Archive for category: Starting a Business

What Licenses and Permits Do I Need to Start My Business?

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by Christine Jaros | October 30, 2023

Now that you’ve registered your business, obtained your Employee Identification Number (EIN) and opened a business bank account, you need to also explore what licenses, certifications and permits your business needs to legally operate in your location and industry. This is usually the most complicated and confusing step in getting your business up and running. But it doesn’t have to be. Detailed below are a few key topics in understanding what your business needs, where to explore industry/locality requirements, and how to obtain them.

The Business Operating License – For Every Small Business

The Business Operating License is a basic requirement for most businesses that allows you to operate in a city and state. Don’t confuse this license with obtaining your legal business entity via your company registration with the Department of State (Sunbiz). Your company registration essentially creates and recognizes the legal existence of your business. The business operating license is a general blanket license giving you permission to conduct business activities in a city or county.

In the state of Florida, business operating licenses are typically issued by the local government versus being issued at the state level and are based on your business operating locations. It’s important you check with your local municipality or county clerk’s office/website to obtain your business operating license as these licenses vary by city and county and can change over time as well. In addition to filling out an application and paying a small fee, you will need to make sure your business complies with all local zoning, health and safety requirements and regulations which will vary depending on the type of business you have. Know also that some businesses may require inspections or approval by other government departments.

Seller’s Permit

If your business sells goods (products) – whether online or in person, you will need a seller’s permit. This permit gives you authorization to collect sales tax from your customer’s purchases and remit them to the appropriate tax authorities. With regards to E-commerce, Florida defines an E-commerce website as a “dealer”. Florida is also a state that taxes based on destination (versus origination) so the sales tax will be calculated based on where the products are being shipped.

Note also, some services in Florida are subject to sales tax. This includes but is not limited to security services, commercial pest control, non-residential cleaning services and health club memberships. For any questions, check with the Florida Department of Revenues.

Since sales tax rules and rates vary by city, county, and state, you might also consider software to help with your tax collection and remittance. For a seller’s permit, go to the Florida Department of Revenue’s website at Florida Dept. of Revenue – Florida Dept. of Revenue (floridarevenue.com)

Special Permits

Depending on your industry, profession, or business activities, you may require special permits. These can include alcohol licenses, fire permits, health permits, and other industry specific permissions. You can check these requirements on The Florida Department of Business & Professional Regulations (http://www.myfloridalicense.com/DBPR). Here you can also apply for these permits/licenses.

Fictitious/Doing Business As (DBA) Name Statement

Many register a business name when they open their small business but end up operating under a different brand name. If you did not include this brand/fictitious name or DBA (doing business as) name within your initial company registration, you will need to register it now so that you can provide the documentation for transparency to your customers and suppliers. Fictitious name registration can be found here https://dos.fl.gov/sunbiz/start-business/efile/fl-fictitious-name-registration

Industry Licenses and Certifications

Companies in regulated industries – like banking, hair salons, healthcare, veterinary, food services, construction and real estate may need special licenses and certifications that provide customers with the knowledge that these businesses have met specific industry standards and regulations. Since these vary greatly by profession and industry, business owners must check with the Florida Department of Business and Professional Regulations (http://www.myfloridalicense.com/DBPR). There you can search initially by industry, drilling down to the detail of your specific profession/job.

Manufacturing products like cosmetics, perfumes, body lotions, food products, etc. should also check on definitions with regards to cottage industry versus otherwise. You may also need to seek information regarding your regulations on the Florida Food & Drug Administration website at https://www.fdacs.gov/

Overall, it is important to take the time to research and explore what licenses, certifications, and permits your business will need to legally operate in your location and industry. Obtaining the correct license and permits ahead of time can save business owners time and stress when the time comes to do actual business.

Importance of Reporting All Income to the IRS

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Importance of Reporting All Income to the IRS

by Simplice Essou | October 13, 2023

Business ownership can be very rewarding. However, it comes with many responsibilities. One of these responsibilities include the filing of the annual income tax return due by April 15 for businesses. Tax return preparation can be a long and time-consuming process that does not add to the bottom line. However, it is required to stay in compliance and avoid penalties. Income tax preparation and reporting requires the revenue and expenses to be calculated and reported accurately. Failure to report income accurately (underreporting) can lead to fines, penalties and in some case jail time.

Who needs to report business income?

Businesses need to prepare and file annual income tax or information return in case of partnerships. The information return is used to notify government agencies and the Internal Revenue System (IRS) and provide information regarding the owners and the company. This tax return reports business transactions during the year. These include income, gains, deductions, credits, losses. This is also important for determining the income tax liability of the business. 

How does the IRS know a business is underreporting its income?

The IRS verifies the income taxpayers report on their returns by comparing the data businesses and other organizations report on Form 1099s, Form W2 and others. This data is gathered when they pay contractors, employees, and other payees. In cases where there are differences between the two reports, the IRS will ask the taxpayer to explain the discrepancies. The IRS will send that request on Form CP2000, Notice of Underreported Income. This notice is also referred to as the Notice of Proposed Adjustment for Underpayment/Overpayment and is the most common notice sent out by the IRS.

What happens when you underreport your income?

When the IRS discovers that a business has underreported income, whether it is intentionally or unintentionally, the business is exposed to tax penalties and possibly criminal prosecution. 

According to the IRS, taxpayers who intentionally fail to accurately report their income, may face the following severe consequences: 

  • Be charged with a felony
  • Five years in jail and/or a fine up to $250,000 or $500,000 for corporations
  • Civil penalties
  • Increase likelihood of being audited by the IRS

Steps to accurately report your income to the IRS

Businesses need to ensure there is a system in place to accurately track and report income and expenses by using the following steps:

  1. Open a business account: It is crucial to open a business account to ensure proper segregation of personal finance and business finance.
  2. Select an accounting method: Before starting to track the income and expenses, business owners need to select one of the two main accounting methods: cash basis or  accrual basis.

    a. Cash basis: When the cash basis is used, sales and expenses are recorded when the cash is received for sales and payments are made for expenses.

    b. Accrual basis: When the accrual basis is used, income and expenses are recorded when they are incurred.

  3. Select an accounting system: An accounting system such as QuickBooks online can help reduce the risks of underreporting your business income.

Overall, businesses should be aware that underreporting their income could come with harsh consequences, therefore, ensuring an accurate tracking system is in place is crucial for the life of the business.

Author: Simplice Essou

Importance Of Keeping Adequate Business Records

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by Simplice Essou | October 13, 2023

It is crucial for businesses to keep adequate business records for several reasons. Below are some reason why good record keeping is needed in business:

  1. Monitoring your business progress: Business owners need to keep good records to monitor revenue and expenses and monitor the progress of your business. Good records can show whether the business is making money or losing money. Good records, especially inventory records, can show which items are selling fast and which ones are not, thus, good record keeping increases the likelihood of business success.
  2. Preparing your business’s financial statements: Good record keeping is important to prepare accurate and timely financial statements. Basic financial statements include a profit and loss statement and a balance sheet. These statements are needed in many situations such as managing the business, obtaining a bank loan or a line of credit, obtaining credit from creditors or even selling the business.

    a. Examples: The income statement shows the income and expenses for the business for a period such as January 1 202X to December 31 202X. The balance sheets show the business’s assets, liabilities and equity at a given date for example December 31 202X.

  3. Identifying the business sources of income: Businesses receive funds and/or properties from many sources. Business records can help identify the sources of your income. Business owners need the information provided by the records to segregate business receipts which are taxable from non-business income (not taxable).
  4. Keeping track of your businesses’ deductible expenses: Most business expenses are tax deductible and may result in substantial tax savings. Unless management records those expenses in a timely manner, business owners may not remember those expenses when preparing the business tax returns.
  5. Preparing business’s tax returns: It is the business owners’ responsibility to prepare and file accurate tax returns. Records should support amounts the business owner reports on the tax returns.  Records must support the different income, expenses, and credit items. Tax returns are due to be filed with the different state and federal tax authorities by set deadlines. Having good records can make the tax return preparation less cumbersome.
  6. Supporting items reported on the business tax returns: The tax laws require business owners to keep business records available for inspection by the IRS at any time. During the inspection process, IRS agents may ask the business owner to explain items reported on the tax return and show backup documents such as receipts or invoices. A complete and accurate set of record can help make the process go smoother. It is a good practice to keep business records for a minimum of 7 years as that is enough time for defending audits.

Bookkeeping should not be a source of stress for business owners. Having a good accounting software, such as QB Online or Zoho can help automate the process. This will also allow the business owner to have timely financial data, which is crucial for keeping adequate business records and future decision-making. 

Author: Simplice Essou

Importance of Separating Business Finances from Personal Finances

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Separating Business Finances from Personal Finances

by Simplice Essou | August 21, 2023

When starting a new business, it is common for business owners to comingle their business and personal finances. However, separating one’s business and personal finances may help maintain a clearer picture of the company’s cash flow and financial health apart from your personal assets and liabilities. Below are a few benefits of separating business finances from personal finances:

  1. Tracking business cash flow: By ensuring business and personal finances are maintained separately, business owners can easily get a better picture of their business cash flows. Most business owners pay for startup costs with their own funds, and it is crucial these expenses be tracked accurately. Bookkeeping and the production of financials such as the balance sheet and income statements are made easier when there is a separate business account.
  • Accounting function made more efficient: By keeping business finances and personal finances separate, it makes preparing for tax time easier as well. Determining which transactions are for business and which ones are not can be a daunting task for your accountant or CPA.
  • Taking all tax deductions: By opening a business, bank account and using it exclusively for business purposes, it will be easier to keep track of business expenses for tax purposes. Maintaining a separate business account makes it easier to keep track of all the invoices, receipts and other transactions that could result in tax deductions. This can result in large tax savings and create a positive cash flow for the business.
  • Protecting your personal assets from legal liability: By separating personal and business finances, owners will be treating the business as an independent entity and safeguard their own personal finances. Keeping business affairs separate from personal affairs can help protect owner’s personal assets from legal liability. Having business and personal affairs entangled makes it easier for a plaintiff to go after owners’ personal assets in the event of a lawsuit filed against the business.

Steps To Separating Business Finances and Personal Finances

Separating business finances and personal finances is a process. Therefore, here are a few steps you can take in your business journey to start off on the right foot:

  1. Incorporate the business: To achieve that separation, business owners could consider incorporating the business as a C corp., limited liability corporation (LLC). Setting up a corporate structure can also ensure owners’ personal assets are protected. To register the business in Florida, one can go to the Florida Department of State’s website.
  • Apply for an EIN number: The second step will consist of registering with the IRS to obtain a EIN number. The registration can be done by going to the IRS website.
  • Open a business account: Once the business is incorporated, and has obtained an EIN number, the next step will be to open a bank account in the business name. This will help calculating cash flow and make recordkeeping more efficient.
  • Get a business credit card: Establishing business credit is important. In some industries such as government contracting, this can be the difference between success and failure. Obtaining a business credit card can be a quick way to start building and establishing business credit.

Overall, there are great benefits to having your business finances separated from your personal finances, including being able to track your finances more efficiently and protect your assets from legal liabilities.

Author: Simplice Essou

Selecting the Correct Business Entity

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by Simplice Essou | July 7, 2023

Selecting the type of business entity to register and operate the business under is one of the most important decisions a new business owner will have to make. This decision is crucial and may have implications on your tax bills, on the number of investors allowed, and the personal liability of the owner(s).

Tax Treatment

Tax treatment, meaning how your business will be taxed, should be of upmost importance for business owners as it can have a direct impact on the business’s cash flows. The choice of entity will determine the tax rules the business will need to follow. Below are the types of entities a new business owner may choose from and their tax implications:

  • Sole Proprietorship: A sole proprietorship is not a distinct entity from the owner. The sole proprietorship’s income is subject to a self-employment tax of 15.3% and is also taxed at the proprietor individual tax rate.
  • Limited Liability Company (LLC): LLCs are pass-through entities, which means that the LLC does not pay taxes. Rather, the owner (s) pay taxes on their individual tax returns. For the IRS, a single member LLC is a disregarded entity and is taxed as a sole proprietorship. The income or loss is reported on schedule C attached to the owner’s 1040 tax return. The owner pays any tax liability. When there is more than one member, the LLC is taxed as a partnership. It files Form 1065 to report any income or loss from the business and each owner will report its portion of the income or loss on his/her 1040 tax return.
  • S Corporation:  The S corporation is a pass-through entity, and the owners will report any loss or income on their form 1040.  A single member LLC who has elected to be taxed as an S corporation would avoid the self-employment tax. This may result in significant savings for the owner therefore, selecting the right entity type is of upmost importance.
  • C corporation: Unless it makes an S corporation election, the C Corporation is a separate tax paying entity. That means that the C Corporation pays taxes on any income and when a part of this income is distributed to investors as dividends, these amounts are reported on the owner’s form 1040 tax return, and taxed. This is known as double taxation.

Number of Owners (Members)

The number of owners can also determine the type of entity the business owner(s) will select. For example, for an S corporation, the number of owners is limited to 100. If owners are seeking to access venture capital the most appropriate form will be the C Corporation as it allows for unlimited number of investors.

Personal Liability

Personal liability is an important consideration when it comes to starting a business. Personal liability comes into play when damage or an accident happens in the operation of the business. It could be an injury involving an employee or a client. In this case, the individual business owner could be liable for damages. For a sole proprietorship, the business owner, the business assets, and liabilities are not separate from the owner(s)’s assets and liabilities. Therefore, the owner is liable for the business’s liabilities including claims from lawsuits. In the case of a LLC or Corporation, members cannot be personally liable for the business’s liabilities.

As a new business owner, it is very important to take your time and do the necessary research before selecting a business entity as there are many factors that may affect the business’s cash flow, especially when it comes to taxes. Keep in mind that the number of members within the business and personal liability must also help you determine which business entity is the right fit for your business.

Author: Simplice Essou

Navigating Technology Challenges: A Guide for Start-up Businesses

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Navigating Technology Challenges

by Barry Haynes | June 13, 2023

In today’s digital age, technology plays a pivotal role in the success of start-up businesses. Embracing the right technologies can enhance efficiency, productivity, and customer experience. Meanwhile, neglecting technology can lead to significant setbacks. As start-ups strive to establish themselves in competitive markets, it is essential to address and overcome the common technological challenges they may encounter. In this article, we will explore some of these challenges and provide insights on how start-ups can tackle them effectively.

  1. Infrastructure and Scalability: One of the first hurdles start-ups face is setting up a robust technology infrastructure. Limited resources and tight budgets make it crucial to make well-informed decisions about hardware, software, and networking solutions. Cloud computing offers an attractive option for start-ups, as it provides scalable and cost-effective solutions for storage, data management, and software applications. Leveraging cloud services allows start-ups to access advanced technologies and infrastructure without heavy upfront investments.
  2. Cybersecurity: Start-ups must prioritize cybersecurity from day one. Unfortunately, many entrepreneurs underestimate the risks associated with cyber threats. A data breach or security incident can have devastating consequences, damaging a start-up’s reputation and customer trust. Implementing proper security measures, such as firewalls, encryption, and regular software updates, is vital. Start-ups should also establish robust security protocols and provide employee training to promote cybersecurity awareness throughout the organization.
  3. Data Management and Analytics: Data is an asset for start-ups, but managing and harnessing it effectively can be challenging. Establishing a data management strategy is essential to ensure data integrity, accessibility, and compliance with privacy regulations. Implementing analytics tools and techniques enables start-ups to gain actionable insights from their data, facilitating data-driven decision-making and enhancing competitiveness.
  4. Integration and Interoperability: Start-ups often rely on multiple systems and applications to streamline their operations. However, ensuring seamless integration and interoperability between these systems can be complex. Start-ups should prioritize compatibility and select technologies that can integrate with each other effortlessly. Application Programming Interfaces (APIs) play a significant role in facilitating data exchange and process automation between different systems.
  5. Digital Marketing and Customer Engagement: Start-ups heavily rely on digital marketing to establish their presence and attract customers. However, the ever-evolving digital landscape presents its own set of challenges. It is crucial for start-ups to stay updated with the latest digital marketing trends, social media platforms, and search engine algorithms. Automation tools, customer relationship management (CRM) systems, and data analytics can assist start-ups in targeting their audience effectively and providing personalized customer experiences.
  6. Talent Acquisition and Technology Skills: Hiring and retaining talent with the required technological expertise is often a significant challenge for start-ups. Competition with established companies and limited resources can make it difficult to attract skilled professionals. Start-ups should invest in building a strong employer brand, offering competitive compensation packages, and creating a positive work culture to attract top talent. Additionally, providing training and upskilling opportunities can help bridge any technology skills gaps within the team.

While technology challenges may seem daunting for start-ups, they can be turned into opportunities for growth and innovation. By carefully evaluating their technological needs, prioritizing cybersecurity, implementing robust data management practices, embracing digital marketing strategies, and investing in talent acquisition, start-ups can effectively navigate the technology landscape and position themselves for long-term success. Embracing technology as an integral part of their business strategy will empower start-ups to thrive in an increasingly digital world.

Author

Barry Haynes

Barry Haynes

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Florida SBDC at Hillsborough County

Specialty: Operations, Technology

Barry Haynes started his career in engineering and has extensive experience in computer integrated manufacturing and manufacturing automation. Haynes became a serial entrepreneur in the 80s and has started and sold four multi-million-dollar companies. He brings to the Florida SBDC at Hillsborough County more than 36 years of experience as a business owner and in-depth knowledge of operations, business automation, sales, customer service, marketing, and corporate development. He also brings with him more than 30 years of senior management and company-building experience, as well as in-depth knowledge of web-based technology.

A lifelong coach and fan of the game, Haynes has coached youth baseball teams for more than 10 years and served on many youth association boards. He holds an associate in instrumentation engineering from Tennessee Technical Institute, a Bachelor of Science in electrical engineering with a minor in economics from Washington University and did his MBA work in manufacturing at Southern Illinois University.

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Franchising Series: How to Evaluate and Buy a Franchise

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Franchising Series:  How to Evaluate and Buy a Franchise  By Brad Mix | November 1, 2022  In part one and two of this series, we outlined the advantages and disadvantages of becoming a franchise owner, versus starting your own business from scratch. If you’re still interested after weighing the pros and cons, you’ll need to […]

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Franchising Series: The Disadvantages of Being a Franchise Owner

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by Brad Mix | November 1, 2022  In part one of this series, we itemized the advantages of owning a franchise versus starting your own business from scratch. But there’s also a flipside. Below, we’ll outline the disadvantages of franchising, for the franchisee. Disadvantages of Franchising for the Franchisee Higher Start-up Costs: One of the […]

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Franchising Series: Advantages of Owning a Franchise

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by Brad Mix | November 1, 2022 When determining what type of small business to start, franchising can be a very appealing market entry strategy. In part one of this series, we’ll discuss the advantages of Becoming a franchise owner over starting your own business from scratch. Advantages of Franchises Proven Business Model: When you […]

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Is it Worth Starting a Cleaning Company?

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by Simplice Essou, CPA | August 2, 2022 Do you love looking around and seeing everything clean and sparkly? Do you love making a difference in someone’s life by providing them with a clean home? If this is you, then, a cleaning business might be for you. Startup costs are relatively low and therefore it […]

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The Florida SBDC at the University of South Florida is a member of the Florida SBDC Network, a statewide partnership program nationally accredited by the Association of America’s SBDCs and funded in part by the U.S. Small Business Administration, Department of Defense, State of Florida, and other private and public partners, with the University of West Florida serving as the network’s headquarters. Full funding disclosure available at www.floridasbdc.org/funding-disclosures/. Florida SBDC services are extended to the public on a nondiscriminatory basis. Language assistance services are available for individuals with limited English proficiency.

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