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)