What type of business structure do you have?

[Sandra Darlington]

Terry,

Thanks again for sharing so much wonderful information. I'm getting cold feet now! It is quite scarry. I guess I really need to talk to an accountant in Philadelphia and see what the scoop is here for what I need to do.

Sherry,

$5000 seems like the max I would need, as I can't imagine even having 10 quilts at a time, but I think I would certainly limit it to that number if I had tht much business. Also, my husband set up the NO customers at the house rule, so I didn't have a choice on that one, but I am happy with that decision. I think I would be annoyed if they started pilfering through things.

[LFQuilts]

Sandra,

You've gotten lots of good advice, especially from Shana and Terry. I really like the inventory idea to separate Hobby from Business inventory. Talk with a CPA and or attorney before you file anything. (Ask me how I know:)

I've chosen to be a LLC - taxed as a sole proprietor. You have a choice for how a LLC is taxed, since the IRS doesn't officially recognize a LLC as a separate taxable entityt. In terms of forms and filing here in GA:

1) I had to reserve my company name with the Secretary of State's office;

2) I had to file for the LLC with the Secretary of State's office;

3) I had to file for a business license here in Sandy Springs;

4) I filed for an EIN for the LLC. This was confusing since I already had an EIN for another purpose; however my CPA warned me to keep things separate. Ughh - I had to close my first business checking account and open another with the correct EIN.

5) I couldn't open the business checking account until I had the business license. (For tax purposes, I'm still figuring out how to handle all of the startup costs paid out of personal accounts since I couldn't have the business account until the various licenses and things were paid for . . .)

So, yes officially opening a business is both thrilling and terrifying. But I figure if we can learn to LA, we can learn to deal with the ins and outs of operating a business.

Have fun.

Lynn

[juliagraves]

I am an LLC. Since I am the only person in the LLC, I file a Schedule C for my taxes, which is fairly simple. I have to pay $300 a year to the State of Maryland for the privilege of being an LLC, but it is worth it as my husband and I earn a lot more money with our other jobs than with my quilting business.

Under an LLC, if someone sues me, they can only sue my quilting business, and the only large asset is my long-arm. If I was a Sole Proprietor, then they could sue me personally.

For me, it was a risk management decision.

I definitely agree that Sole Proprietor filing a Schedule C is the easiest.

Julia

[Sandra Darlington]

Thanks Lynn and Julia. I am receiving so many helpful tips. You gals are great!

I called and left a voice mail for an accountant that two of my friends go to and really like. I want to "interview" her over the phone about her knowledge of starting up a small (quilting) business. My two friends are not in business, so she may be good for doing their income tax, but may or may not be good for my needs. Hopefully she'll call back soon. I called her this morning and left her a voice mail.

[juliagraves]

I too made an appointment with a CPA to ask a lot of questions about taxes and a small business, and was completely disappointed. I would ask her a question, she would give me an answer that sounded very wrong, I would question it, she would look it up, and decide that her answer was wrong. After the 5th or 6th question that she answered wrong, I decided that she was not the right person!

Make sure you go to someone that knows small business, and don't be afraid to question them. The IRS did a study that showed that many many tax professionals get things wrong all the time. Your tax professional may represent you in tax court, but you are still liable for any interest and penalties, even if the tax professional made the mistake.

Good luck!

Julia

[Sandra Darlington]

Oh Julia, I'm so glad you realized so quickly that this was not a good match.

Another friend gave me the name of her accountant a few minutes ago. His office is about an hour from me and I was hoping for someone closer. Since I am in Philadelphia, I know there are many accountants around, but finding the right one can still be tricky. This friend is a psychologist and has her own business. This accountant helped her set it up about 10 years ago, and she also referred quite a few of her post-doc students to him as well, when they were just staring out. But...I don't know if he will be right for me.

[quiltmonkey]

Sandy, call your local Small Business agency... they can refer you to a CPA that specializes in Business... maybe even Quilting!!

[JustSewSimple]

I am an LLC with Sole Proprietorship. I am retired so I have retirement income. My additional income is added to my personal taxes as well. I have a separate policy (a business endorsement on my homeowners policy). DH says not all homeowners policies will allow this so I got lucky there. I hope to show a profit this year. This is only my 2nd year in business and I believe I have 3 to show a profit or be called a hobby. I have no idea how much money I have to earn to call it a profit.

[Sandra Darlington]

Thanks Shana - that's my next step..tomorrow.

Sylvia, thank you, too.

[Bekah]

This is such a wonderful topic. I did NOT do my due dilligence before hand and now am paying for it so yes please, please, please check before hand with a your small business bureau or a cpa.

[Sandra Darlington]

Thanks, Bekah. I'm sorry you are running into problems. Could you U2U me with more details so I can try to avoid them?

I called the Small Business Assn and gave the lady my name, cell phone # and my e-mail address. She said someone will contact me. I'm waiting to hear back. (Should I say...anxiously waiting to hear back?)

[Sandra Darlington]

UPDATE: So...I now talked by e-mail, over the phone and one person, face-to-face. Two accountants & two attorneys. These were free consultations through SCORE. I have an appointment with a third accountant towards the end of the month. I have not talked to my insurance agent yet.

So I pretty much have 4 opinions! The two accountants said I should be fine with the Sole Propreitorship-one said on-going, the other said switch to LLC in two or three years. The two attorneys said I should be a one person LLC because I could loose my house, retirement fund, etc if sued and found negligent.

Oh...now I am more confused than ever!!!!!

I asked the attorneys about the possibility of writing my own contract, with their review for accuracy/legality, which I could have customers sign before I worked on their quilts. It would say something to the effect that I would do my best to work carefully and responsibly on their quilt. However, if they were not happy with the results, I would try to work with them to fix the problem. If there was no way we could come to a happy solution, I would reimburse them for the cost of their materials, plus $100 for their time, up to $500.00.

One attorney said it was a negative approach and not good for marketing, but it should work to keep me from loosing my house, etc. The other attorney said it really would not make any difference, as they could decide to sue me anyway, plus it would put ideas into some people's heads to try to "take" me for $500.

So, if anyone has more thoughts on this, please let me know.

Thanks!

[quiltmonkey]

Sandy, all of this spin about getting sued by your customer... it's a lot of BS if you ask me! You have to look at the big picture, step back and weigh out the reality of it... the odds of that ever happening are so low... and the "risk" involved. Take a pragmatic approach. Look at your specific situation... 1) you have a very small business and you are quilting from your home. 2) You won't have very many quilts in your home (either waiting to be quilted, or finished); 3) Your customers won't be coming to your home to fall and get injured... etc. So the stuff about getting sued is something you should not be overly concerned about. Me? I am a Sole Proprietor with S Corp. Eventually I may move to an LLC but the only reason I would is for tax purposes, not because I would get sued. Remember now, you are talking to lawyers, and so they live and breath lawsuits all day long. So, just take advice from similar type business owners and CPA. Your business is "tiny" compared to other small businesses out there. And remember, you can always change from S Corp to LLC any time. Don't make this more complicated than it really is. Just do like me: Keep it simple, keep it simple, simple. Baby steps, just like me.

Oh and guessie what? This is my 2nd "full" year in business. My first full year (2008) I was in the "red" -$7K with my SSQ business. I just finished my accounting for 2009 and after expenses, I am $5K in the BLACK! Yipeeee!!!!!!!!!!! (I worked really hard bringing income, and I tried very hard to keep expenses down and..... it worked.) Whew!!!!!!!!! Now remember, this $5K profit is not my sole income, I do this business for the great experience, and mainly for the love of it; for fun, not counting on income as my livelihood. I would have been thrilled to be one penny in the black.

[Tamarack]

Sandra I think your suffering from information OVERLOAD! Take a deep breath and relax.

Shana has put it nicely in perspective for you.

I would recommend stop talking to lawyers, talk to your local Small Business Association ( they are a wealth of info), and get good insurance coverage for peace of mind.

It isn't as scary as you may think it is as long as you are organized.

[Sandra Darlington]

Thanks Shana and Kathy. The two attorneys were from the Small Business Association, recommended through SCORE (I forget exactly what that stands for).

The next accountant I talk to will be towards the end of the month. Due to tax season, most accountants seem to be busy just now.

I started out thinking Sole Proprietorship, then LLC, but the LLC seemed to be so expensive - Lawyer: $800, accountant $400, plus insurance, plus government fees, etc. just to start. The one accountnat said it would cost me around $4,000-$5,000 in business espenses each year! There is no way I can work full time and quilt enough quilts to cover that cost. So, it looks like I am back to the Sole Proprietorship again.

Hopefully I will like this gal (accountant) and that she will understand what I want to do, and we can just "do it." Of course, then I need to talk to the insurance man, too - a very important step.

Do any of you use a contract with your customers?

[ffq-lar]

Whew!

Repeat after me--Insurance agents SELL insurance (of course you "need" $500,000 worth or else you will "lose your assets". Your home, car, grandkids, dog, longarm. You will lose it all when someone sues you!!!!!! Picture a chicken running in circles and squawking!!) Accountants SELL their services-( of course you need an LLC to protect your assets! Huh? Protect from what? The potential lawsuit from a piecer with a damaged quilt? How much would that cost to "fix"? Certainly not $5,000 a year! You could pay it out-of -pocket.)

If you have no customers visiting your house, all you need to insure are your assets in the studio and the quilts you have lined up. How about this--pick up and drop off somewhere else. Have a strict rule to only have 3 or 5 quilts on-premises to ease your mind. Set a day every two weeks to pick up elsewhere--the customer's house or the LQS.

What is the worst-case scenario? A madman breaks into your studio and steals all the tops. Or a rabid raccoon bites a hole in the door and rips everything up. Or the Mad Bleacher, jealous of a fellow quilter, climbs through the window and throws bleach around. None of this has been on the news, so thoughts of being sued can be calmed a bit.

Sorry for the long tale--just wanted to have you take a breath and step back. Never go to a professional to ask if they think you need their services (lawyer/accountant/CPA)--of course they will tell you that they are indispensable! You are setting up a TINY TINY home-based business to bring in some cash and maybe pay for your machine. When you are making more than say $40,000 a year quilting, go for the pricey advice and a CPA. Otherwise, ask around as you have been, find a good fit, and have some fun.

A regular old accountant will work well. You do not need to pay a pricey CPA for $5,000 worth of business a year. Keep good records, buy a program to help organize your income and outgo, organize it at year's end and take it to the accountant. Or (horrors!) do like I do and stuff all in a file and sort it out later. I keep all income in a binder, run a total, pay my sales tax, and get a taxable total. All receipts are in a file, I separate all into categories (supplies, advertising, donations, classes, mileage) and the totals are used to figure the taxes. My machine is depreciated each year and I showed (notice I said "showed" not "made") zero profit the first year, but have shown a profit every year since. My machine cost was recouped after 2 1/2 years but I will never get ahead of my thread purchases!!!!

I know this was long-winded, but I wanted to put some of this in perspective--starting a small business is a challenge and a joy. And not as hard as the "experts and professionals" would have you believe. Take Shana's advice about the Small Business help that is out there.

[quiltmonkey]

Linda, great advice! I love your examples provided.

Sandy, I am in no way an expert in any of this stuff, but I think your "take in sheet" can be considered a contract with your customer. You can have a short, simple disclaimer printed out at the bottom of each take in sheet right above where the customer signs. This would probably suffice as far as a contract goes. Remember, keep this disclaimer as clear and as simple in every way possible; no details; just a simple statement.

I have some basic items that help to make me to look "legitimate" (and I really am legitimate!) when it comes to being in business. I have a business license, I have a federal tax ID, I have a web site (that is very out of date...note to self to update web site...) I have printed business cards (from home); I have a CPA do our taxes (personal combined with business). She uses Quickbooks software for her tax prep so I use it, too. I love quickbooks! It is so easy to data entry my customer invoices, my banking info, my credit card expenses. The reporting tool in Quickbooks is awesome. Remember, keep it easy peasy, simple, baby steps. The less "stuff" you have to deal with the easier it is. You can always add "stuff" later down the road. Just start small and work your way bigger with baby steps. Like me! And remember, your expenses like Quickbooks software purchase and your CPA's fees to establish your business, depreciate your machine, and do your taxes... these are expenses you can WRITE OFF on your taxes. All of these things make you legitimate and less chance of IRS auditing you and nailing you later with hobby loss.

[ffq-lar]

At the bottom of my intake sheet it says "I authorize Finely Finished Quilts to complete the work listed" with space for a signature.

Ha!! Usually it says under patterns/designs on the intake "Do whatever I want"! Pretty haphazard for a contract, no?:P:P

[Sandra Darlington]

Thanks Linda and Shana.

Linda, I love the way you put this into perspective for me. You're right how my teeny-tiny home business idea has been blown way out of the water.

Now I am feeling so much better than last week. I was ready to just throw in the towel before I even started. I am very caucious by nature and I was getting really afraid to try this new venture. Now I am (almost) convinced I can do it. Repeat...I can do this. I can do this. (((HUGS))) to everyone who has been helping me and sharing information with me. I'll keep you updated with how this is progressing.

[quiltmonkey]

Have you been brainstorming your clever business name? Start jotting down things.... perhaps something with the word "darling" in the title might be cute (I mean darling).

Oh something that might help you, too,,,, is to write a business plan. Really! I did this and it made it much more clear for me; it gave me goals and motivation. I'm gonna go pull out the business plan and re-read it. It's a lot like a mission statement.

If you're interested in writing one, there are tons of web sites out there that can help guide you. I love the Internet!!

http://www.google.com/search?sourceid=navclient&aq=1&oq=how+to+write+a+bui&ie=UTF-8&rlz=1T4GGIC_enUS282US284&q=how+to+write+a+business+plan

[Sandra Darlington]

Thanks, Shana. I will check out the business plans on line and also look at the one APQS shares. I haven't thought about a cute name...I was just going to say Darlington Quilts, but maybe cute would be better. I also don't have a "logo" or picture for business cards. I like your forget-me-nots on your web site. I have to think about that, too.

Now upstairs to put my cast iron dutch oven into the oven to get it nice and hot for some mouth watering bread.

[quiltmonkey]

I think Darlington Quilts is a perfectly lovely name. Unique and personal, too. As far as a logo goes, there are a lot of copywrite free photos, or graphics you can use. Do an Internet search for those, too! You could design your own logo, you could put a picture of your darling face on the card, too. Have fun!