew exactly what they were all talking about and were really questioning the decision. After her going about 7-10 years of making payroll for her employees only (i.e. not taking home any pay for herself) things finally began to turn around. During that time she went through several different corporate structures (Partnership, LLC, Sole Proprieter, etc). Right now, it's a viable business and everything is going along well and I don't *think* we regret the decision. But I have to tell you, those start-up years were extremely tough. We both worked two jobs and struggled quite a bit.

As Dom said, do a LOT of research and talk to a financial tax advisor.

 

[Phyl]

As a sole proprietor you can either go S-Corp or Corp (as LLP/LLC isn't available to a sole proprietor). The difference will be the way you are taxed. As all personal income (regardless of what is left in the business for growth) or double taxed via Corp (business taxes & personal tax on monies taken as income). If there's going to be a large cash reserve then Corporate taxes might be better for you. They're pretty close and both horrible. Expect to pay approximately 1/2 of what you earn (and don't expense) out in taxes between SS, federal, and state taxes. Hopefully you have good insurance because otherwise that's another outlandish burden you'll have to deal with.

Sounds like she'll probably start by working out of the home. Writing off portions of the home get sticky if the home is owned when you go to sell. You'll need a good accountant to figure out how best to handle this.

John's right... those early years are tough ones.

 

[pgordemer]

From my start as a consultant for almost 20 years..... you need to talk to an accountant you can trust. The problem with working form home is there is a tendency to work tons and tons of personal hours that don't count for anything.

Yes, when I was a consultant, I billed $125-$175 an hour, but remember as a 1 man/person show, you are salesman, provider, worker, janitor, etc. And for the first few years, if you bill 20% of your time, you are doing well.

Best advice is make sure your plan includes the realism that you will collect NO MONEY and only have expenses for at least 2 years.

The accountant gets the final word, but starting as an S corporation and paying the taxes is probably the best.... this way if it all goes bad, you can walk away and not loose your personal assets (your house).

 

[Subliminal]

Hey guys, thanks a bunch for the replies/advice.

Some of the things you mention seem a little extreme. I'm not quitting my job, and she's not hiring employees. I can cope with the fact it's probably not going to show profit for years (if ever), but I've never even considered the possibility of losing house or other important assets.

Worse case scenario I was worried about losing the income she isn't replacing and the extra cost of taxation and utilities (phone, web site, etc...).

Of course, best case scenario is lots of clients and a happy wife making some nice loot.

But I'm like Schultzy...I know nothing.

 

[Carlo]

Personally, since it's going to be a one-man show so to speak and she isn't going to need health insurance (assuming you have that covered) I wouldn't bother with a corporate structure (for now if ever) for her business.

I'd assume she is mostly going to be working with smaller store and the like and not getting involved with big industry or other larger companies. This greatly lessens the chance of lawsuits since the people you are working with don't have the funds for such lawsuits (in general). The type of business she is doing also isn't the type the ends up in court very often.

You should have her register with the state with a DBA (doing business as) and open a separate business checking account. Get an additional phone line just for her business. Have her keep track of all milage used on the car for any business matters. Same with restaurants and such. From the start get into good record keeping practices via paper, spreadsheet or small business software. This is invaluable come tax time. As a sole proprietor she/you can file a schedule C (with other papers) at tax time without a lot of extra hassle. She can very well use part of the home as a home office and you get a tax break for the space, heating, electricity, maint., etc on that space. Make sure the space is only used for business purposes and not for other things (IE kitchen table). A converted basement or bedroom is fine. You can even use other spots in the house (IE basement) for business storage and count that space in the area used for business as deductions. Keep in mind if you ever get audited and someone comes to your house you want it to look legit.

If you have any plans on selling the house you have to watch it with the home deduction as the IRS catches up to you somewhat. I had a 1200 square foot office in my last home for 10 years and it wasn't pretty on last years taxes after selling the home in 06. It was worth it overall but last year was tough. This is where an accountant can help you plan.

Another thing that many people overlook but important IMHO is getting a good set of contract drawn up by a lawyer. If done correctly this can waive much of her responsibility to clients. For example if an add campaign went sour and the business she was working for lost 100K in sales she wouldn't be responsible for it. It's little things like this that can protect your assets. There's also this other little thing called business insurance that is quite helpful also. It's usually not that expensive (compared to auto or health anyway). There are different types of insurance available so maybe talking to an insurance broker is a good idea.

I grew up in a printing and advertising business owned by my family (still going) so this type of work is dear to my heart. Marketing is one of my strong points business wise. A suggestion I'd give you/her is to put together some samples (portfolio) and take them around to a bunch of small printing companies. Give them a 10-15% finders fee for any customers they throw your way. You in return would have that printer do the printing (if possible) for the materials. It's a WIN WIN situation this way as they don't loose the customer and you gain one. However without the finders fee or commission your wife's portfolio will probably end up in the trash. This is why offering the fee is important. If they need to recommend an outside party is always a good idea to get something out of it. Some other print shops may not want to go this route but instead handle everything and buy the services via your wife at a discount and mark it up. This too is a good way to go in the beginning as she needs the business.

Just some food for thought. But overall talk to an accountant and lawyer and get things squared away there first and don't forget the DBA or corp papers if you go that route. Don't forget to keep track of milage driving to and from their offices too.

Carlo

 

[MadReefer]

There is also a NJ business organization for women. My wife contacted them when she looking into a business.

 

[boozeman]

Plenty of good advice given already...my two cents is to stress having a cash reserve to fall back on during the first year. It is ofthen a lean time until you get the ball rolling.