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Starting a Business on the Side – Do Tell?

This economy has a lot of people thinking about starting a side business.  Starting a new company, freelancing, and contracting are all great ways to bring in some extra money while reducing your costs.  If you do it the right way you can see if the new business idea is really going to work while maintaining stability at your current gig.

Over the next four weeks I will talk about the various things you need to consider before launching a start-up side business or taking on a second job.

First: To Share or Not to Share

One of the first things you will need to decide is whether or not you are going to tell your employer about what you are doing.  If you decide to go the stealth route keep in mind that you probably want to keep it mum from the entire office.  Co-workers tend to talk and word will probably get back to your boss at some point unless you tell absolutely no one.

Remember to Check your Contract!

Before deciding to ‘fess up, you should also take a look at your employment contract (if you have one).  Many employment contracts limit an employee’s ability to get a second job.  Sometimes contracts require employees to jump through hoops like such as getting the employer’s written permission before taking on any other employment.  If you don’t follow the rules you expose yourself to being fired for cause.

If your contract seems limiting but you are still interested in working at a second gig and your contract discourages this you can always approach your employer and negotiate with him or her.

Once you know where you stand and how up front you are going to be, you are ready to consider the type of work you will be doing and how that work product may affect your employer.  Stay tuned for next week’s post on this issue and how to navigate it.

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What’s Up With Delaware?

Over the past few years I have worked with a lot of people who want to start LLCs, not-for-profits and incorporations.  Even before we meet, I can guarantee that one of the first things I hear will be: “My friend/relative/acquaintance told me I should file in Delaware because it will be cheaper because of taxes.”

I don’t know who this person is that is spreading these rumors, but I wish he or she would stop.

The truth is that for most businesses filing in Delaware does not save any money. Instead, you should form your business (and file the appropriate papers) in the state where you will actually be running  your business.  Before you buy in to the Delaware hype, consider where your offices will be, where you will be opening your shop or where the majority of your clients will be based.

 Why? 

Your home state (you know, the one where you will actually be operating your business from) will want to see documentation that you are registered to do business THERE .  If you are doing business in New York (for example), meaning opening a bank account, interacting with customers, signing a lease or seeking a license, the State of New York wants you to be registered there (and other states feel similarly).

Only now that you have formed your business in Delaware (and paid Delaware all the filing fees) you now have to register as a “foreign corporation” in order to operate in your home state.  To register as a foreign corporation you will often have to pay the EXACT same amount of money as if you had just formed the company in your home state.  So essentially your business ends up paying the State of Delaware AND your home state.

So how can start-ups save money?

Believe it or not, the most cost-effective choice for most small start-ups is to register their company where they will be doing business.

The idea that you can save money by registering in Delaware is a MYTH! In short, get all the facts before you jump on the Delaware bandwagon.

I hope you find this useful and that it saves you money. I know a lot of people who wish they would have known about this before registering (and paying in Delaware AND then again in their home state).

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Working from Home in New York City

Did anyone catch the article in the Real Estate Section of the New York Times this past Sunday about the plethora of New Yorkers who are running micro and small businesses out of their homes?  If not, definitely check it out.  Here is a link: http://www.nytimes.com/2012/08/26/realestate/running-a-home-business-in-new-york.html?emc=eta1

The article describes people around the city who are running all kinds of businesses out of their homes, from personal trainers to bakers to retailers of children’s clothes.  As the article suggests, not all of these businesses are done above board and on the books.  But there are a surprising number of ways to compromise with your neighbors. Working out of your home is a great way to save money as you start the business and can be convenient too. If you are already running a business out of your home, or thinking about starting one, I would love to hear about how it is going and what challenges and successes you are encountering.  Do you find a way to hide it from the neighbors or get them involved?  Either way it is important to recognize and acknowledge the challenges early on rather than wait for them to grow into something more serious. I really enjoyed the article and was heartened and inspired by the the incredible entrepreneurial spirit that so many New Yorkers have.

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Why you should learn about Fiscal Sponsorship Before Starting a Not-for-Profit

People who are inspired to start a not-for-profit are usually hoping to change the world, or at least an aspect of it, for the better. You see a problem and you think you have a solution for that problem. The next step most people think of, after doing some research and testing to determine if your solution helps to alleviate the problem, is to start an organization so you can formally begin to address the problem. In many cases, a not-for-profit is the organization type that makes the most sense.

While you can be recognized in New York State as a not-for-profit by filing some basic incorporation papers, this recognition does not allow you to accept tax deductible donations. To receive tax deductible donations the organization must obtain 501(c)3 status from the federal government. This process can often be lengthy and more difficult.

If your organization is hoping to move more quickly, you should consider finding a fiscal sponsor. A fiscal sponsor is usually an organization that already has 501(c)3 status. Once your organization hooks up with a fiscal sponsor, the new organization can borrow the sponsor’s tax exempt status. The fiscal sponsor typically charges for this arrangement (often taking between 6% and 10% off the top of any donation). For the arrangement to be legitimate, the sponsor must obtain complete control over the funds that come in to the new not-for-profit and the fiscal sponsor’s mission must be similar to the new organization’s mission. In addition to helping with funds, a fiscal sponsor can provide much needed resources, knowledge, and experience to a new not-for-profit. Starting a not-for-profit presents many unique challenges and knowing people who have succeeded before can only help your organization grow.

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Hindsight is 20/20 – How to Learn from Other’s Mistakes

I was reading through the news on LinkedIn the other day and I came across this great article about failure. Failure is usually considered a dirty word in the start-up business, but really it is just a way for entrepreneurs to learn and grow. The article, posted originally by LearnVest, is entitled “Entrepreneurship 101: What I Learned From My Failed Business.” Five entrepreneurs were asked what lessons they learned from their failures and the answers were enlightening. I will provide a summary here, but you should really check out the whole article at the link above.

Lesson #1: Put someone clearly in charge.
Lesson #2: Your founding team should represent varied skill sets.
Lesson #3: Make sure your business is self-sustaining.
Lesson #4: Protect yourself before your company.
Lesson #5: Make sure your personal life can accommodate your business.

These are all really good points to consider when you are starting a business. Oftentimes entrepreneurs get so excited about their amazing business idea and forget how important it is to plan long-term. Setting out a plan for who you see yourself working with, how the business might grow, and how it could be dissolved down the road is important. Entrepreneurs should never be afraid of failure, if one idea doesn’t work out, another will come along that could make you even more successful. Instead, it is important to plan for bumps so that if you do fail, you do it faster, recover more quickly, and move on to your next great idea.