Tuesday, July 24, 2012

G+ Comment on Small Business Start-up

Another G+ comment I thought might have a wider appeal than to just the particular thread.

I am not sure if you are aware of the cost involved in starting even a small business.  Take that lemonade stand, seems simple enough, but how much would it cost.  Go to the store buy some lemons, at about 3 for a dollar ($1.00) that's about one pitcher of lemonade, agreed.  Now you need sugar, about 1/2 pound, at apx. $2.00 per pound at the local market, that's another $1.00 added to the pitcher, plus your stock is over now because you had to buy 5 lbs of sugar, so you are in for the full $6.00 on the bag of sugar.

No problem, you can make now 10 pitchers of lemonade, better for your bottom end anyways.  Except now you have to buy 30 lemons, now you are in for $36.00, just on base materials.  Let's not forget the knife for cutting the lemons, another $2.50 for a cheap paring knife on eBay.  You are going to need a pitcher, or two, that's $2.00 any day at Walmart.  Cups for service, that's like $4.00 for a couple of bags of 6oz paper cups.  So what are you into this now, some $45.00 give or take a penny or two.

Seems low enough, why not, should be able to raise that kind of dough from the streets, should you not.

What about the stand, that take materials if you are going to build it, or at least another $30.00 for the table and table clothe at Wally world.  The signage, well again a few dollars, maybe $20.00 at Staples for poster board and a couple of markers.  Still under a $100.00 bill so hell that ain't bad, should be able to get that easy enough, if you are willing to cut someone in on your profits.

Next you will need a location.  Retail sales is all about location, can't get a mall slot, way to much, but maybe a good place near a market, provided they allow that.  Even when they do the real money comes in when you decide that you are going to sell something to the public.

Oh and let us not forget the water, gallon of water $0.99 at Wally world, ice, $1.89 at almost any location, but you will also need a cooler, foam cooler $2.99 at Wally world.  Hey you are still below the $100.00 mark, awesome.  This should work.

Okay, let's start selling lemonade, no problem right.

Dam first person that stops by is a cop, and he is quick to point out that you are not allowed to sell to the public without a retail sales tax number.  Well that day is shot to hell.  Try again tomorrow, unfortunately today's pitcher of lemonade is a loss, as is the ice.

Okay, no problem that is doable, just contact the State Sales Tax Department and get a tax permit, no big deal.  What's that, you need a DBA to get a tax number, well wouldn't you know it.  Off you go to the county clerk to get a DBA to do business as a lemonade vendor.  Better have a good name that is not already used, because each filing is $40.00 or better, and if that name is already taken, that requires a new filing.  Or do a name search at about $10.00 per name searched, and expect a couple days delay.

We'll assume you have an awesome unique name and will only need the first $40.00 for your DBA filing, oh and another $20.00 for the certified copies that you have to give to your bank and the sales tax department.  Excellent you have the DBA, you took your papers back down to the sales tax office, and got the sales tax number.  Wow isn't that cool they didn't charge anything for the number.  That is because they are extorting you so badly each quarter they don't need any front end fees.

All set right, got the papers in order, and re-up on supplies, because maybe you lost a couple of extra lemons due to the heat and no ice to keep them from spoiling.

Where are we, three days into the business and you are down, about $250.00 mostly in fees and other cost.  I forgot the fuel cost and wear and tear on your vehicle while you were running around to get all this done.  Let's see that is $0.56 per mile (current standard deduction for travel cost), and let's say you only racked up twenty miles, that's about $11.00 (give or take a few cents).  God for bid you have children, because if you had to figure out childcare into this, you would be long done before you got started, and you are not started, not even close yet.

Yes, you have your table, you have your certificate to operate a retail unit, and you have the okay to operate in the location you have chosen (well for a percentage of the take, just like taxes, hmm).  You are ready, start hawking that lemonade, you have a lot of ground to make up, and debts to pay.

Just as you are starting to serve some icy cold lemonade, the best in the three block providence, along comes a customer in a nice suit, and he slaps a little sign on your stand saying closed due to violation of health codes.

Not only did you not know about this, but now your hard earned reputation is in jeopardy and you will lose your stand if you can't remedy this issue quickly.  So what do you do then, you can't bribe the man, you aren't making that much, and you can't sell lemonade.

Simple enough just come into compliance fast.  Take that little bit of earned income and sink it into health code compliance.  Nice so you buy the hair nets, you get the gloves, and to the tune of a few hundred dollars later you are in compliance with the local health codes.  Nice, another day lost, and you will have to get more supplies, but still under $2,000.00 for the week.  Did I say week, yes, the week, one week into the business and you are in the red about 2g's.

Maybe the people who have helped you before will float you a little longer, let's hope so, because you are just beginning to lose money.

The next week and you start over, all set to go, and the DOL gives you a calling.  What the hell, where do these vultures get off with this stuff.  Okay, okay, got to spend money to make money, right.

DOL guy says you need a Federal Employer Number, and you counter with but I have no employees, I might get some at a later time if you guys ever let me make any money, but for now it is just me, the owner.  Oh that's fine he says, you are an employee of your business just the same.

Fine, shut down another day, and the stocks are looking pretty rough, because you can't sell anything.  Go out and get that EIN.  That will take a few days, the Federal Government has money they don't need to hurry, in fact if you want them to hurry and do their job in an efficient manor that will cost you extra.  As will postage to have it sent to you, although it is a government office sending it through a government office, go figure.  They are charging the tax payer twice for that little trick.  Whatever, you got to do what you have to do.  You get the EIN, and this week is pretty much a wash as well.  Nothing like not making money.

In the meantime the investors are wondering what the hell you are doing with their investments.  They have stopped out to the location twice this past week and you were no where to be seen.  Unfortunately in your rush to comply with government regulations you forgot to contact your investors, and now they are getting nervous about putting in money.

You get the EIN, you talk your investors down, and all is well right, next week you can finally get down to business, right.

Wrong, you haven't even begun to be bilked by the government.  Hold on to your hat, because the wind of absurdity is about to come this way.  First you are going to need a deposit account, separate from your regular account, this is your wage account.  You will need to have an amount equal to at least one weeks wages in this account.  Not just your wages, but the cost of those wages.  You know all those things they take out of your check when you work for someone else.  Guess who is responsible for both parts of those cost, that's right you are, and you have to have that in an account before you can pay wages, even to yourself.  You are also going to have to pay workman's compensation and disability insurance on yourself, and you will need that up front, all of it, and since you are a start-up business, they will rate you at the highest rating they have for your type of business, because you have no history, so they assume the worst.

Dam, your $20.00 lemonade stand just went from $20.00 dollars out of pocket expenses, to about $20,000.00 in fees, contingencies, and withholding's, plus insurances you don't even need.

Your investors are suing you for breaking the contract because you couldn't make good on your promise to pay them back in a timely fashion.  You are declaring bankruptcy because you cannot meet your obligations. And to top it all off, your credit is trashed, your chance of even getting a decent job just plummeted, and oh, yea, you still owe taxes on the few dollars you did bring in, that one day you were able to sell some lemonade.

I wish this were an exaggeration of the truth, but it isn't.  Sorry but starting a business legally anymore is not just hanging up a shingle and offering your services or products to the public.  Maybe in a different country where there are no real laws and only quasi government enforcement, it is possible, there everything is a grey market.  Here to operate in the white market, you had better not need the money or the work, and be well connected, or just accept the risk and operate on the black market, there is no grey.

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