Starting a home based business (Where to start?)

[Wes Billups]

Both my wife and I have worked on our own investment properties for ≈15 yrs. Now with kids and two full time jobs we don't have time to do this type of work anymore but are considering doing smaller side jobs for other people. In the past all the work was done on properties we owned. The work would range from rough to finish carpentry as well as yard work. The biggest question is I have a Bobcat and would potentially be using it for footings, post holes, grading, excavation, snow removal.

Where do we start? First and foremost I want to make sure we protect our family but also any potential clients. I've got a call in to our insurance agent but I'm also wondering about tax implications as well as legal issues. Do I contact a tax attorney? Can any tax professional give us advice?

Ultimately I'm looking for suggestions from those of you who are either self employed or done similar things yourselves. This will all be for supplemental income as my wife and I plan on continuing our careers with our current employers.

Thanks,
Wes Billups

[James Tibbetts]

Wes,
I'm sure you will get a lot of excellant information here. Cover your assets! The first thing I would suggest is to see an attorney to pick the best form of buisness entity to seperate liability and protect the family assets. For me in Maryland that was an LLC. They eliminate massive amounts of paperwork associated with regular corporations. It also simplifies taxes since everything roles into your personal. A good Kansas attorney will know what form is best.
If you have a tax professional that you use or would consider after you have a company of some sort, definately ask what form they suggest. Betweeen them and the attorney you should be well informed.
Good luck which ever way it goes!!

[Alan Caro]

Wes Billups,

It appears you're taking the right steps as there are both insurance and tax implications. Another consideration is whether you have to be licensed to do some kinds of work. In California, there are a lot of regulations > any structural concrete work or job over $1,500 has to have a permit, a license, and Workmens' Compensation, and so on. So, you might want to check with the local Building and Safety as to permit's, license, and Workmens' Comp. I imagine you may have to have a business license, set up an account for it and file periodic returns and so on. Or there may some kind of "handyman's" category for jobs under a certain value. There are of course, some benefits to setting everything up on a business basis as your bobcat can be depreciated and fuel insurance, and repairs deductible, if you drive you regular car to give an estimate, the mileage is deductible, if you take pictures, your camera, plus other stuff, your business cell phone, computer, comes off the income, and so forth. Unfortunately, you have to become close friends with receipts.

My experience in Los Angeles though is that many people try to slip under the radar and two things happen > some customers are reluctant > less trusting if the appearance is too casual and two, there's an accident or something is stolen from the site and there's a big loss because of lack of insurance. My gardener's in L.A. asked my advice once because his brother had a problem. He had unlicensed, uninsured business that made concrete/tile exterior walkways. He had parked his truck loaded with tile at the top of a hill, and it rolled down a steep embankment and into the swimming pool of the neighbor below. Besides the loss of the uninsured truck, the bill for damages was $50,000- just the crane to get the truck out cost nearly $5,000- and there were other legal problems. That's a quirky incident, but as they say, "stuff" happens.

I would be the last to discourage anyone with horror stories, but at the same time you're wise to approach it methodically as you seem to be doing.

Alan Caro

[Mark Bolton]

Self employed general contracting for most of my adult life. The other replies about licensing are spot on. You will likely need a license for most any of the work you do as well as liability insurance.

I would suggest however you do some serious research with regards to the LLC issues. In my opinion this has been somewhat of a scam foisted on small businesses giving them a false sense of security thinking they are somehow protected as a corporation at a much reduced cost. This is simply untrue. It is well documented, and I have had personal conversations with lawyers about this very topic, that any good lawyer will go after you in a civil suit even with the LLC. The simple fact is most small LLCs simply dont meet the criteria of a corporation. They dont file annual reports, have meetings, multiple officers, co-mingling funds, and so on. This means if anything is to happen any lawyer worth his/her salt is simply going to go around the LLC and come after you as the officer.

While it may still be a good route I think LLC's have simply been a boondoggle for those who make money in setting them up.

My only advice to you would be to stay very very very very small if this is going to be a side business and choose your customers wisely. The mere fact that its not a full time operation will likely limit the scope of projects you can undertake as well as limit your clientele to those who are willing to wait for you to complete larger projects. Both good things. Also focus. Dont try to be everything to everyone. Common mistake for people who have done a bit of this and that. We do a lot of everything and its very rough at times but our location factors heavily on that happening.

The work your talking about doing is brutal when you've done it every day for years and are working at it full time. Its even more miserable when your chunking it off part time.

I have a cynical perspective as so long in the business has soured me but keeping it small and being able to pick and choose your work would be nice if it were me.

[Brian Elfert]

In the state of Minnesota at least, worker's compensation insurance is not required for the business owner(s), but it is required for employees. When I had my business I covered myself with worker's comp because it was cheap for office workers. The state of MN may require all contractors to have worker's comp for everyone, I don't know. I certainly cannot speak for what other states require.

I would suggest some sort of disability insurance to cover in case of an accident causing temporary or lifetime disability. The cheapest way generally to get disability is if your full time job offers it. Worker's comp is often limited in what they cover for income replacement and I doubt they would cover your full time income if you got hurt at your part time job and couldn't work either job.

[Charles McKinley]

Find your local SBDC (Small Business Development Corporation) It will be at a university in the business department. It is sponsored by the federal gov't. they can help you sort through all the regulations and such for your area. Here in PA if you are digging you need "under ground insurance" for when one call is wrong and you hit a gas/phone line etc. There is a special license you need to work on homes now due to several scam artist taking down payments and disappearing.

Every local is different. Make sure you know the laws and codes in your area and remember always be polite to the code enforcement people or your project may have several delays. One trailer park near me was shutdown from an incredibly stupid comment about the enforcement official that made her not want to be helpful to an uncooperative individual.

Good luck

[Steve Rozmiarek]

Wes, having been self employed for 25 years now, in multiple ways, I can attest to a couple things. First, the guys above are giving good advice, second, your CPA is your best ally, and finally, your attorney is the next best. I had a banker ask me one time what my exit strategy was to a particular thing I was doing at the time. It seemed silly then, but later, as the shine wore off the business, the wisdom of that question and the thought process required to answer it really became obvious. I'm not aware of any business that has lasted in perpetuity, thought needs put into the whole lifespan of the thing before you pull the trigger. For instance, if you decide to keep your skid steer if you chose to shut down the business for some reason, the ramifications are different if you are a sole proprietor, LLC, or Inc. Changes in ownership are easier in some structures than others as well.

[Jeff Erbele]

Self employed general contracting for most of my adult life. The other replies about licensing are spot on. You will likely need a license for most any of the work you do as well as liability insurance.

I would suggest however you do some serious research with regards to the LLC issues. In my opinion this has been somewhat of a scam foisted on small businesses giving them a false sense of security thinking they are somehow protected as a corporation at a much reduced cost. This is simply untrue. It is well documented, and I have had personal conversations with lawyers about this very topic, that any good lawyer will go after you in a civil suit even with the LLC. The simple fact is most small LLCs simply dont meet the criteria of a corporation. They dont file annual reports, have meetings, multiple officers, co-mingling funds, and so on. This means if anything is to happen any lawyer worth his/her salt is simply going to go around the LLC and come after you as the officer.

While it may still be a good route I think LLC's have simply been a boondoggle for those who make money in setting them up.

My only advice to you would be to stay very very very very small if this is going to be a side business and choose your customers wisely. The mere fact that its not a full time operation will likely limit the scope of projects you can undertake as well as limit your clientele to those who are willing to wait for you to complete larger projects. Both good things. Also focus. Dont try to be everything to everyone. Common mistake for people who have done a bit of this and that. We do a lot of everything and its very rough at times but our location factors heavily on that happening.

The work your talking about doing is brutal when you've done it every day for years and are working at it full time. Its even more miserable when your chunking it off part time.

I have a cynical perspective as so long in the business has soured me but keeping it small and being able to pick and choose your work would be nice if it were me.

My wife and I own a company as LLC. My opinion is 180 on several points on that topic. We have a CPA and attorney with different firms, but working together for us.

LLC's are not a scam. They are a very legitimate form of business ownership, just like the any form and one chosen by all types of businesses including professionals. Nobody forces you into one form of business ownership. You chose the one appropriate for your needs.

An LLC does indeed protect personal assets; that is one of its main features. One exception is one can't use it as a shield for intentional wrong-doing.



The simple fact is most small LLCs simply dont meet the criteria of a corporation. They dont file annual reports, have meetings, multiple officers, co-mingling funds, and so on. This means if anything is to happen any lawyer worth his/her salt is simply going to go around the LLC and come after you as the officer.

While it may still be a good route I think LLC's have simply been a boondoggle for those who make money in setting them up.


True, a LLC is simpler than Corporation. The legal business structure was intentionally designed that way, so they don't have to file corporate, quarterly, annual reports, have a board, hold formal board meetings, or have any officers, much less multiple ones. In Colorado we are required to file a simple annual report, online with the Secretary of State for a fee of $10. All they really want to know is if we are still in business, any change in owners, management, and any change of business address and current contact information.

RE: Co-mingling funds, and so on.
Does not apply, nor does it make the case any stronger.
If one has a legitimate business, it looks, acts, and behaves like one, even if one chooses the simplest form of ownership, a sole proprietor. Co-mingling funds is not an acceptable business practice and applies to every business and form of ownership. One would set up accounts appropriate to the business, an operating account to pay bills and deposit income, perhaps a petty cash account, maybe a savings account, and an escrow account if applicable.

RE: The simple fact is most small LLCs simply dont meet the criteria of a corporation.
True. The are not required to. They are not supposed to. The criteria is different and unique for each form of business ownership.
The size of an LLC is irrelevant.

Certainly it is wise to consider all forms of ownership, do your research about them on the SBA site and with your state's Secretary of State website, consult with your CPA and attorney and select the best one for your business.

An LLC can be a single owner, or two or more partners; if so it should have an LLC operating agreement.

RE:
While it may still be a good route I think LLC's have simply been a boondoggle for those who make money in setting them up.

I set up our LLC, online on the Secretary of States' website for a one time fee to the state for $125.
There was no boondoggle and No one made any money.
I don't remember for sure, but it probably took less than an hour, reading everything, filling in the online application, printing the documents for our office records and processing payment.

Early this year we met with our $325 an hour attorney simple as a check up on overall legal affairs. There are 45 attorneys in his law firm in down Denver. If he says we're good to go, we sleep at night. When we hired him on retainer, we weren't price shopping nor did we want cheap. We were seeking the best and was recommended by our CPA who warned us about his rates. The thing is he gets business done fast, because he specializes (doesn't have to research) and delegates to his support staff.

For tax reasons (simplicity), we changed from a two partner ownership to a single owner LLC, which required a change in the operating agreement. We're good.

Every business is subject to law suites. For that one buys insurance. In our case, applicable to our business we have a $12.5m E&O - Errors & Omissions policy.

If and I say if you are suggesting a corporation is better than an LLC, weigh the tax consequences as well. Double taxation has no appeal for us.
If you think someone is making money selling LLC's, compare that to incorporating and try doing that on your own.

All things considered, an LLC is not right for everybody or every company. That's why there is 5 or more other alternatives.

http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/choose-your-business-stru

[Jeff Erbele]

Where to start?

http://www.sba.gov/category/navigation-structure/starting-managing-business
https://www.kssos.org/
http://www.topeka.org/HND/DisadvantageBusinessEnterprise.shtml

#1. Decide on a business structure. At some point you probably want to or should consult with a CPA and Attorney. Both or either could be helpful in deciding which structure suits your needs best.

#2. Select a business name. If it is a dba, doing business as, it must be a unique name (not in use by another business) and usually must be registered with the Secretary of State.

#3. File of a Tax ID number with www.IRS.Gov

Write a business plan. Even if you write it, file it and never read it again it will help you define your business and guide you along the way. Most small businesses fail in the first 3-5 years. Give yourself every edge possible.
Ideally one should review it annually and update it as needed.
If you apply for a business loan, the loan officer will require it.

Permits and Licenses
Check with state, county and city on their business requirements, permits and licenses.
Open a business account, fund it, and set up a book keeping system or contract it. We use Quick Books accounting software. There are several other good options.

Consider your business liability and insurance needs. Excavating has a potential high risk with underground utilities. Use your 1-800 locate service. You don't want to damage any utility. Its costly and cut be dangerous. Fiber optics is way out there.

Promote your business. Signs, Business cards - Vista Print is a good option.
Give-a-ways, coffee cups, caps, pens, tee shirts, usually don't return a bang for the buck. Mostly you just give money away.
Your best advertising is word of mouth and referrals.