I was at a friend’s house for a very brief visit; the idea had come from her. By the time I walked about seven blocks back to my home, I knew I was going to start a business working from home. My step picked up as I affirmed to no one in particular or perhaps to everyone: “I am going to start my own business!” I also realized that I would be working from my own home and therefore needed to arrange my life accordingly.
My thoughts when I awoke the next morning were well ahead of me. I had visions of customers lined up on the internet anxious to purchase my product. I pictured me carting tons of money to the bank or overloading my PayPal account. All of this was fun; even a dyed in the wool New Yorker can see a rainbow once in a while. Thus I made it through the day by putting my big dreams aside as I answered the telephone in my soon-to- be-history day job.
Of course, my dreams were at this point very private. Anyone seeing the enormous smile on my face probably thought I was thinking about an exciting evening out on the town. New Yorkers like that type of entertainment, followed by a show. We attend the first nighters and still go out in spite of the variety of programs on television.
My experience with raising finances for my business has completely reshaped my outlook on life. It was a journey through unknown waters with many rocks, rapids and periods of drought. Sometimes the current carried me along and at other times I had to paddle like hell just to stay afloat. The good news is that I didn’t drown! I would like through this book to offer you a life jacket in the form of my experiences. Truly, each of us has our stopping point. You know, that "last straw" moment when you want to just “throw in the towel.” I have experienced those moments and I have pushed hard and traveled through them.
Please read on and gather strength from my encounters with red tape, unanswered questions, and dead ends.
Along the way you may stop and ask yourself; “Is it worth it?” Or, Do I really need business credit? If you do not have a definite affirmative answer to that question, this is the time to put our book down. True entrepreneurs have a need to be independent and will overcome any obstacle to achieve their success. History is filled with stories of the ones who failed and began again. Rarely do you read about the ones who gave up. I didn’t; will you?
Because you will be tested and your will must be forged in iron! Owning your own business is not for the weak, indecisive, or faint of heart. It is the hardest work you will ever do, but also the most rewarding and satisfying. And if you think it is risky and insecure owning your own business, then I invite you to observe the unemployment lines filled with those who thought they had secure life-long corporate jobs.
I have worked at numerous jobs over the years, from secretarial and customer service to collections. Little did I realize that these positions and my present one at the time (telephone sales rep) were simply providing me with the experience I needed to become Executive Director of my company. They were a part of a business plan I had not even conceived yet. Talk about being prepared, I had spent years in training, sort of on bivouac, for this major achievement.
Every job you have, including volunteer work and managing your home and family life, adds to your base of knowledge and experience. It is all valuable. Making your family budget, doing your personal taxes, balancing your check book, arranging travel, organizing tasks, are all skills that translate into the business world. Don't diminish your experience or downplay your skills.
In August of 2005 I became incorporated and received my documents in the mail. That very same month I handed in my resignation letter to my boss. Even without a hat to toss up in the air, I felt much like Mary Tyler Moore in her sitcom days, cheering myself on. “You’re gonna make it girl!”
Honestly, I had always thought that I would one day resign with the presentation of silver ear phones at least. But, I got a pizza party instead.
Initially, I had anticipated that my business would be up and running in about three or four months after quitting my job, which turned out to be a too rosy scenario. Several months passed by and I was still working on my business plan. It took me much longer to get launched than I had anticipated. Getting that ship in the water required getting my feet wet. I needed a navigation chart, wind in my sails, and I wanted a life boat or two on my journey. But it was turning out to be choppier waters than I had predicted.
Since that was the case, about six months after quitting my job, I went searching and eventually found consulting work. For me, it was perfect, with no long term commitments and I could leave that job whenever I wanted.
My ultimate aim was to work full time in my own business.One evening while surfing the internet, I bumped into a website devoted exclusively to building business credit! The site was fascinating. Entrepreneurs would share their experiences applying for business credit. I began to look forward to logging onto this web site every evening, after work. The stories were absorbing as well as enlightening.
At the time, a lot of people were trying to get approved for Citibank business credit cards. This was in the year of 2005. Many reported that they had applied online and were instantly approved for $25,000. Wow! I couldn’t wait to give it a go.
After arriving home from work one evening, I went to the site to login as usual, but for some reason this time around I was not able to login. Many days went by and I still could not login. Days turned into weeks, and later I learned that the server had crashed and that they were working to have the server restored. Every week I would check to see if the server had been restored. This particular forum never came back up.
How disappointing it was not having access to this forum any longer. I felt like I had lost touch with friends and had suddenly been shut out of some inside circle of information, back into the dark. This was the beginning of my education regarding the process of building business credit. Initially, I was aiming for about $50,000 financing for my business.
But with the assistance of that site my vision had been broaden.Eventually, 50k seems like small potatoes to aim for and I started to think in terms of greater financial goals. I was thinking big time!
First, decide upon a name for your business. Put some serious thought into marketing, meet with a logo designer, do an online search to make sure the domain name is not taken. The name should be unique, memorable, and should clearly indicate what the business is about. Calling your business "Smith Brothers" doesn't tell anyone what you do. "Smith Brothers Furniture" does.
Secondly, you ask why you can't just be a "sole proprietor" or partner with your brotherin-law. Here's why: Unless you don the protective cover of a corporation (which is a separate legal entity from you personally) or an LLC (limited liability company), you are putting all of your personal assets (your car, your home, your savings, your first born child) at risk in the event of a law suit.
Which entity you choose will be based upon your own criteria, style of doing business, type of business, etc. There are many things to consider and you should do as much research as it takes to feel comfortable with your choice. This is important and should not be undertaken lightly.
C Corporation (or Standard Corporation): You will pay corporate income taxes and the reporting rules are stringent. What's worse is that monies left over and paid to you, as salary for example, will be taxed again when you file your personal income tax. You gotta love the government!
S Corporation: Income "passes through" the corporation to you and will be reported on your personal income tax, thereby bypassing the corporate income taxes. Reporting rules are formal and similar to a C Corp.
Example: You own a print shop. You do some research and find that a typical print shop manager should earn $35,000 and so you pay yourself accordingly. Your company's total earnings for the year are $60,000: $35,000 paid in salary and the remaining $25,000 paid as a distribution from the S corp. Your total employment tax would be $5,355 (15.3% of $35,000).
In this example, if you were the proud owner of an LLC, you would be required to pay employment tax on the entire $60,000, which would be a staggering $9,180. In this case, having an S corporation provides a savings of $3,825 in employment tax. LLC: You are considered self-employed with an LLC. You can distribute profits any way you see fit.
Example: Let’s say you and a business partner form an LLC. Your partner put $100,000 into the company for capital. You only contributed $25,000 but you perform 90% of the work. The two of you decide that you will share the profits equally, 50/50. As an LLC you could do that, but with the more stringent and formal regulations governing the operation of an S corporation, you could only take 25% of the profits while your partner would take the other 75%.
You can see how there are pros and cons in forming both types of legal entities.Compared side-by-side:
S Corporation Limited Liability Company (LLC)
There is no one good answer, so do consult with a CPA or corporate attorney. Chances are very good, however, that an LLC will work just as well for you and not unduly complicate your life!
If you haven't already done so, now would be a good time to write a business plan. If not for use in gaining business credit, then you will find it useful for providing a clear vision – Blueprint - that will keep you on track as you grow your business.
I had spent months working on a business plan. It really helped in planning my day to day activities, and in clarifying where I was going and how I was going to get there. And secondly, to use as a tool to get a business loan or Line of credit, or so I had thought. I’ve read many articles on the importance of preparing a business plan to get financing. So I complied.
However, nobody ever asked to see it. It turned out to be a tool strictly for my own use. I applied to five banks for loans or LOC. Most likely, 48k, 50k or 60k is considered small change, to lenders, especially when compared to the "big boys" requesting $500,000 or more from banks. Donald Trump had the right idea:
Go big. Be bold.Or
Will there be a limitation on the dollar amount lenders will approve your business since you work from home.
Straight forward answers next