windstorm

I just read Justin's definitions & he is absolutely right. But your profits (if any) for an LLC are taxed. Paperwork for creating an LLC is far more complicated than creating a corporation, in my opinion, and the rules are very strict. If, for example, you raise money out of state, you must file under that state's Blue Sky laws & pay whatever annual fees they require. More importantly, each state has laws regarding solicitation & dealing with the SCC is no fun if you violate these laws. I doubt this is where the original post was going, but it's nice to know their are some legal gurus in the bunch.

windstorm

Sorry, I meant to say SEC = Securities & Exchange Commission. Each state has it's own office and regulations.

windstorm

Also, maybe Justin can give us the definition of a "Single Member" LLC. I'm not familiar with this option since I have a company (incorporated) with several partners & employees that manages several LLCs.

justin2009

Well, you won't have too much to worry about with the SEC if you keep the company private. Registration with the SEC isn't really for private corporations, but I'll leave that discussion to the attorneys.

Setting up an LLC, at least in Texas, is as simple as filing a Certificate of Formation which is about 6 pages long including the instructions. Also probably want to pick up a federal ID number for the business if you want to open separate bank accounts and maybe a sales tax certificate to avoid paying sales tax on certain items. In other states, the process may be a tad bit more difficult/complicated. I've set up an LLC for some rental property that I never got around to buying, and it cost me about $200 and that was for the filing fee with the state/postage, etc.

Susan J

I might suggest that you go to the Small Business Administration website and take a look at the tools they have available for developing a business plan - I, as a small business owner, would highly recommend that you develop a plan before making any decisions. There is an awful lot involved in running a business, and most of it has nothing to do with the product you are actually developing. The SBA also provides free assistance to help you develop your plan.

jporter5333

Susan is right about the business plan. There are many benefits to having one. It is literally a map for your business to follow and helps you to keep focused on your goals. But it is a living document. You can change it to suit your needs later on if you want to change direction later. Also, if you need a loan for start up, alot of banks will just turn their nose up if you don't have one.

Windstorm mentioned that he didn't think this was were the original post was going, I guess that's my fault. I was just trying to stress to AZ that whatever he did to research, be prepared, and if there was any doubt to seek professional help. Sorry bout that AZ. But if you're still keeping up get a pad and take notes. I've seen a lot of good tips and info. Especially from our resident accountant.

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Jason Porter

Tony B

If you go this alone....
When you are running around giving estimates, who is doing the building?
When you are building, who is giving the estimates.
While you are doing one of the above, who is minding the store?

I'm not being negative, just giving some more things to think about.
If you are going it alone you can just about bet that 25% or more of your work day is in 'NOT" producing a product. That means that you must add 25% or more to you hourly rate that you are hoping to make.
When I first started my woodworking business in Arkansas, I quickly found out that you can't pay anyone to give a s**t.
Either you should start with a physical partner who you can completely trust or use your spouse who will have to be as dedicated as you are.. In either case, the employee will force you into needing Workmans Comp.

Been there done that.

My suggestion is start a small business on the side ( sole propratorship) and be 100% legal. Just consider it part time. Then see if it wants to grow and take it from there. If you want to just jump in feet first, go ahead but make sure you have enough money to carry you for a very long time.

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Tony B

http://www.thetexaswoodworks.com

tswoodshop

Had to weigh in here. If you’re just going to go the local (or not so local) craft/artisan show thing, the above experience is pretty close to what I found also, although I’ve never actually lost money at a show yet. That said, I’ve only been doing this for 4 years, and due to a day job for at least a few more years, only have time to make product for about 6-8 shows a year at this point. I sell mostly small gift type items, although somewhat unique things, as I try to stay away from the standard breadboard/ birdhouse/ footstool stuff and that had paid off. I’ve averaged about $550 a show, or little over $3K/yr over the 4 years, which after expenses basically pays for upgrading tools and machinery in my shop, which was my original goal. For something this small a sole proprietorship is the simplest way to go. I looked into an LLC, but the expenses setting it up, and the yearly fees to the state for keeping it going (in PA anyway) turned me away for now. With my sole prop, I just have to send PA a quarterly for 6% of what I sold, it’s simple, I do it online, it’s easy and it keeps them off my back.

As for the “wink wink”… you can get away with that for a little while, but you’d be surprised at the ways big brother is watching. If you've given yourself a name, and start showing up as a regular at shows, or soon as you apply for a VISA/MC merchant account so you can take credit cards for example, you have an electronic paper trail and they’ll find you and fine you here in PA. In my case, I was losing to many larger sales because I didn’t take cards, so I bit the bullet and chalk up the $300 a year for that merchant account as a business expense. I found at large shows with say 500+ vendors, people run out of cash quick, and then if they get to your booth and see something they want, if they see that VISA/MC sign, you have a sale where you wouldn’t have otherwise. For some of my larger dollar items I almost have to take a cc or they just wouldn’t sell.

As for a money making business venture though… if you have to count the cost of your woodshop machines, part of the mortgage, utilities etc in the mix as overhead as a true business would and you only do a limited amount of shows a year, you’re going to be hard pressed to make a profit. I get around that (hey, I’m the CEO of my one man operation here so I can do what I want.. right?) by counting my woodshop I’ve built over the past 20 years as a “hobby” and sorta lend it to my little business.

If you’re going to make it a full time business and actually try and put food on the table from a woodshop, that’s a whole different animal, and I’ve seen more failures than successes along those lines. Not to put a damper on anybodies plans though. If you’re organized, and you have the skills to make something people want at a fair price AND you have the marketing skills to be noticed (big one there) then you have a shot.

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They won't let me play in my shop 24/7!!! Just bring me a little bread and water few times a day, I'll be fine down there... really.

windstorm

I'm glad this thread went where it did, jporter. We learned a lot from Justin & others & above all, how intricate (not to mention difficult) it is to turn woodworking into a profitable business. Kudos to all.

jporter5333

you're right windstorm. It was neat to see everyone from business owners and even a CPA show up with all the different thoughts on the subject, very interesting. Only thing we're missing is a lawyer. I just hope we didn't scare AZ off or deter him from starting a business.

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Jason Porter

AZ Termite

Thank you again to everyone's opinions and advise. I actually have some business experience. I was part of a start-up bicycle shop about 9 years ago. The guy that wanted to start the business sat next to me in a small business managment class I took at the college. The business plan was amazing. After the class I didn't see him for awhile, one day I ran into the instructor from the class. He told me the guy talked him into partnering with him, but they needed help with the remodel on the building. I agreed to help them since I have some const. experience. I ended up managing the business for them, they both had day jobs. After about a year both of them were almost never around. I was doing it all on my own except for the occational phone call or visit. I knew their vision and plan and ran with it as hard as I knew how. After nine months of basically running my own business the instructor cashed out for lack of interest, and some other disagreements between the two of them. I approached the other one about buying the business outright. It turned out to be a big event. He got his feelings hurt and made my life hell. After three months of fighting with him I finally gave up. I haven't spoken to him since. Six months after I left he went out of business. Thew people that replaced me robbed him blind. Now that I have bored you to death I will get to the point. I will not be going in blind if I decide to do this. I will also not do it full time. I was thinking of this as a side deal. There is no way I would jump in feet first with the way things are at this point. I am just throwing this out to get opinions and thoughts right now. Thank you all for your response.

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Assumption is the mother of all foul -ups

jporter5333

Well AZ, if you had just mentioned that in ht first place...
I think college students had started joining the forum to use it for a reference for writing papers . At least you know from the huge outpouring that there are a lot of people here that are willing help and support you. Makes me glad I joined. My opinion is to go for it. If you can afford to sustain it as a hobby the economy will turn around and from what I saw in your photo gallery you'll do well. People love handmade stuff made from wood.

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Jason Porter

AZ Termite

jporter,
The college thing has been a few years, I will be 31 in march. Thank you for the compliments. I think I have decided to just leave it like it is for the time being. I may do some shows here locally for exposure and see what happens.

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Assumption is the mother of all foul -ups

tswoodshop

Go for it... you won't know how well you are received unless you try it. A little advice... get VERY very organized from the getgo, and be as creative with your signage as you can. Example: At a quilt show I was selling many of the quilt holders that I make, but I also took my nut & bolt clocks (more of a guy type gift) and they were not selling at all. Noticing that at least 95% of the customers at that show were women, I put a sign next to my clocks that simply said “Something for HIM”. I appealed to the women who was going home with bolts of material for herself, but could then go to her husband with something she also picked up for him. The clocks started to sell....just a simple three word sign made all the difference.

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They won't let me play in my shop 24/7!!! Just bring me a little bread and water few times a day, I'll be fine down there... really.

AZ Termite

ts,
That good advice, thank you. We will see were it goes and what happens.

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Assumption is the mother of all foul -ups

CVGCOM

i think it would be both rewarding and also and little irritating...if i spent a long time working on something and someone came along and tried to bicker the price way down i would take it personally and have to kick em outta the shop...not good for business...maybe getting someone else to handle sales would be better! haha

AZ Termite

CVG,
It has been my experience so far with the things I have sold that they are willing to pay the price. Granted I have not gotten rich from them, but priced to cover costs and make a little.

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Assumption is the mother of all foul -ups

tswoodshop

That's been my experience also... once in a while somebody will try and haggle, but that is rare. Perhaps if I sold more expensive items (hundreds of dollars per) that would change.

The hardest thing to get used to when I first started selling at shows were folks would stop at my booth, pick up and apparently admire my work... say something to their partner like "Wow... this is just beautiful... this would make a perfect gift for aunt Jane"... fondle and caress if for a few minutes and then put it down and walk on.

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They won't let me play in my shop 24/7!!! Just bring me a little bread and water few times a day, I'll be fine down there... really.

Dan.Y

An LLC is not a corporation. An LLC is a Limited Liability "Company". An LLC is an unincorporated business entity that files Articles of Organization with the Secretary of State (or other state agency or division).

Once the company if filed, it then can elect how it wants to be taxed at the federal (IRS) level. Most states will treat the LLC the same as the IRS treats it. An LLC, by default is taxed as a "partnership", which is to say, its income is not taxed at the LLC level, but is instead passed through to the owners. However, there must be owners - plural - (two or more) for the LLC to be taxed as a partnership. This is because you cannot have a partnership without partners.

The LLC may elect to be taxed as a corporation. To do this, the LLC files an election form with the IRS. Then, if the LLC is taxed as a corporation, it may then elect Subchapter S corporation tax treatment. There are restrictions on Sub S treatment, such as the number of owners is limited, non-U.S. ownership is forbidden, and some other limitations.

A single-owner LLC may elect to be treated as a sole proprietorship. In such a case, the LLC does not file a separate tax return because all of the LLC income, expenses, losses, etc. are put on the individual's personal 1040 and treated as self-employment income. However, the sole proprietorship has the protection of limited liability for his/her business.

There are a number of things to consider when choosing your form of business entity. You may read more on my site about starting an LLC (http://www.incorporation911.com/starting-an-llc.html), incorporating (http://www.incorporation911.com/befo...corporate.html), and other related matters. I recommend you always talk with a professional tax and legal advisor before you act. I also suggest you learn the basics for yourself so you don't get snow-balled by an advisor or company creation "mill" who promotes some program or strategy that may not be in your best interest, or the best interest of your business associates, family and future.

There is no substitute for first hand knowledge.

I hope this helps.

All the best!

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There is no substitute for first hand knowledge.

AZ Termite

Dan,
Those are some good explanations. The links are very helpful to, thank you.

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Assumption is the mother of all foul -ups