what are the pros and cons of a business name?

[MikeG]

The Maker's Stamp thread got me thinking:

I'm a beginner and haven't sold or marketed yet, but I'm leaning that way. The question is --

As a hobby business, what are the pros and cons of a business name? If you have a business name, do you have to get a phone number and bank account in that name? If not, how do you use the business name? Do you have to register the name? I went to my County Clerk and they were surprised I wanted to bother. They gave me a form to send to the state (Tennessee), but said unless I did a certain threshold of business, I could do business using whatever name I wanted without bothering to register it.

I'd kind of like to have a business name, but not if it becomes more trouble than it's worth.

Thanks for your comments!

[wolvenstien]

Well... I will say this... it is your money... spend it how you like...

I went through all the business name and liscense crap years ago, I was required to be liscensed in the county by a company I was sub-contracting for, and I took it a step farther and got a state tax ID and all.... Nothing but a headache... as you know, Tennessee does not have an income tax. I had all the paperwork to run a business but I was not making any money other than a wage. Well, that didnt matter to the state IRS... they expected me to pay them quarterly and at the end of the year at tax time when i had not sent them and money they got real nast telling me that by default I owed then X amount of money and what not.... took about a month of phone calls and letters to get it straightened out. I think I finially had to mail in the Tax ID form they gave me with "This business has done ZERO dollars business for tax year XXXX and had desolved" written on it....

I still use the business name... I just dont worry about the paper work... if for some reason i start making money in my own business, I might go and do everything again, and get a good accountant to handle the crap side of things... but I do not see that happening....

[bruce johnson]

Mike,

As Wolvenstein pointed out, each state is different. I think the biggest reason to get a business name, license, the resale certificate is to be legitimate. Before I go any further, being legitimate has nothing to do with the quality of work produced.

The business name and license shows customers that you are serious. It costs a nominal amount of money here, something like $50 for 2 years. Even for home businesses it is a plus. I also have a resale certificate. What an advantage. I can order from suppliers who deal with wholesale accounts only. I get preferred wholesale rates from suppliers that also sell retail, but would charge to join their club to get the same rates. Sometimes business rates that are lower than wholesale. The resale certificates are no cost here. Many craft and trade shows around here want a copy of the certificates to exhibit. I do have a separate bank account. It is a low activity business account. Lets me write about 15 checks a month and unlimited debit transactions for $5 a month. The separate account and bookkeeping are one of the factors the IRS looks at to establish hobby vs. "real business". Here at least you don't need to have a separate phone number.

The down sides. I have to keep records of my business. I am anyway. I collect sales tax on retail sales, I don't charge it. Collecting sales tax in itself I have found adds legitimacy to your business. I get it every place I buy something for personal use. Makes you look a little more "real". It is also really nice to have these things in place when you get a big order away from someone else. This happened, and I had my ducks in the puddle, a week before he turned me in. My sales tax is due once a year. MY chance to live on the government's money for a change.

You have to keep income tax records and in my case, file a Schedule C with my income taxes. The records needed for this I keep anyway. TurboTax does it in a flash. Income tax? Yep, I also look at business deductions. I can write off mileage to get supplies, even though I am going to Walmart next door anyway. I can write off travel to things I am going to anyway, they have a tradeshow and I am meeting a customer there when I was doing wholesale - market research at the very least. Trips to leather shows like Sheridan or Wickenburg - the whole expense comes off. Dues, magazines, books, DVDs, tools all are deductible. Some equipment purchases can be depreciated, others you can take a 179 directly against income. Lets me build up equipment and skills at a time when the other income helps support it. When the leather income becomes THE factor, I am not reducing what I eat to get something.

[HorsehairBraider]

Rules vary from state to state. New Mexico is delightfully short on red tape, fortunately, so it's not that difficult to set yourself up here and then you get all those great benefits that Bruce Johnson points out - so I was lucky there.

One thing about a name, it takes a while for people to recognize you - several years, I think - so the sooner you get started, the more name recognition you will have later on if/when you get serious. Also people then have a way to refer to you other than "That guy who does leather work". If you've got a business name, people won't get you mixed up with some *other* guy who does leather work.

[Art]

Hi Mike,

It is not hard to get started as a sole prop. Bare minimum would be a checking account in your name. Retail sales tax license would help also, and allow you to use wholesale only suppliers. In TN they are going to be pretty aggressive about sales tax so file early and file often, they will finally get tired of all the zeros and allow you to file yearly. Try to sell something so you can charge sales tax and let TN see you are actually doing something.

On the other side, just get a makers stamp and stamp everything, they can look you up in the phone book and you are off the radar until you can get some sales figures going. It is hard when starting to get enough in sales to overcome the expenses. The IRS gives you 5 years to do that so a business plan that projects that out 10 years will give you an idea of when to become "legal". Those 5 negative years will affect your adjusted if you have another income to support your startup, so that is an advantage.

Art

The Maker's Stamp thread got me thinking:

I'm a beginner and haven't sold or marketed yet, but I'm leaning that way. The question is --

As a hobby business, what are the pros and cons of a business name? If you have a business name, do you have to get a phone number and bank account in that name? If not, how do you use the business name? Do you have to register the name? I went to my County Clerk and they were surprised I wanted to bother. They gave me a form to send to the state (Tennessee), but said unless I did a certain threshold of business, I could do business using whatever name I wanted without bothering to register it.

I'd kind of like to have a business name, but not if it becomes more trouble than it's worth.

Thanks for your comments!

[Rod and Denise Nikkel]

Here is the other side of the coin. We don't have a business name as such and never have had. We just go under "Rod Nikkel, Saddle Tree Maker" even though the business is officially a partnership. Yes, we have a tax number and accountant and do all the bookwork. They checked things out and this is, indeed, legal (at least in Alberta and Saskatchewan- "Some local restrictions may apply") though unusual (so are we). Reason - we still get the benefits of running our own business, but don't have some of the associated costs. Business bank accounts have higher fees. We have a separate personal bank account for our business with no fee. It means the cheques need to come to Rod personally, and if the bank ever decided to get sticky if someone writes “Nikkel Saddle Trees†on it, we would need to get another cheque. But this is a small town… Business phone lines are not eligible for some of the long distance plans. We only have the one phone line and feel it is legitimate to not have to pay business rates to call our families. Those benefits alone have saved us hundreds of dollars over the years. So if you can legally do business under just your own name, it might save you some money. On the other hand, it isn’t like too many people will get us mixed up with the “the other tree maker down the roadâ€Â. Or else it is an awfully long road…

[K-Man]

There are many advantages to establishing yourself as a business. Most have been mentioned already. It does give you a higher degree of legitimacy and shows that you're serious about providing a quality product to a customer.

Each state is different as to their requirements. In my locale, a biz license is required when you cross the $1000 gross sale amount in a year. If you're selling at $5 a pop, then you might be able to stay as a non-business entity for some time. On the flip side, if you're selling at $100 a pop, then odds are you're going to meet that threshhold in fairly short order. The fee for a biz license varies by county and city. For me, a city license is $50+, and the county license is $60+. I'm required to have both a county and city license since the business is located within city limits. I also have a state tax resale certificate, cost = $0. That brings great savings on the buying of supplies and tax exemption status.

A separate bank account would be required for the business, as you don't want to mix the business with the personal checking. Check with your local bank - some have discounted rates/account plans if you have both your personal and business accounts in the same place. It sure makes it easier to transfer funds from one to another, too. In most instances, it just takes the click of your mouse button to accomplish.

I pay the state sales tax I've collected on a quarterly basis - required by the state. I pay estimated federal tax, medicare, social security, etc., on a monthly basis - based on amount drawn as a salary.

With respect to a biz phone - that could most easily be accomplished by adding a line/phone to your cell phone service (if you have one). Most of the providers have a program where you can add a line for approximately $10/month. That expense is eligible for tax write off.

As Bruce pointed out, there are a number of things that become eligible for tax write-off as a business. My recommendation would be to take advantage of as much as that as you can.

Most new businesses start out with just the very basic needs as a sole proprietorship - business license, tax resale certificate, biz checking account, and some business cards. It's normally a small amount of dollars expended to get established. I would suggest talking with an accountant and get some general info/guidance as to some things to consider from their perspective.

Good luck to you.

[bruce johnson]

One other consideration is the name itself of your business. If you don't use your name, then some places require you to file for a "fictitious business name", and have different hoops to jump through. In some areas you have to use your complete name (like mine is "Bruce Johnson Leatherwork") in the business avoid that. Bruce's Leatherwork or Johnson Leatherwork would be fictitious in some jurisdictions.

By using my whole name and having the business at home, I can have the same phone number and have Bruce Johnson Leatherwork as part of the answering machine greeting, and it works. If I was Snaffle Bit Saddlery, it would be harder to track me down. I would need a business phone listing and that expense. Some suppliers won't sell to you if you don't have a separate business phone, storefront, and/or posted retail hours but they have been few for me. Weavers equine side stands out in memory. I had one company that told me that, and then we got to an agreement. Since I only wanted one or two things they sold, they agreed to sell to me those specifically with a minimum/maximum order deal. Anything else was straight retail and on another order and shipment.

UPS is always a little iffy on whether I am a business or residence. The criteria seems to change with the day. Attached vs. not attached to the house? Signage visible from the road? The best one driver told me was whether there was a bathroom in the shop, or is it in the house?

My bank required a business license to open the account, but treats me well. Like Kevin said, I can transfer with a click. I can keep everything separate.

One of the best things was when I first got my business license. At that time there were small business advisers similar to SCORE. Retired guys who liked to help out fledgelings, invitations to seminars, that sort of thing. I think I got a year or something like that - the golden period when most new businesses fail or set themselves up to fail.

[MikeG]

Great responses, and I thank you all!

In sum, if you are "serious," a business name is good for recognition, and the benefits are the tax writeoffs and wholesale purchasing benefits. The downside seems to be almost entirely the paperwork. Yet, that may not be a downside if it forces me to track my credits and debits. Otherwise, I could go for years thinking I'm doing well without really ever knowing what it costs me to make something versus what I can sell it for. For my own purposes, I think being forced by the business rules to do something I should anyway might be a hidden benefit. Plus, it will tend to keep me focused on making things instead of sitting in front of the boob tube.

I'm leaning toward going for it -- now all I have to do is come up with a catchy name!

Thanks,

-- Mike

[Srigs]

.... -- now all I have to do is come up with a catchy name!

Thanks,

-- Mike

Mike, That is the hardest but fun part!

[larryO]

Hey Mike,

One consideration you may have when choosing whether to pursue a business name versus using your own would be your ability to protect it. Trademarking, whilst important in the long run, is a big headache and expense in the beginning of your business.

If you start operating without a trademark, I would suggest speaking with a local IP lawyer to at least advise you on what types of protection you can put in place should someone choose to start using the name when it gets popular - forcing you to contest it.

Good luck with your new venture!

kindest,

larryO