When is it time to step up and become a legal tax collecting, tax paying, official business?
This is a question I have been dealing with for about a year. I just recently began to take the steps of becoming a legal sole proprietorship. All the legal stuff can become very overwhelming! Therefore, I’m going to break it down step by step to help you. Ask yourself this question. How lucky are you feeling? At some point, you are going to have to decide whether to stay small and collect a little cash from the sale of your eggs, meat, animals, services, or goods or expand into a full-fledged business. You can only get so big without going legal.
Figure out how serious you are about making your farm or homestead make money for you and your family. Do you want to make nickels and dimes or see if you can take it up a notch? Are you willing to change your whole world/lifestyle?
So, you’ve decided it is time to do this. Then you need a name, not just any name but a legal business name. For me, that was a quick jump over to the Ohio Secretary of State page. I printed out the forms from the site, filled them out, enclosed the small fee, and sent them off. It took no time at all to receive my legal papers back from the state. Don’t forget to pick a customized logo! No true business goes logo-less.
You have your legal name, therefore let’s jump over to the Internal Revenue Service(IRS) website to obtain an Employer Identification Number (EIN). It can be done all online and it’s free. Immediately you will acquire an EIN, make sure to print everything out to keep on file.
Open your Business Bank Accounts. For me, I find having two accounts helps me. One main checking accounting and a small tax savings account. (My mom was the one who suggested the tax savings account. It was something she did when she had her own buisness.) All the tax money I collect will be placed in the savings account. All other business will take place from the checking account. Your account will most likely be set up in one of two ways. Example: My business name is Miller Micro Farm my account reads Carrie Miller doing business as Miller Micro Farm. Why? Because I am a Sole Proprietor. If I had acquired an LLC it would simply be Miller Micro Farm.
Get a state sales tax or vendors license. For the State of Ohio, I simply had to go through my county to acquire a vendor’s license. Each state is a little different, but it took only a few minutes and a few dollars. I do have to renew this each year paying a small fee to do so.
Do you need a business credit card? I believe it depends. Depends on? How good are you with money? If you are going to buy more than you can pay for at the end of the month, then I say no. Interest is a killer! I have not run a continuous balance on my personal credit card in over ten years. After getting into credit card trouble in my early twenties, I learned some very hard lessons. I cut all the cards, worked multiple jobs, and paid them all off; took me two years! After that, I didn’t have a credit card for nearly a decade. Really think on this one, don’t get yourself in trouble or kill a business before it really gets started. Two questions to always ask yourself. Do I need it? Or, do I want it? If the answer is need, a third question should be asked. Do I need it now?
What about a Credit Card Machine and/or PayPal? Let’s be honest here, no one has cash on them anymore and taking a check can be a financial risk. Therefore, having another option is important. Don’t save pennies to turn around and lose dollars because you don’t want to give up a small percent of the sales. There are great options through your bank, square card reader, apple pay, and so many more.
Do you need a website? If you want an online store of course you do! Free or paid? My theory here is to use the free one until you have seen the business is going to do well or you outgrow the features. It’s going to cost a couple hundred dollars to purchase a domain and pay for a hosting site each year.
Insurance, ugghhh, how we all hate the thought of paying for more insurance. Food for thought, if your product makes someone ill or they have a reaction to it, you could be liable! If someone comes to pick up eggs and falls, you may be liable! A liability insurance that protects you and your company will be needed. Here is something else I recently learned, homeowners does not cover everything or has very limited coverage on particular things. Do you sell things from your farm or homestead? Yes, I even mean “just” eggs. Then you don’t want homeowner’s insurance, because it’s not protecting you very well. You need farm and ranch insurance! Before I even began a true business, I sold eggs off our farm. After we put up a new barn, I called my insurance agent to add it to the coverage. A few days later, I was nicely informed after they did a drive by to see the barn, that they were canceling our homeowners. I was shocked! Why? Because we had a barn, a sub-compact tractor, and an egg for-sale sign, we were officially a farm. What? Really? Yep! The lesson, check your policy and talk to your agent about proper coverage.
Recap, really think about what you’re willing to change in your lifestyle. When you start a business, everything will change. Time management is super important, but truthfully when you have eighteen hours of work to do, it is pretty hard to not let things fall through the cracks. Whether housework, cooking, downtime, or even sleep; something always seems to have to give at least little.