Starting a company (Sole Proprietor)

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Hey guys, So Ive been in the industry around 7 years now, and I love welding/fabrication, its pretty much why i wake up in the morning.Ive been working for the man for just about 6.5 of those 7 years, but have just recently started doing sidework.I didnt realize how ****ing much of it needed being done around where i live, trouble is its all small scale residential work. Its not a problem but id like to break into the small commercial market as well. Also, I am looking at buying a house soon and if the bank asks me where all of these $500-$1000 checks comes from i think my mortgage approval wont go very far!So, has anyone filed for their DBA, and which ownership type did you pick, Sole Proprietor, LLC, or Corporation? and some pro's/cons would be greatAlso, did you use a tax ID or did you use your own SS number?Thanks guys!!!Miller Spoolmate 200 w/t S-52 WirefeederMM 211'09 Miller Trailblazer 302
Reply:Good on you Ian!
Reply:I can tell you that when I filed as a single-member LLC, the IRS issued me two FEIN's.  One is for the company and one is my personal number.  When I fill out W-9's for companies that I contract out to, the personal FEIN number is the one I use on the W-9.  As opposed to my Social, which is what the W-9 actually says I'm supposed to use as a single-member LLC.  My accountant straightened me out on that one -- said one of the reasons the personal FEIN is issued is so that your social isn't out there floating around so much.For all intents and purposes, a single-member LLC is considered to be a sole proprietor by the IRS...it's a "pass-through" entity.  I went with an LLC because it supposedly gives a little more separation between me and the business.  How much more, I hope I never have to find out.  I would expect it's benefits become a little more pronounced when there's more than a single member.My memory is a little rusty on corporations now, but at one time at least Chapter C and maybe Chapter S suffered from double taxation... the corporation pays taxes on corporate income, then you pay taxes on your personal income.  I would suggest you get a recommendation for a good lawyer, explain to them what you're wanting to do, and allow them to explain the ins and outs and set your company up for you.  Setting up my LLC this way cost me $250 and a couple hours of my time.
Reply:If you are going to work by your lonesome always sole proprietor is probably best. You can get an FEIN if wanted or just use your SSN. Either way ensure you have very good liability coverage for yourself. You do not have to provide workmen's compensation insurance if a sole proprietor with no employees. If the possibility exists you may have someone else working for you, I feel it best to incorporate for a small release of liability against you personally. You also must provide workmen's compensation coverage. Subchapter "S" is very good in this aspect and is not expensive. It is about the same as sole proprietor in operation but there is a bit of a "buffer" of what a legal entity has access to against you personally if the business does not pan out. LLC's have their benefits also but are really not that fitting for what you want to do. LLC's excel for marketing firms as an instance. With the exception of sole proprietorship, all are corporations, or incorporations of a business. Each has their distinct advantages and an attorney should be consulted in your particular case within your state.Good luck on your new venture.SlobPurveyor of intimate unparalleled knowledge of nothing about everything.Oh yeah, also an unabashed internet "Troll" too.....
Reply:Originally Posted by Ian Duffin Also, I am looking at buying a house soon and if the bank asks me where all of these $500-$1000 checks comes from i think my mortgage approval wont go very far!
Reply:Here is my 2 cents as a business owner... An llc is nice if you do work for the public, if god forbid something ever happens the company is liable not just your personal assets, it sorta puts a cushion between you and the sue happy customer!Also you said that you've only been doing side work a short while, I'd suggest starting a large client base before you open up shop. Not sure how things are in mass, but it took me $10,000  to open my shop and I had all the tools already and had more side work than actual real work. I still have customers from 10 years ago that come to my shop now. I had what I thought was more than enough to start out and it was still very rough the first year, and I blew every penny I had.. I like you also had just bought the house I live in now and it was a massive pain doing both at the same time. I would suggest doubling whatever you had figured for start up cost, big brother really bends the small business guy over and rams it home every way they can! And the most important thing to remember is: go big or go home, dive in with both feet and make your business one of your biggest priorities,.. Not going out to eat or buying new shiny  stuff because you are your own boss.. That always causes troubles.  Owning a business is easy, making it successful is very hard, lots of effort and oh yea.... All your free time!Real welders know how to penetrate!(Equipment)Whatever can be used to beat my opponent into submission!
Reply:You've gotten good advice above.  I'm a partner in an LLC and an LLP.All I can add is ALWAYS use you're EIN instead of your SS# and get used to it.  In this internet electronic age, you're number will be floating everywhere and connected to your name and contact info at times.  Over the 18 years I've been in business, we've been notified about 3-4 major security breaches.  My partners had used their SS#'s prior to forming the LLP, so those numbers were still floating around.  They had to closely watch all of their transactions and were even given free Equifax membership because of the breaches.  Being that my SS# was never out there, I had zero worries.Oh, and be aware that there are revolving costs associated with an LLC.  Mine was (IIRC) $750 to set up and is something like $1200-1500 a year for some type of MANDATORY fee to NY state (some sort of filing fee or return).  Check into that first.  When I realized this revolving cost for the first time I was quite pissed.  Just make sure you research before you choose.  The government is all in on it.  They find a way to get their money from those who work hard and make it, siphoning it from the hard workers and giving it away.  Like Robin Hood.  Wait until you deal with unemployment and pensions some day.  EVERYONES got their hands in your pockets, but they all tell you how great it is.  Show you graphs of how much money you'll have some day if you put in $1 a day, blah blah blah...Last edited by Drf255; 10-01-2014 at 05:34 AM.TA Arcmaster 300CM3XMT 304S22P12 suitcase feederX-Treme 12VSOptima pulserTA161SMaxstar 150STLHypertherm PM45OP setupStihl 020AVP, 039, 066 Magnum
Reply:Originally Posted by Dantheharleyman99Here is my 2 cents as a business owner... An llc is nice if you do work for the public, if god forbid something ever happens the company is liable not just your personal assets, it sorta puts a cushion between you and the sue happy customer!Also you said that you've only been doing side work a short while, I'd suggest starting a large client base before you open up shop. Not sure how things are in mass, but it took me $10,000  to open my shop and I had all the tools already and had more side work than actual real work. I still have customers from 10 years ago that come to my shop now. I had what I thought was more than enough to start out and it was still very rough the first year, and I blew every penny I had.. I like you also had just bought the house I live in now and it was a massive pain doing both at the same time. I would suggest doubling whatever you had figured for start up cost, big brother really bends the small business guy over and rams it home every way they can! And the most important thing to remember is: go big or go home, dive in with both feet and make your business one of your biggest priorities,.. Not going out to eat or buying new shiny  stuff because you are your own boss.. That always causes troubles.  Owning a business is easy, making it successful is very hard, lots of effort and oh yea.... All your free time!
Reply:Good luck! I hope everything works in your favor!Also don't forget about the shops overhead, I she'll out about $3000 a month just to have my doors open + payroll and all the random things that go with it.Real welders know how to penetrate!(Equipment)Whatever can be used to beat my opponent into submission!
Reply:The "side money" will help you be debt free and have a big down payment (no PMI). When you have those two things, the waters will part for you in the mortgage process while using your day job as the source of income. You dont have to claim that side money if you dont want to use it in the mortgage process. The bank is not going to ask about your misl checks you are depositing. Having a side business to help you in the mortgage process will not really be an easy process. You need detailed accounting reports, years of history and actually show a PROFIT for your small business to help you in a loan situation. In the months leading up to your mortgage application, for you to get a couple legal docs and show your mortgage broker a couple checks from gate repair customers is not going to impress them. Dont even try it.Most small businesses try to expense everything and break even at the end of the year (or show loss) to avoid paying taxes. Then they wonder why they cannot get lines of credit or business loans. Business need to MAKE MONEY. My 5 year plan is to continue to show more and more profits (and pay taxes) until I am able to finally secure the money to build my building and buy a press brake and shear. That will complete my equipment and facility needs. I will switch over to trying to expense every possible. Since buildings and the large equipment are not likely something I will be able to pay cash for, I am forecasting the need for some sizable business loans. They are not going to loan money to broke (on paper) people.Getting into commercial is a whole other animal. I would just let your residential endeavors continue to grow and mature along with your skills and equipment. One day, you'll do a repair for a guy who buys or needs larger welding jobs and you'll get your big break. I'd just let the commercial thing happen naturally. It will over time.
Reply:Consider establishing your business as a Delaware or Nevada LLC/LLP Corp. These two states are the most business friendly and have the most favorable legal protection in the country for business.Tiger Sales:  AHP Distributor    www.tigersalesco.comAHP200x; AHP 160ST; MM350P,  Spoolmatic 30A; Everlast PowerTig 185; Thermal Dynamics 60i plasma.  For Sale:  Cobra Mig 250 w/ Push-pull gun.  Lincoln Wirematic 250
Reply:Excellent question. Don't waste your money on becoming a corporation unless you have at least 5 employees. And once you form a corp it almost impossible to undo it without going bankrupt. Oh and now that I have an incorporated biz I am virtually trapped in it. Stay a sole proprietorship IMO. None bank's business where the checks come from as long as your down payment is huge. Just be careful how you report the income to the man. A corp is not going to help you with that. Owning a corp is like having to report to a probation officer for the rest of the business's life. Keep your government job. It has to be at least ten times easier than fighting the loosing battle of self employment. Just moonlight so you can undercut the other businesses around you that have the huge overhead to deal with. Let them starve and fight the battle while you drink their milkshake.Weld like a "WELDOR", not a wel-"DERR" MillerDynasty700DX,Dynasty350DX4ea,Dynasty200DX,Li  ncolnSW200-2ea.,MillerMatic350P,MillerMatic200w/spoolgun,MKCobraMig260,Lincoln SP-170T,PlasmaCam/Hypertherm1250,HFProTig2ea,MigMax1ea.
Reply:I have a short resume. I spent every waking minute with my father since 1963 when I turned 7. That's when he gave up his job as a factory electrician, and went into business as an electrician. I've dabbled in a dozen fields, carpentry, auto body, mechanic, welding, plumbing, masonry, excavating, reproduction woodworking producing cabinetry and furniture un detectable from real antique stuff. The other stuff was sometimes for extra income, but making a living has come from the electrical field. In 1995 I took over my father's business, my job didn't change, except that I then took on a mountain of homework I once called paperwork. I love my work. I hate the clerical half of running a business. I am not incorporated. I worry the act of incorporating might bring on even more clerical work. The one reason I can think of to incorporate is liability. I carry a whopping insurance policy for that. I expect that separating my personal finances from corporate would be complex, and fewer now legitimate tax deductions would then be allowed.
Reply:Drf talks of pension. I dearly wish I had done what a friend did in his youth. He bought all he could of utility stock. Small phone, or power companies value have grown exponentially since WWII. For him, a manageable investment has grown into millions. I don't know how to predict where to invest for the next half century. Look for a safe place. The terrorist attacks of 9/1/1 and the decade that followed, played havoc with my investment strategies.
Reply:Originally Posted by shovelonExcellent question. Don't waste your money on becoming a corporation unless you have at least 5 employees. And once you form a corp it almost impossible to undo it without going bankrupt. Oh and now that I have an incorporated biz I am virtually trapped in it. Stay a sole proprietorship IMO. None bank's business where the checks come from as long as your down payment is huge. Just be careful how you report the income to the man. A corp is not going to help you with that. Owning a corp is like having to report to a probation officer for the rest of the business's life. Keep your government job. It has to be at least ten times easier than fighting the loosing battle of self employment. Just moonlight so you can undercut the other businesses around you that have the huge overhead to deal with. Let them starve and fight the battle while you drink their milkshake.
Reply:ask a CPA. I believe there is allowance in the law for exchanging money (income/expenses) and you do not have to report if you are operating as a hobby without an intent to "make money". Some grey area there that you would need professional help with.if your intent is to "make money", you need to report even if you show a loss. I think you can show a loss for a number of years. This would be done by itemizing deductions on the Schedule C—Itemized Deductions. You don't really HAVE to have anything other than a SS#. When you want to buy materials and not pay sales tax is when you start having to fill out "business" paperwork with the govt
Reply:Originally Posted by Jimmy_popask a CPA. I believe there is allowance in the law for exchanging money (income/expenses) and you do not have to report if you are operating as a hobby without an intent to "make money". Some grey area there that you would need professional help with.if your intent is to "make money", you need to report even if you show a loss. I think you can show a loss for a number of years. This would be done by itemizing deductions on the Schedule C—Itemized Deductions. You don't really HAVE to have anything other than a SS#. When you want to buy materials and not pay sales tax is when you start having to fill out "business" paperwork with the govt
Reply:Originally Posted by Ian DuffinThat's the plan! Also, when I am a SP, reporting the income to the gov is handled how exactly?
Reply:Also look at IRS Schedule SE (self employment).  This is where you pay double SS & Medicare taxes.GravelThe difference between theory and practice is that in theory there is no difference.
Reply:@gravelNow why in God's name would I want to pay double anything? haha actually, if you can give me an upside to that I'd be interested to hear it
Reply:Sounds like some of you guys neuter yourselves with crippling overhead...... It probably would cost you hundreds of dollars to come over and tighten a bolt.Not the best business model for a sole proprietor that ONLY does smaller jobs lolLast edited by MikeGyver; 10-01-2014 at 02:41 PM.Welding/Fab Pics: www.UtahWeld.com
Reply:Originally Posted by Ian DuffinThat's the plan! Also, when I am a SP, reporting the income to the gov is handled how exactly?
Reply:Originally Posted by Ian DuffinHmm, maybe I'm misunderstanding things, correct me if I'm wrongSay you were going to do a job for a thousand bucks, $1000Subtract for fuel, tools, material, blah blah blah, but that thousand is still income but you're writing off you're expenses at the end of itSo you spend $600 in doing the job, but the man wants his cut, after you've claimed you're expenses, are you really only paying income tax on that 400 you made in profit?
Reply:Originally Posted by Ian Duffin@gravelNow why in God's name would I want to pay double anything? haha actually, if you can give me an upside to that I'd be interested to hear it
Reply:Good Luck, I once tried as a professional Handyman, the only two who made money from my business were my one employee and my insurance man.I offer three choices: Good, Fast, & Cheap. You may pick two.Hobart AC/DC StikMate LXHarbor Freight AD HoodHarbor Freight Industrial Chop SawDeVilbis 20 Gallon, 5 HP CompressorOriginally Posted by GravelYou probably don't pay SS tax since you work for a municipality (many of them have a pension instead).The rest of us pay 6.2% SS and 1.45% MC tax (I think those numbers are still correct).  Our employer has to match it when they send it to the government on their 940/941 payroll tax forms.  It's the government's way of taxing us 15% without us realizing it.Form SE does the math for you based on your untaxed income (1099, sole proprietor, partner in LLP or LLC, etc).
Reply:Originally Posted by shovelonAt your discretion. Most companies that write a check don't file a W9 on the dollar amount under $600. That amount may or not be considered income depending on the expenses to counter it.
Reply:Originally Posted by Ian DuffinGotcha, I actually did not know that our employers matched the SS taxes (I hope I read that part right) and correct, I have a pension system instead, I will definitely bring this up to my cpaAnother question, if I already have a few 1099 , forms under my belt this fiscal year, can I roll that income into the soon to be founded business? Sorry if that's a dumb question!
Reply:Originally Posted by Broccoli1Iffin' he be a bidness IT IS ALL INCOME   How one offsets the tax on that income is the "game"
Reply:Originally Posted by Jimmy_pop$1000 sale -$600 materials(no labor, you are the labor) = $400 net profit. You'll pay taxes on $400. Unless you buy a $450 saw. Then you will show a -$50 loss and actually reduce you tax liability from you day job. This is not professional tax advise. I pay someone else to actually do it.
Reply:Originally Posted by Broccoli1Iffin' he be a bidness IT IS ALL INCOME   How one offsets the tax on that income is the "game"
Reply:WOW, I have been completely schooled in this thread! I have a hobby shop that I am working on out of my garage. I know people who have been run off of their property (their business anyway) because of zoning issues, too much noise was being generated, neighbors a few acres away complained and county had last word. For this reason alone, my hobby is JUST  a hobby. The information above just adds more rebar to the concrete and essentially solidifies my perspective on this.Thanks folks for taking the time to respond and for providing such great detail, as it has been VERY informative to me! The material on small business ownership that you get from your local county office is MUCH more dry, and overwhelming for that matter!.. And yeah.. from other friends that I talk to, creative accounting/re-investing is essential to offset the taxes that you are subjected to if you actually were to become official.-NicheLast edited by NicheFab; 10-01-2014 at 04:50 PM.
Reply:I too am in Mass and if you really want to be able to open your own shop be prepared to pay thru the nose and have the Vasoline ready every month when you get your health insurance bill...You do know what happens to you if you don't have health insurance.......Right?...zap!I am not completely insane..Some parts are missing Professional Driver on a closed course....Do not attempt.Just because I'm a  dumbass don't mean that you can be too.So DON'T try any of this **** l do at home.
Reply:Originally Posted by zapsterI too am in Mass and if you really want to be able to open your own shop be prepared to pay thru the nose and have the Vasoline ready every month when you get your health insurance bill...You do know what happens to you if you don't have health insurance.......Right?...zap!
Reply:Originally Posted by zapsterI too am in Mass and if you really want to be able to open your own shop be prepared to pay thru the nose and have the Vasoline ready every month when you get your health insurance bill...You do know what happens to you if you don't have health insurance.......Right?...zap!
Reply:Originally Posted by HeartdocYeah, They take away the vasoline!
Reply:Given that I am an actual real life CPA, I feel qualified to say this, and no offense to anyone. But, please go sit with your CPA. About half of what has been said here is not correct.Miller Multimatic 255
Reply:Originally Posted by Broccoli1Since he has a gubment job will that suffice for insurance? I assume he has insurance through that job.
Reply:Originally Posted by zapsterIf he starts his own shop the state will stop all health benefits the second he says "I am in business"...Then it's up to him to keep paying... And paying ....And paying....Health insurance is the new way to put shops out of business...And trust me....It works!...zap!
Reply:Originally Posted by shovelonJeez! and I thought Californification was bad.
Reply:Originally Posted by Ian DuffinGotcha, I actually did not know that our employers matched the SS taxes (I hope I read that part right) and correct, I have a pension system instead, I will definitely bring this up to my cpaAnother question, if I already have a few 1099 , forms under my belt this fiscal year, can I roll that income into the soon to be founded business? Sorry if that's a dumb question!
Reply:Originally Posted by Jimmy_popThe "side money" will help you be debt free and have a big down payment (no PMI). When you have those two things, the waters will part for you in the mortgage process while using your day job as the source of income. You dont have to claim that side money if you dont want to use it in the mortgage process. The bank is not going to ask about your misl checks you are depositing. Having a side business to help you in the mortgage process will not really be an easy process. You need detailed accounting reports, years of history and actually show a PROFIT for your small business to help you in a loan situation. In the months leading up to your mortgage application, for you to get a couple legal docs and show your mortgage broker a couple checks from gate repair customers is not going to impress them. Dont even try it.Most small businesses try to expense everything and break even at the end of the year (or show loss) to avoid paying taxes. Then they wonder why they cannot get lines of credit or business loans. Business need to MAKE MONEY. My 5 year plan is to continue to show more and more profits (and pay taxes) until I am able to finally secure the money to build my building and buy a press brake and shear. That will complete my equipment and facility needs. I will switch over to trying to expense every possible. Since buildings and the large equipment are not likely something I will be able to pay cash for, I am forecasting the need for some sizable business loans. They are not going to loan money to broke (on paper) people.Getting into commercial is a whole other animal. I would just let your residential endeavors continue to grow and mature along with your skills and equipment. One day, you'll do a repair for a guy who buys or needs larger welding jobs and you'll get your big break. I'd just let the commercial thing happen naturally. It will over time.
Reply:If I have stated anything that is incorrect please let me know. I majored in accounting and finance many years ago and only ran a company of 1 that was labor only so it was quite simple...
Reply:Some good advice in this thread, but also some bad advice...(really bad). You may not know which is which.Go see if there is a business incubator in town, many times for free advise or inexpensive help. (not talking about the SBA).Remember; if it was easy to own a business, everyone would own their own business. Most don't.J.E.
Reply:Originally Posted by Louie1961REALLY?  wow, cool!
Reply:Originally Posted by zapsterI am extremely lucky Mrs zap works for "Corporate America"..I have my insurance from her company...Ironically she works in insurance...And believe it...Where I work the building machines and land was bought and paid for back in the '60S or we would probably be gone by now......zap!
Reply:Yeah, started out wanting to be an accountant because I figured there will always be a need for someone to count the money. I wound up in systems and have made a good career of it.
Reply:Originally Posted by Louie1961Given that I am an actual real life CPA, I feel qualified to say this, and no offense to anyone. But, please go sit with your CPA. About half of what has been said here is not correct.
Reply:A few general tips on the business end....Keep records like you were the nerdiest anal retentive you've ever seen.  Start BEFORE you get so deep into it that it's hard to catch up.  Detailed customer records (including job photos) may come in handy for repeats and complaints but you really want to focus on the stuff the government may someday want.  It'll drive you crazy but WILL pay off to keep up with filing and records.  Be sure to record every expense also--those "its just a buck so why worry about it" items can add up over time and you'll wish you had the receipts to deduct at the end of the year.  Before you start you should have a basic contract to use, a warranty standard on paper, change order documents, standard payment terms (and a collection plan if you take anything but cash).Be sure to keep your business stuff walled off from your private life. 100% separate if you can swing it (away from home, separate vehicle, etc.)  If you ever have the benefits of an LLC or Corp, you don't want a customer "piercing the veil" to be able to go after your personal stuff simply because you didn't keep things effectively separate.  I know a shop that set off a 20 million dollar fire on a couple of hundred dollar job---stuff happens so cover your ***.Marketing/sales---this is actually where most business' fail.  You generally can't sit around waiting for business to wander in.  You need to be active in your sales and marketing to the tune of MOST of your downtime.  People hate this part because it's not doing the work they love but I have seen many small business' die just because they owner didn't have enough irons in the fire when the dry spell came along.  Sales is a skill you can develop (and you don't need to be a sales weasel when doing it).  Quick...in 30 seconds clearly tell me why I should pay you when I can hire the guy in the rusty truck blowing blue smoke with the harbor freight welder at 1/3 the price?  Remember you are NOT selling welding services, you are selling the emotional stuff caused by good welding services like reliability, backing up your job, peace of mind, quality, safety, etc.  You can buy welding all over...why by welding from YOU?Speaking of safety, don't forget to jump through the hoops so that if OSHA or your local version come knocking, you can appease them.  Around here, the law actually states that a one-man shop has to document having a safety meeting with himself monthly..and WISHA asks for the book to prove you did first thing when they walk in.  Yes, it's stupid but since safety is important anyway, why not keep em happy by doing it well?Keep up on licensing requirements.  States have been grubbing for money so now require licenses (and bonding) for all sorts of things they didn't used to.  In WA and a few other states, that kid you hire to remove the junk from your yard technically needs a contractor's license now.  Some states have been known to search various advertising forums like craigslist to nail contractors who don't post a license number in their ad (or don't have a license in the first place).  They hammer hard, too.It's a lot easier to get off on the right foot with all the business hassles FIRST than to catch up later so focus on the business end....even though you'd rather be thinking about welding.  Oh...employees...don't until you are willing to double your paperwork.  Avoid "day labor" helpers if at all possible because there are ways they can nail your *** too (just wait until one magically hurts their back on the job and see what happens.)Finally, don't hesitate to walk away from a job.  Your services are worth what they're worth so when some skinflint tries to talk you down in price or add work for free, walk away.  It's hard to walk sometimes but if a job isn't a good fit, the customer seems wonky, or you could simply improve your prospects spending that time selling instead of welding, walk away standing tall.
Reply:We need a diy business thread so everyone knows what to and what not to do.Torchmate 2x2 CNC with Flashcut CNC controlsHypertherm Powermax45 Esab ET220i Razorweld 195 MigRazorweld 200ac/dc TigTormach 770, Tormach xstechRazorweld, Vipercut/Vipermig, SSC Foot Pedal Dealer