It's time to get started. Before we can buy any equipment, get
your business cards made or put an ad on Craigslist, there are
some things we need to do to get your new business set up
right. No, paperwork isn't sexy, but it's important.
In this chapter we're going to talk about the 4 things you need to do to set yourself up as a legitimate business as well as to protect yourself. Each of these items are an essential part of the foundation of Mean Green Landscaping and you want to make sure each is in place before you move forward. These items are:
A tax entity
A business license
Insurance
Bank account
See? I told you these weren't sexy items. I don't know about you, but my favorite part of doing business is when the customer gives you the money. I really like that part… but then you've got to do stuff… oh well, nothing is perfect, right?
Seriously, though – these 4 points are critical to your success. They allow you to do business both legally and they also protect you from any potential legal issues. Sad to say that we live in a society where there are people who want to take what somebody else has. They'll use any excuse to try and grab a buck from a hardworking business person like yourself.
Hopefully you'll never have to worry about this. Hopefully, there will never be a situation where somebody tries to sue you. However, it can happen. As you grow more successful, the odds that somebody will try to take you to court grow as well.
Not a very pleasant idea, is it?
Yet if you follow the advice in this chapter, you'll be able to protect yourself from lawsuits, injuries and fraud without much effort. It's often true that when somebody sees that you've got your legal ducks in a row, they become discouraged from taking any unwarranted action.
On the other side of the coin, if something were to happen and you, one of your crew or a customer was injured for some reason, the items in this chapter also protect you and allow you to take care of the issue without putting you or your family's personal property in danger.
That aside, these items also set you up to take advantage of the many tax breaks that somebody who owns a business gets to use. We all know that good old Uncle Sam always has his hand out. Any employee knows the drill.
Every week, you get a paycheck with a list of withholdings taken out. Things like unemployment insurance, social security and Medicare as well as income tax and even health insurance. It's amazing how much difference there is between your gross earnings and your net earnings, isn't it?
Well, one nice benefit of owning your own business and setting it up right is that the IRS in its infinite generosity (that was sarcasm, by the way) provides entrepreneurs with extra tax breaks and loopholes that allow you to avoid a good portion of taxes.
Not evade taxes – that's not legal – but to write off a bunch of stuff that reduces the amount of money you pay. I know this isn't exactly the most exciting stuff, but when it comes to paying taxes, it can be kind of cool when you compare being an employee and a business owner. Let me show you a quick example before we move on:
I'm not going to go into this in great detail, but it helps make the point. In his book, Rich Dad's Cash flow Quadrant, Robert Kiyosaki talks about the four types of job categories that people fall into.
So imagine a square divided by a horizontal and a vertical line. On the upper left is E, then below that S, then the upper right is B and the lower right is I. These letters stand for:
Employee
Self-employed
Business owner
Investor
When it comes to the best tax breaks, it's the people on the right side of the square, the B and I people, who get the most. The E's – which you are now and which we all start at, get the least tax breaks. The S or self-employed get more but not as much as the B's.
A few things but mostly it's who does the work. When you're the person out there mowing the lawn and getting the Mean Green, you're an S. When you hire people to do the work for you and even somebody to run the day to day operations, you're now a true business owner. You can walk away from the everyday stuff for a week or a month or whatever and your business still makes money.
And do you know what? You really can get there with a lawn care company. However, this beginner blueprint is only focusing on making you a successful self-employed entrepreneur. Then in the next intermediate guide we'll take it further in another blueprint, but first things first ok?
For now, though, let me explain one of the biggest differences between being a wage monkey and a self-employed business owner who uses a tax entity like an LLC to open up their company. We'll talk about that in more detail shortly, but let me just give you the big difference now:
So what's that mean, exactly?
Let's say that you earn $36,000, or about $18 per hour working at a warehouse. Your weekly paycheck is $720 before taxes, right?
And to make things simple, let's say that between income tax, social security tax, unemployment insurance and health insurance, they withhold $220 each week leaving you with a whopping $500 to take home.
Now that $500 per week or about $2,200 each month is all you have to pay your rent, your car loan, your bills, your credit cards, buy food and go on a date. Oh yeah, and any sales tax you owe from buying things at the store, for example.
Now, take a guy who owns a lawn care business and makes about $36K a year. Because this guy has an LLC, he can expense out a bunch of stuff before he pays himself. His company can own the equipment, buy the gas, and pay his health insurance and even some of his household bills. For example, he has a home office or a space in his house to run his business. So a portion of his rent or mortgage can be written off, his cell phone bill is paid by the business and even part of his utilities.
So maybe he only pays himself $1,100 a month. So his tax bill is really low, or maybe with deductions he doesn't actually pay any taxes. On paper he seems to earn less, but that's only because so much of what you're paying with after tax money from your paycheck is paid for by his company.
Like I said, I'm not going to bog you down with a bunch of detail right now. But by using the loopholes that the IRS allows, it's possible to make more money and pay less taxes simply because you own a business. Of course, I want to recommend right away that you develop a relationship with an accountant.
A good accountant who knows his or her stuff will only charge you a few hundred bucks to file your tax return each year, but because they know the ins and outs of the tax law, they will save you hundreds or even thousands of dollars in taxes each year – and that's more money in your pocket!
You've probably heard of an LLC before. You've at least seen them on signs, business cards and so on. Something like Frank's Flower Shop, LLC or whatever. Basically, an LLC is a corporation, or more accurately like corporation-light.
The LLC was set up to give small business people the same tax benefits and legal protection as a big corporation. What's nice is that the LLC is easy to setup and has only two requirements.
You have to pick a name that doesn't already exist in your state, pay the setup fee which in most states is less than $200 and file an annual report each year with the state. This is basically paying a fee of about half of what it cost to set up the LLC and confirming the information that you originally filed.
Most states I know of make it really easy to set up your own LLC. You go to the state's website and do a name search. If the LLC you want to set up doesn't exist, you click the link provided to set one up. You'll need your name, business address and a title – in your case because it's an LLC you'll be the manager. You pay the money and within a couple of days, the documents are available online. You simply download them and take them to your bank, insurance company and the courthouse to get your license.
It's really pretty basic. In fact, if you've already found an accountant, he or she will probably do this for you for a small fee if you want them to.
Do you have to use an LLC? No – you could simply do business as Mean Green Landscaping. However, for the small amount of money to set up and maintain the tax entity, you get a lot of benefits. In particular, you get protection. So I strongly recommend it.
Why does the LLC protect you? Because as a tax entity, what an LLC really is, is a separate you. t's a legal but virtual person, if you will. It's a barrier between your business and your personal property.
Let's look at an example. Let's say that a friend of yours
opens a home cleaning service.
She's doing business as herself. Things are going well and she's got a lot of clients and even a few employees. The money is rolling in and everything is great.
Then one day one of her customers comes into the house just after one of her
girls has mopped the kitchen floor. The customer slips and falls and breaks
their arm. Unfortunately, the person is an jerk and sues your friend.
What's also unfortunate is that they win the case and because your friend is simply doing business as herself, everything she owns is left open to be grabbed up to satisfy the lawsuit. Her car, home, bank accounts and everything are seized in order to pay off the suit. She's left broke and her employees lose their jobs.
Now let's look at it another way. Your friend instead set herself up as an LLC. The same thing happens and unbelievably, the customer wins the suit. But this time, instead of suing your friend, the customer has to sue the business itself, Scrub-a-dub LLC.
It still sucks, because Scrub-a-dub has to pay the suit and make a claim on their insurance and pay out the $2,500 in the company's bank account. However, none of your friend's personal property or assets are at risk. The lawsuit can't touch her house, car, savings account or anything.
As long as she, and as long as you, do business under the LLC – meaning all contracts, checks and other documents are signed Yourname, manager Mean Green Landscaping, LLC – you're protected.
Getting a business license is not always required to open a business. Some states make it a legal requirement and some don't. You can check out the laws in your state, but really, in the case of a lawn care business, it's worth it.
In truth, for the most part this is just a way for the city or county in which you live to squeeze $75 out of you. At least in my opinion. However, with a business license comes some level of credibility. You can put your license number on contracts, signs and even business cards. It legitimizes you and makes people feel more comfortable doing business with you.
All you need to do to get a business license is to go down to your local courthouse and file a license request and pay the fee. It's usually under $100, but that depends on where you are. You'll want to have your LLC documents and a legal address from which you're doing business. It's a simple process and well worth the small hassle.
Now you knew this was coming, right? Don't worry, this one is pretty easy, too. Most of this stuff is. When you're starting from scratch and maybe have never done some of this before, it may seem a bit overwhelming. Really, though, it's just a few small things that when added together create a solid business and the good news is you'll be doing this right the first time!
For Mean Green Landscaping, LLC you'll want to get two kinds of insurance. Often you can get them from the same company as well. Like GEICO, for example. They offer a lot of different types of policies and it's always nice to be able to deal with one company in my opinion.
You'll need good coverage for your work vehicles. Your truck and trailer. Additionally, you'll also want a decent sized liability policy. Maybe $500,000 or so.
That probably sounds like a lot, but believe it or not, a half million dollar general liability policy will probably cost you less than $500 per year. This policy covers stuff like accidental fire, injury or property damage.
Obviously, your auto insurance for the work vehicles covers the usual stuff. Yet unlike your personal car which you may only have the basic coverage, I strongly recommend a comprehensive policy for your truck and trailer.
The reasons are two-fold. First, if you do get into a wreck, your valuable equipment will be covered and you can replace it quickly so you don't lose money because you can't work. Second, you're protecting yourself against the other driver or drivers who get greedy when they see they've had an accident with a business.
However, it's all for a good reason. This includes setting up a separate bank account for Mean Green, LLC.
First, you want to keep your money separate. As part of the protection provided by your LLC, you have to keep things apart. Don't mix personal money with business money or your shields will go down. And if you've ever seen an episode of Start Trek then you know that's bad news!
Another reason is that when somebody pays you money, they have to account for it. An individual may not care who they're paying but if you ever get a business contract, they either want to write a check to your company or make you sign a W9 so they can pay you as a 1099 independent contractor.
Well you don't want that – that's basically making you an employee. So having the ability to receive funds to your company's bank account gives you both protection and tax advantages.
All banks and credit unions offer business accounts and the requirements are pretty much the same as the business license. A legal name and an address. You'll probably have to start with a $100 opening deposit. Also, many banks have a minimum balance requirement, too.
This is often a couple of grand. Don't worry about this, if you're under that limit they'll just charge you 10 or 20 bucks a month. No big thing.
There are four things you need to establish to get started with Mean Green Landscaping:
Set up an LLC
Register your business and get a city or county business license.
Get comprehensive auto insurance for your truck and trailer and a general liability insurance policy for the business.
Open up and fund a business bank account in the name of Mean Green Landscaping, LLC.
Okay, so in order to help keep you up to date, let's also review the costs of getting started so far. These will vary depending on your state and your insurance company. But here's a rough estimate so far:
Setting up your LLC - $200
Registering your business - $100
Liability insurance - $500
Business auto insurance - $1,800 (paid monthly so for now we'll say $150)
Bank account - $100
So your total to lay the foundation for Mean Green Landscaping, LLC is $1,050. Not too shabby. Don't worry if you don't have that much in the bank. Later on, I'm going to talk about a few ways to generate the start up cash you need. For now, though, let's assume that all of these ducks are in a row.
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