Starting a Business Quickly – DBA Small Business Show 17

Greetings, folks, and welcome to DBA show, episode number 17, the Small Business Podcast, coming to you and giving you the business every week. I'll get that right at some point. Here in Durham, New Hampshire, I'm Dave Hamilton.

And in Northern California, I'm Shannon Jean, coming to you from lovely Lafayette.

How's Lafayette today, Shannon?

It's nice. It's a little overcast, a little windy. We've had this crazy spring cool weather. It's normally much warmer right now, but it's very pleasant, very nice.

Well, I hope. But yeah. Oh, it's good. It's good.

It's a good thing. It's very nice out here. How are you doing?

Good. Weather's just fine. It's been. It's been cold this week too. It's. Yeah, you know, it's like. Yeah, my kids said this morning when it was, you know, 40 something or as they were walking to the bus. So, like, can we have May back? You know?

Yeah. That's funny. That's classic. So, yeah. So cool. So we have some stuff to talk about. Well, I guess we're going to also hit some, what do you call, viewer mail.

We're going to dig into the mailbag. That's right.

Yep. Yeah. Cool. That's good.

Assuming. Assuming the mailbag doesn't take too long, we will talk about hiring and firing today. Otherwise, that's slotted for the next one.

So the Agony and the Ecstasy.

Yeah, yeah, that's actually. That's the right title for that too. That's right. All right, all right. Let's not get ahead of ourselves.

Cool, Cool. There you go.

So Roland wrote in. He says, I recently started listening to the DBA podcast. In fact, I've already crushed the first 11 episodes in under a week. I love it. Binge watching, binge listening. I guess. He says it couldn't have come at a more perfect time. I've been finding myself on the verge of starting my own business recently. I found that I have a sought after skill and service in the education market, which I've been providing to schools. And I feel like it's time to at least do business under a name other than my own. However, I don't yet legally own the name of the business I'd like to do business under. And that's because I'm not sure how. I guess that's where my request comes in. I'm a teacher, not a business major. I feel lost in these first stages. I'm curious if you guys would be willing to spend some time giving advice I. On the choices that sit in front of someone who is about to create their small business. Absolutely. So he has a couple more questions here, and I'll read through the thing and then we'll address them one by one. Should it be a sole proprietorship or an llc? What are the pros and cons of each? If I have a partner that may join in to elevate the business, can it change to a partnership later? It sounds like I will need liability insurance. Where does one look for that? Any good advice for finding an accountant? What other advice do you have for someone about to make their first business official? I guess what I'm ultimately after at this point is to elevate my professionalism and be able to bill my clients under my business name as opposed to my name. I'd like to open a bank account and credit card under my business. All right, well, thanks. Thanks. Rolling. So, yeah, let's start with the most important thing, which is what it takes to bill your clients under your business name. We'll get to these other things, too, but you do not need to be incorporated to write to bill your clients.

Yeah. And it sounds like right now he's billing them and they're just issuing payments directly to him under his name. Under Roland's name.

That's right.

And that is a good place to start because you need to have cash, the lifeblood of your business, and you want to look professional, you want to be able to put it on your invoices, your letterhead, all those kinds of things. And it does sound like he has. He's got a website, got a company name, and the next step is to just, you know, secure that name and get. Get to the bank.

Yep. So the answer is actually found in the title of. Of the show. Although we've talked about changing the title of the show at this point. That is the. You. What you want is a. The first thing you go and get is a dba. And you can do this all. You could wake up one morning and by that night have a bank account open with your business name. So you go, you go. A DBA stands for, in this case, doing business as. And you're going to go down to usually your county records is. Is where. It's been a while since I've done one, but I believe it's all the county.

Yeah. And that's. And this is assuming that, you know, we probably should talk about the differences. A sole proprietorship. This is a route you want to take.

Yeah. Right. Yeah. You're doing this on your Own and you're. The money is still coming to you. And we'll get to the corporate structure. That's right. So the dba, you're going to go to your county and. And you'll look up in their book to make sure that no one else is doing business as this particular name, whatever it is you're going to do. And then you fill out a form and you usually pay a very nominal fee. Like I said, it's been a while since I've done a dba, but I don't think it's very much.

It looks like a fee to. Yeah, right. And sometimes they'll have you publish in your local newspaper, even though that's getting kind of archaic. But they'll do that and they'll put it on local paper online. There's probably a fee for that.

Yep. And then you've got your DBA and whatever. The person at the county office will stamp it and make it official. And then you can take that to the bank. What will happen at the bank is interesting. You will open an account in your name because the business is not an entity yet you are the only entity. What you have is that in this case, Roland, you'll have a piece of paper that said Roland is allowed to do business as this company name in this county. And so you got to make sure you're going to a bank in that same county, which probably would be. And. And then the bank will open an account. It'll be in your name. You will be the. The responsible party for the account. But the, The. The name on the checks and all of that stuff will be the business name. And most importantly, that business name will also be on the account so that when checks come in for. Addressed to that business name, you can legally sign them. And the. Of the bank bouncing them, to be honest, you can take. I mean I get this occasionally with the bands I plan. Because we don't have a DBA for the bands. We could. There's several reasons we don't. But sometimes somebody will make a checkout to fling. And you know what we do is we sign it and we deposit it in one of our personal accounts. And I've never had it bounce, but you know, but these are small. These are small numbers. Right. And banks don't look at banks. Here's a secret. Banks don't look at anything other than the dollar amount on checks under. I think it's 2,500 bucks right now. And the reasons about.

Right.

Yeah, the reason is it's. It's cheaper for them to pay the fraud or the, you know, the, to eat the fraud on the ones that slip through the cracks that are lower than that amount than it is to pay someone to go through every single $12 check that comes through the bank. So they look at the number, they don't look at a signature, they don't look at who it's written to. It's just not worth it. It's just, you know, it's just a money game. So, sure, you can probably get away with it, but, you know, you don't want to have to. And the DBA is cheap and easy and you're going to be doing this anyway. So. So that's step one, and that will get you up and running. I'm going to address the credit card thing while we're here because you kind of. You bundled the two together. It will take a very, very, very long time before you'll actually be able to get a credit card that is tied to the business as the business. And that's because your business, even once you start it and organize, does not have its own credit rating. It doesn't have enough revenue. You will be getting credit cards and you can go do this right now. You don't even need a DBA to do this. Just go apply for a business credit card and, and, and it's going to be. You're the responsible party if everything falls apart. It is on you to pay that credit card bill. You cannot take a bankruptcy with the business and expect that credit card bill to get wiped out by it. But, but that's it then. Then you just have your business name on a credit card and do that all day long.

That's right. Nope, keep. Keep track of those expenses and keep them in a separate account.

It's a handy way to do it. Absolutely.

Really is. Now, what kind of credit card would you get, Dave? Just any kind of card.

Well, you know, we had this. We'd go. I'd go back to this show. I'd go back and listen to that show. Yeah, I, Yeah, I'm not sure which.

Episode it is, but you can look in the, the show notes and see it. But there's a. We spent quite a bit of time talking about the different kinds of cards that you. We would recommend and affinity cards, cards with points, that kind of thing. Definitely worth a listen.

Episode 5.

Perfect. Definitely worth a listen. Before you apply for that card, you want to get some as many added benefits out of it as you can.

Yep. So that's, that's. That. That's that gets us over the initial hump. But you, you asked a couple of other questions and, and these are, these are important questions. You know, should it be how to organize it? Right. Sole proprietorship versus llc. And there are other options too. There's a C Corp and then there's an S Corp, S Corp. And those are probably the big four. And along with that question, we'll address the. If I have a partner that may join in, can you change it to a partnership later? So, Shannon, you want to take this one?

Yeah. So the thing that, and I think Dave, you probably would agree is, you know, the LLC is an awesome way to start things. It gives you some added legal protection in case you ever need it. And it's extremely, extremely simple to do. You can do it a couple different ways. If you want to go very formal route, you can have an attorney help you prepare some documents and they can present them. It'll take a little while and usually cost maybe around a thousand bucks. However, you can also jump online to some of these legal self help sites if you want, like rocket Lawyer or LegalZoom and they'll walk you through setting up an LLC. Just like Dave said earlier, you can do it in a day, get it done, get the paperwork and get a bank account opened. The benefits of LLC in addition to having some quasi corporate protection for your business is you'll also get an employer identification number, which you'll need once you want to start hiring employees. And just to have, it'll help you with your credit rating if you get, you know, with the Dun and Bradstreet, that kind of thing. And it also addresses your question about bringing a partner in. So if you own an llc, you're considered a member by the IRS and you can add members to that LLC relatively easy and split up shares and do different things. So it's just a very flexible corporate structure, especially for a business that's just starting out. And when you file your taxes, your accountant can help you. It's simply a checkbox that it's an LLC and, and everything just comes down to, you know, your own personal taxes and stuff. And it's a great entity. What do you think, Dave?

Yeah, an LLC is fantastic because it allows you a lot of that flexibility. And what's cool is you can actually have members that are owners in the LLC at one percentage. Let's say you have two partners, right? And you're 50, 50 owners in the LLC. But at when you file your taxes each year, the earnings for those partners do not have to match the 50% in terms of how much of the company's revenue flows through. Because it's a pass through entity. Right?

Right.

Yep. It doesn't, it doesn't hold any of its own money. I mean, it does, but, but the profits are, are considered pass through. Even if you keep the profits in the company bank account, you just pay for them on your personal taxes and you're done. But you can, it's nice that you can have this, this, this adjustable flow. Whereas with a corporation that's. You would handle it differently. You can still do more difficult. Yeah, it's a little more, it's trickier, that's all.

It's a little trickier.

Yeah. The one thing about an LLC and the 1, and the reason where this starts to matter is if you have a single member llc, in most cases that will be taxed as a sole proprietorship, you will fill out the nor schedule C. You retain the. As you should, Shannon, the quasi corporate veil. That exists. And it does exist. But if you do something personally that is irresponsible, you're still liable. But you get that corporate veil and you get bankruptcy protection and that sort of thing. But if you're a single member llc, you are filing as a sole proprietor. Now as soon as you add a second member to that llc, you're now filing as a partnership. And you get a lot of tax benefits for doing that.

That's right.

And the cool part is like, like, I mean, and for me, I actually have one that's a single member llc, but it's not because I put my wife on it and it was for my consulting business when I was doing a lot of, you know, kind of, you know, computer consulting for people. It, I still, it still exists. It's, it's worth it to me to keep it running for, for various reasons. But, but I put my wife on as a owner and that way I got the, the benefits of having a partnership tax return. But I assigned all the income from that one just because it made sense to, to me. I didn't have to assign 1% of it to her because she's a 1% owner of that particular one. It just, you know, that's, you just assign the income however you want. The IRS doesn't care. As long as 100% of the income is, is paid for, the taxes are paid on it by someone. They don't care who it is. That's right. So.

Yeah.

Yeah.

And you know, there's a, there's a lot to go into on, on what the Best way to structure this stuff is. And you'd ask, you know, Roland asked a question too. You know, how do you find a good accountant? I mean, in my opinion, you know, obviously, make sure you get a CPA guy that, you know, it's certified, that's gone to school and is licensed to be an accountant. But for me is find someone that you, you actually enjoy talking to. And that's made all the difference in my relationships with accountants. And I've had a number of them. The ones that, you know, I've stuck with for years and years and years have been the ones that, you know, you could, you'd want to hang out with and you can explain your business and they can see what you're trying to do, and you can. For me, it's made all the difference versus just someone who's so focused on the numbers and doesn't really get what you're trying to do. And they just want you to hand them, you know, paperwork at the end of the year. There's a lot more benefit to a good accountant relationship, and you want to be able to have that back and forth. They're almost, you know, as we start talking about insurers and bankers and accountants, you're kind of building your quasi board of directors, if you will, your advisory board. Even though you're, you know, small business, just getting started, even if you're just one guy, you, you want to have these people that you can lean on and it's really important that, that they're going to be behind you, they get what you're trying to do and that you get along with them.

Yeah, no, it's, that's absolutely true. Now, I guess it's important to say that while Shannon and I may feel like some of those people, and in many ways maybe we are right. Maybe we're your, you know, your, your off site sounding board. We are not CPAs or attorneys. So everything we say, you know, you got it. You got to run this by the people that you do pay to do this.

That's right. Yeah.

So, so there's that. Now I'm trying to think what the, the last one. Yeah, I, I found my accountant. Now the, the accountant that I use, I found him about 15 years ago and, and I like him. He's a good guy, the way I found him. And I, I, this was deliberate for me. At the time, I was in Connecticut, kind of in a small town, and I was most likely, you know, one of the top five computer savvy people in the town. Right. And But I know, I knew that for me, I mean, I was running an online business. I needed somebody that could understand, at least to some level, how that worked. And I also like to communicate via email. It may seem strange to say this now, but, you know, back then I had had previous accountants where email was something they checked once, you know.

Yeah.

Not once a day. Yeah. Every, every couple weeks, whether they needed to or not. That's right. And, and, and so I, I searched online and I found a couple of accountants where I could email, you know, at their website. Now they're emailing them at their websites. No guarantee that they're actually going to check it. But that was my litmus test as I sent a couple in and I figured if I didn't hear back, I wasn't going to call them because, I mean, I don't mind talking to them, but this was, you know, I, if I don't hear back from you by the end of the day tomorrow, you're just the wrong person. That's okay. And that's okay, you know, for your.

For what you're looking for, for your structure and how you inter. Yeah.

And for sure. And, and, and so that's, you know, like you said though, I mean it's, it's that same thing. Find somebody that you like to talk to. Because if you can't talk, if you don't want to pick up the phone when this person calls you, you have, that's a good litmus test. Find someone else. Yep.

And yeah, because this person not only is, you know, going to be involved in your business life, but, you know, one way or another, they're going to be involved in your personal finances as well.

Yeah.

And so you really, you know, you want to have a good long term relationship and you know, first and foremost, just like we talked about previous episodes, you know, word of mouth for your business. What's the same with trying to find these service providers, if you will, Good insurance agent, a good accountant. Ask around, who do you know in. That's, do you know anyone in that industry? Once you get a banker, if you hit it off with a good, you know, bank representative, ask them, say, hey, you guys know anybody? Who do you recommend? We're getting started. That's how I met my first accountant. You know, we were going to the bank because we, we needed cash and once we got it and the guy sat there looking at us once he gave us the money and I could just see it on his face going, these guys, these kids do not know what they're doing. So it was like, here, call this guy, you know, and called this guy and, you know, stuck with him for a long, long time and, you know, it worked out well. So listening to people's referrals, definitely a good idea.

Definitely. Yeah, of course. Yeah, yeah. I had, I had one question I wanted to rewind a little bit. Shannon, you were talking about creating an LLC and you could do that in a day. It's been a little while since I've made an LLC that we have several. In fact, we have one between us. Can you get a tax ID on the same day and do you need to. In order to get a bank account?

No, to both. I think it takes another couple of days to get that, maybe up to a week to get that employee identification number. But I do not believe you're going to need that to open your bank account once you have the documentation that you've, you know, started the llc, which is very quick. And typically, if you, again, if you use one of those online services that I mentioned earlier, they're very proactive, they're going to walk you through. They, I think legal Zoom will even have, you know, a rep call you if. And it may be. And again, I haven't done it a long time either, but maybe a different level of service that you choose whether you need assistance for certain. But it's quick. But the employee identification number will take a little longer.

Yeah. Okay. I just wanted to address that because I know that that usually is one of those hold ups. And one other thing that you may need and your bank will be the one to tell you this, as I've found out is even once you have all that stuff from the federal government, you might need a business license in your own state.

And that's, that's certainly in your town, in your city, you're going to need a business license.

Well, not, not necessarily. Yeah, exactly. Right. So where, where we are here, where I was in Connecticut and where I was in Texas when I was there. So that this may not be the case now, I needed nothing from the town or from the state. I. All my.

I love that.

Yep.

Yeah, that's great.

I loved it too. And then we got here and I realized, and I was told I needed a state business license.

Interesting.

Yep. And then you're, you know, you're finding that in California you need, you know.

A town, every city you do business with, they would like you to have, which is very challenging if you're a contractor or you're doing things on site. It's, it's an incredible burden on small business. But it really goes back to your point, Dave, about, you know, we're sharing our, our experience and kind of anecdotal stuff about how to do these things. But you really need to talk to an accountant, you know, or banker, whoever you're working with, an attorney about, oh, what's the local rules and regulations and not assume because it's this way or that way that it works wherever you are.

Yep. And that's key. Yeah.

Cool.

It's crazy. It's crazy. And one last thing is when it comes time to filing taxes, and your CPA should know about this, but it's a good question to ask for every state in which you do business, do you need to file franchise taxes? Because that's something that got very interesting for, for us. I mean, we, like the Mac observer is incorporated. We were in Texas when we formed it, and Texas had pretty favorable incorporation laws. So. So that's where we're incorporated. And, and we have an employee in California now. I mean, he moved to California after he became an employee for us. And we don't. I don't care where he lives. He could live in. In fact, if he called me tomorrow and said he was in Bolivia, I'd believe him because. Sure, you know, I don't care. It doesn't matter to me. Yeah, well, I. Evidently I do care because he's been there for, I don't know, eight, nine, maybe 10 years. Oh, no, not quite that long. But anyway, a couple of years after he got there, we got a note from the. It wasn't a note. I say I use the term note. This was a.

That's a nice word.

Yeah. For what? You know, I got, I got a demand.

A demand?

Yeah, yeah, I got a demand from, from the state franchise board in California saying that we owed them a franchise tax return. And I called my accountant first, of course, you know, and, and he said, well, maybe, you know, and, and we talked about it and I, I called them up and they said, yeah, you have an employee here, you have Nexus here in California, Nexus being a presence in California, and therefore you have to fill out a franchise tax return. And even if it's a zero dollar return, which for this one it would be, you still have to pay the $800 in California. An $800 annual fee for simply having Nexus. That's right. Now, not every stage. And I, I called him up and I said, this doesn't seem right to me, you know, that his presence in California is, frankly, between you and him. I don't mandate that he's in California. It does not benefit the business. He's not hanging a shingle out in front of his home. You know, this, this definition of nexus is, is tenuous at best. Right? You know, yes, yes, he's there, I guess, you know, but I honestly don't even know. You know, I, he, I take it.

At face value thing. And, and you're right.

They explained to me, they're like, yeah, it doesn't matter. But if he were a sales rep and working on a different territory but living in California, then I wouldn't have to pay taxes. I mean, it's, it's all, it's like this part of the law almost is written. Right.

So, yeah, yeah. And, and, you know, getting someone to look at all, you know, your entity and what you're planning on doing and, and that, that's a very good thing. So you don't get, you know, wind up with, I mean, inevitably this stuff does happen where you're just like, well, I was not aware of it. So you're going to get, you know, letters and this kind of thing. Especially, you know, California is full of rules and regulations like that.

Well, they need their, their tax revenue.

They need their tax return.

They're broke, right? Or they were until they started collecting this stuff. That's right.

Yeah. That's right.

Yeah.

And so I have several partners that live in different parts of the country and all of them balk at the fact that they have to file a tax return even though they're not here. And so it's, it's, it's a, it's a constant challenge. And, you know, we could talk about taxes probably for the next 10 or 12 episodes, but, you know, get some advice and, you know, just got to do the right thing and it'll work out for you.

Yep. Well, hopefully, Roland, that answers your question, and hopefully it helps. You know, we always have, when we get questions in Here, of course, feedbackbapodcast.com is the place to send them. And when we get questions in here, we have a very loose but reasonable 20% rule. And by that, what I mean is if we're going to answer it on the air or on the show, I guess air is a relative term. But if we're going to answer it here on the show, we've got to feel like it's going to apply to at least 20% of the audience. Now, that doesn't mean you can email us with anything you want. We'll email you back. We just may not Include it in the show. But, Roland, it was a perfect question. So, yeah, we aim to answer everything that comes in. Feedbackbapodcast.com yeah, and it's great because, you.

Know, there's our expectations. There's all different levels of business owners or prospective business owners that are listening to the show. And we want to be able to be able to address those questions and, or point you to a previous episode that you can listen to. That'll give you some tips on, you know, what you may be, you know, asking about.

Yeah, that's right. That's right. Yeah, it's easy enough. It's easy enough for sure.

All right, Dave, I don't know how we're doing on time, but hiring firing might take a little longer than we. We have. It's your call. We can start talking about it or we can move it to our next episode.

I think we've hit enough for this episode. We went pretty quick. It's only been about a half hour, but, but I think we. We did very well and packed a lot of information in. So I think.

Yeah, I do, too. And I think the, the hiring and firing part is. Is a critical, you know, thing that we could. That we need the whole episode to talk about. So we'll hit that in one of the coming shows.

Sounds like a plan. Folks, thanks so much for listening and, and we really do appreciate your support. You know, come and really send us an email this week. That's all we want from you. You don't have to go to Facebook. You don't have to go to Twitter. We'll tell you about that another time. Feedbackbodcast.com Even if the email is just thanks for doing what you do or stop doing what you do, I'm never going to listen again. We'll take it all.

That's right.

It's all good.

So, yeah, you got it.

Thanks, folks. We'll see you next week.

Have a. Take care. Bye. Bye.