5 Steps to Open a Small Business

How do I start a small business? I’ve been asked that a couple of times recently, and my flippant answer is ‘you just do.’ And in some ways, it’s that easy. In others… Look. I can only give you loose guidelines, because opening and running a business is going to be different in every country, state, county, and even town you live in. Some places are highly regulated. Others are not so much. The two states I’ve owned businesses in were rather laid back about the process, to be honest, so I haven’t had to jump through a lot of hoops.

Let’s take the new one, the announcement on my social media page that sparked the question, then the direct ‘please write a post’ about it. I’m now proud owner of Sanderley Studios. What it is, is essentially the same thing it was before when the name was Stonycroft Publishing. It’s me, writing things, publishing them, and handling the money and taxes appropriately. So why the name change? Well, I’m also now an artist, graphic designer and (rarely) an editor. I wanted a company name that would be an umbrella to all the things I do, plus the possibility of my daughter and husband joining me on the creative team. That, added to the expiring name registration of Stonycroft in NH, meant it was finally time to move the business account someplace local, and be fully in Ohio.

Here’s the process for me, keeping in mind this is the fourth time I’ve done this, and I can’t emphasize this enough: It will be different for you. You need to do the research about your specific area. I highly suggest sitting down with a local CPA, as well, to talk tax implications. While you do not necessarily need to file quarterly at the beginning, it’s a good habit to get into. And…

Step 1: Create a business mission statement. This could be fairly loose, at least to begin with. What it will do, though, is set up a framework for what comes next.

Step 2: Choose a business name. Here in Ohio, unless you are forming an LLC you cannot use corporation, corp, or any variant (there’s a list) in the name. I wanted a name which wasn’t directly tied to me as a person, since my long-term plan includes handing off the business, and residual income, to my daughter in the event of my death or incapacitation. I googled for the ones that made my cut list – generated by asking for suggestions on social media, because buzz is good – to make sure they weren’t already being used. I finally settled on an amalgamation of my last name, and my husband’s surname (my married name) and Studios, because it’s a nice umbrella word for a creative like myself. This was not an easy process, mind you, it took me six months to finally make the decision.

Step 3: File or register your business name with the state. This is going to vary from state to state. In New Hampshire there was (at the time) no fee, and you re-registered every five years. In Ohio it’s a nominal fee ($40) and you get an entity number which allows you to jump the next hurdle.

Step 4: Open a business account. You can, of course, not. But it will make your life very complicated, the IRS frowns on it, and it’s just a bad practice. So. Business, sometimes called DBA (doing business as) account. All the monies you receive from your business, and all that you spend on it, funnel through this. Set aside at least 25% and don’t touch it: that’s for Uncle Sam, and again, talk to a CPA, usually you can get a free consult, but even so it’s worth a bit of money to have clarity on your taxes, something tax software can’t give you.

Step 5: Create a spreadsheet for tracking all income and expenses, start filing receipts. You can certainly invest in business accounting software as you grow. You won’t likely need it at the beginning, and something like Quickbooks you may never need unless you have employees and need to generate a lot of invoices. I have a certificate in business accounting and yet I used – and still use, for that matter – spreadsheets for accounting and Word (now G’docs or Libre Office) for invoice templates and contract templates I exported to pdf when I was sending them to clients. Save everything, and have backups for everything. There are apps for scanning receipts, which I’ve started to use, as some thermal paper receipts are prone to degrade quickly.

Voila! You’re in business! Oh, sure, it’s a lot more complicated than that, or it can be. But it doesn’t have to be, particularly if you are small, have very little liability risk (that’s what the LLC is supposed to help with usually) and are just starting out. I plan to scale up to an LLC in a year or so, myself, not for liability protection, but to have a more separate entity that can handle it’s own bills and could be handed off to my daughter when the time comes. I talked with my CPA about it, and it will cost me about $300 to do that. Not bad at all, considering. But you can start a business on a shoestring. I have done it twice, and twice now I have rolled off another business on the back on the first one when life took a left turn. Don’t borrow money to start a business, there’s no need in publishing.

Other considerations: inventory and home offices. Look, keeping inventory also has tax implications as well. If you’re thinking that the IRS dictates an awful lot of your business decisions, you would be right. I know that big publishers will say things like ‘we have 50K books in a warehouse’ but that makes me give serious side-eye to them. Inventory gets taxed, and it’s sitting there not making money, so why in the name of all that’s Fuzzy would you have that many books in this day and age of JIT ordering and Lean production? Stupidity or lying, I’ll let you choose which.

Home offices cannot have anything else going on in them besides business. So you cannot write off the desk in the corner of your bedroom. The IRS flags home office deductions because of the rampant abuse, so make sure you know what’s what before you take that. Personally I currently have a stand-alone building as an office and the business is going to be handling all the utilities and expenses through the Sanderley Studios account, but that’s a rare situation. It does, however, allow me to keep Office Cats and that’s a great perk!

Feel free to ask questions in the comments, I should be around today to answer them for a change. And next week: Branding and Logos, do I need them? Or in other words, ‘why do I need my name to be that big on the book cover?’

(Header image: Eveline the office cat by Cedar Sanderson)

17 thoughts on “5 Steps to Open a Small Business

  1. Thank you! I may ask some follow up questions later because where I’m a legal resident now (Illinois) is not where I plan to live once I get out of the Navy. I’m actually not entirely sure where that is just yet, and it may change, as well.

  2. Precisely. I’m not actually paying state income tax right now, but I’m not sure if that would continue if I had side hustle income. Not eager to find out right now, with the way Illinois taxes are. But I still need to build the drawer full o’ stories before I think about actually starting a business to sell ’em. I have a few years until retirement to get thing situated.

  3. What about the books you’ve published? Will you be transferring them to the company or keeping them under your own name? If you do transfer them to Sanderley Studios, how would you go about it?
    I have a thousand more questions, since I plan to form a business once I retire and move to warmer, cheaper climates (like Chrismouse, I don’t want to form a business in Illinois) but I’ll be publishing books (yes! I will, I will!) before then.

    1. The books I’ve published were created through my former publishing imprint, Stonycroft. I’ll be doing new editions over the coming year and releasing them under the new imprint as I have time. But the income already flowing will simply be going into the new business account as I’ll be closing the account with the bank several states away – that was getting inconvenient despite online banking! Because it’s all me, I don’t have to worry about rights transfers, I’ve never ceded the rights to another entity. The name on the cover won’t change.

      And yay! On publishing. It really isn’t complicated, but you do need to understand the implications of having even just a little income coming in. A friend of mine who put out a short story through amazon was grousing he then had to pay more for the tax software in order to account for his tiny 1099 from Amazon. More than he’d actually made. Which is… you need to make more, A, and B, this is why you think your taxes through before you dive into it. Marketing takes care of the first, talking with a CPA takes care of the second.

    2. When Peter and I started, we simply opened KDP accounts under our existing Amazon accounts. That is, I opened one to see how it worked, then ignored it for years, and helped him open one under his account, which we published his books. (I then went back and published my own books, years later, under my account.) As we were DBA of Fynbos Press, this worked fine.

      Now that we’ve moved to the LLC of Sedgefield Press, we created a separate business account with Amazon and moved all our books to it. This involved getting an actual KDP Help person on the phone, but mostly was easy – the main problem was that between Peter & myself, it was 2 kdp accounts and two createspace accounts.

      When doing a DBA, you still own your copyright. When you do an LLC, you can choose to transfer copyright to the business, or license the IP to the business. I recommend licensing your IP, but research it and don’t take my word for it.

  4. While it can complicate things a bit, it should be clear you don’t need to do many of those things. I spent years selling on eBay (and filing as a business on Schedule C for taxes) with the only formal registration being a sales tax license after a couple years (which was only needed in my state to make inventory purchases without paying sales tax). The IRS doesn’t require a registered business name. My state was happy to accept an annual sales tax payment without a registered business.

    I mention this because I’ve seen cases where somebody decides to start a small business and spends inordinate energy (and a chunk of up front money) setting up bank accounts, DBAs, fancy accounting, etc. and never gets around to actually running the business. Having the framework of a business with no revenue is a good way to lose money.

    Instead setup the basics, which simply be a written list of sales and a list of business purchases. Don’t try anything fancy (e.g. home office deduction, deducting your vacation as writing “research”) as that could get you in trouble. Do check if some sort of registration is required locally.

    So it may be better to just start out doing whatever the business involves then start adding the formal registrations if the business is working out. And if there’s a chance you won’t have time for the business try to structure things so you can suspend or shut down the business with minimal effort. Then ramp up the business as it grows — if you’re shipping and receiving 50 packages a day it definitely time to rent an office, zoning laws will likely get you if you try this from your home.

    I will add one item not listed above if your business will get much mail — a post office box. This also insulates you from people knowing your home address if there’s a concern there.

    1. Yes, and if you don’t have a business license from your locality, it won’t end well. So, while the state may be fine with you paying the taxes to them, your city (our county) is likely to get rather upset when they find out you don’t have a business license and thus didn’t pay your local taxes. Since you have the license, you might as well file the DBA. (in my locality, the DBA is $10 extra)

      If you’re seriously running a home business and you are getting income from it and don’t use the home office deduction then, quite simply, you deserve to lose the money you pay in extra taxes. It is a standard deduction for a home business. (Note by ‘getting income’ I don’t even mean that the income is a net positive- the IRS, most states and localities expect any new business to lose money for their first several years, so also don’t worry about having to report a loss.)

      IF you get audited and don’t have a separate business account, you are going to get screwed pure and simple, because your business funds and personal funds are going to be commingled and *any* business course is going to tell you to not do this.

      These are things i learned from dozens of friends that successfully made a living as freelance animators and/or video editors for most of the 1990s. Most of them ended up going on to work at major VFX studios, partly because that eliminates the whole ‘running your own business’ and ‘looking for that next client’ hassle- some still actively run small animation businesses, or *went back to it* after working in VFX for a few years. Go figure, a little hassle of running a small business is preferable to sixty hour work weeks for some people.

      1. What you have to do or not depends on location. The city I live in has no general “business license” that I can find. There is a “sales tax” license if you make retail sales within the city. Otherwise there are only licenses for specific types of business (so don’t open a junkyard without a license). The state requires a sales tax license for sales over a certain amount (if I remember correctly), otherwise you can just pay taxes annually without one.

        Home office can be (unless it’s changed since I looked at it) a time bomb. It requires EXCLUSIVE business use of the office. If you open one piece of personal mail in your home office then the IRS can, in principle, disallow the deduction. Too many people would do incidental business in a room in their home and then deduct it as a home office.

        I agree that you should ideally setup a separate business account, etc. And a DBA is a good idea if you’re using a separate business name (I never did). My point is if you’re thinking about a business (e.g. selling crafts on Etsy, publishing on Kindle) it may be better to do the bare minimum and give it a try. If it works out, add the bank account, etc. If not, you can drop it. You’re not going to be audited for a couple hundred dollars in sales (yea, somebody’s going to now reply with the story of 10 years in prison for not declaring $50). Certainly if you’re bringing in a 6 figure income lacking a business structure is foolish.

        How many people are dissuaded from starting a business because they balk at the perceived startup hurdles? How many people spend a bunch of money setting up a business and it never goes anyplace?

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