Moving from hobby to Small Business?

Please forgive the message if found to be annoying. I am going to be shooting a wedding here in a couple of weeks. I met with the couple briefly tonight. My wife and I have decided that I should have this as a separate business. Simple question...how did you go about choosing a name for your business? followup- what did you have to do to separate from the family finances? I have already contacted MN SBA and have thought of a name that does not appear to be in use. I will contact county officials tomorrow for further details. anything else besides insurance for the equipment and business practice that i might need to know short term?

Thanks!

I don't know about MN, but here in Ontario if we operate a proprietorship using our given name, there is no requirement for any sort of business registration. That will save some time, trouble and expense up front. Here also there is no difference between a proprietorship, partnership or personal name business as regards year end dates or choice of income types/routes etc. To be allowed to defer income into a future tax year, we in Ont. must be incorporated (as we did after three years of partnership with my wife)

Names ... My experience in a very small but profitable business was that a business operator who does a good job need never worry about the choice of name - the word of mouth advertising is what will drive most of your customers to you. Most of them will have your name wrong when they get to you the first time anyway and it won't matter because they care only about the quality and price of the job and all you want is their money. They'll know your name properly later when they refer you to someone else.

So ... in a proprietorship, choose a name which gives the least trouble and setup cost, identifies you in some way and is easy to say - usually that is your own name unless the business name indentifies a unique type of business or service. (such as "Satin Snow")

When you incorporate the name won't matter as you will likely be a numbered corporation "operating as" your previous name under an agreement (hopefully a name rental or "loan to purchase" agreement) with yourself.

Those are my thoughts - and they're worth exactly what was paid for them

unohuu said:

... followup- what did you have to do to separate from the family finances? .....

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Clear and complete records following GAAP.

All receipts, invoices and related paperwork sorted by type and chronologically.

As far as I know, unless you're incorporated, your business income "is" family income. (Here in Ont anyway)

By the sounds of it , I would name the company after your own name, Fred Smith Photography, Over a long period of time name recognician will be important. For example you may start as a wedding photographer , be successful, and then for other reasons decide to go to another genre. Ie fine art sales.
The name recognician will help you make this transition .

Warning: get an good accountant, if you are going to lease space for the buisness make sure you know a good lawyer in the commercial leasing field, make sure you are well covered with commercial insurance, and try to have a very good relationship with the banking industrys.( I learned all of this the hard way)

In Canada , and I am sure in the States , you are responsible for all of your companys debts and goings on , if you are the sole or part owner.
Do not be mistaken about this. You can separate the finances from *Family* and your new organization . But in the long run it will always boil down to you personally regarding debts, leases, tax and so on.

As a small venture to suppliment income the above is a bit to heavy but small ventures overnight can explode to full time operations . be prepared.

Bob Carnie said:

..... Over a long period of time name recognician will be important. For example you may start as a wedding photographer , be successful, and then for other reasons decide to go to another genre. Ie fine art sales.
The name recognician will help you make this transition .

.....

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Yes, this (what Bob says) is very true and is something that I forgot to mention. Over a period of time spent making the business successful, the name will grow to be important and there will come a time when a transition to an incorporated and, severally liable and saleable entity might make sense. At that time, the name will have value that can be capitalised on.

I agree with the comments of others suggesting the use of your name as part of the business name - unless there is already a photographer in your area with the same name. If so, you'll obviously need to differentiate yourself somehow. Having a good accountant is also a good idea, even if you're already familiar with GAAP (generally accepted accounting practice). At a minimum, you'll want a separate checking account and separate record keeping. Also, check with your city regarding business license requirements, and your county regarding business property taxes.

Naturally, there is a long list of legal and business issues to consider. The IRS has a couple of booklets that relate to the operation of small businesses that are worth reading. In reading the tax regs relating to photography businesses, it seems to me that the IRS almost assumes that a photography business is a sham, intended only to enable a hobbyist to deduct hobby-related expenses. Perhaps that's because so many people have tried to do just that. Who knows. But, establishing a photo business may make you more subject to being audited. As such, you may want to make sure that the use of the equipment is as separate as your accounting. In other words, beware of "red flag" issues that make the business appear to be questionable.

I used to have an Assumed Name certificate but let it drop. I now ask for checks to be made out to my name. Ralph is correct with regard to an accountant. I do use a copy of Quicken for invoices

good luck,

lee\c

I did this many years ago (so my info is dated) with a aerial photography "side" business in Minnesota.

We choose a name with "aerial" in it - with the rationale that we'd rather be considered for this specific type of work than have the flexibility of doing other forms of photography. You have to file something like a "certificate of assumed name" with the state. They required us to modify our first choice slightly to avoid being too close to another name. We then had to publish a notice in the newspaper legal notice (there were a few choices in newspapers). I think the state was the only one involved in choosing and registering a name.

Personally, I disagee with the idea of using your own name for a couple of reasons. One, at some point you may choose to sell the business. Two, the name doesn't communicate anything about the business. That's just my view.

You may want to check into a LLC designation. I believe it has some advantages from a liability standpoint. But keep in mind that any legal entity where you are the sole owner (or even you and your wife) may not afford the protection you commonly think you get from incorporating. (However, I'm not an attorney and don't even play one on TV.)

Of couse you'll want to set up a separate bank account and keep separate books. The IRS can get sticky with hobby businesses. We avoided that by never showing a loss. That meant I used my own equipment until we had enough revenue to buy separate equipment and still show a profit (and pay taxes) at end of year. I did not have the business pay me rental for the equipment, but I suppose I could as long as I documented the fair value (but then you have the issue of the fees as personal income - not worth the trouble).

Whether you insure your equipment is a risk/reward decision you can make. I feel liability insurance is far more important (the downside of having your equipment stolen is calculable and fixed, the downside of liability for an accident is limited only by every asset you have). I've seen a fair amount about insurance options on the photo.net forums.

The MN SBA had a great book on starting a business. If it's no longer available, let me know and I'll try to dig up mine if I still have it.

Take a peak at the IRS website..... setting things up so your business design agrees with the tax stuff in advance is... handy.

mgb74 said:

.....The IRS can get sticky with hobby businesses. We avoided that by never showing a loss. That meant I used my own equipment until we had enough revenue to buy separate equipment and still show a profit (and pay taxes) at end of year......

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I'll agree with this completely. I also had a small photo business, and early on my accountant told me the same thing. Showing a loss would be an invitation to an IRS audit. I did as mgb74 did, and never had a problem. Good Luck.

I went to the local SBA and got a ton of great info. If they have a business "start up" class, take it.

D.

Regarding name for your business. In today's world I would start from finding nice and short domain name for your future web site, reserve it lets say for 5 years, and based on this I would work on actual business name.
As for taxes etc., make money first and then worry. Good luck in your venture.
Jerzy Pawlowski

i have a name selected; i have contacted Mn SBA and i checking on county and state licenses today. i don't need to buy equipment...i have most of what i want already as a hobbyist. my wife simply wants me to start showing a profit for the gear purchases. i have requested information from University of St. Thomas here, which is our entrepreneurial leadership spot and have been to IRS and Mn Dpt of Commerce websites. i guess i am on the right track. had not thought of the website though. that is why i wanted to put the collective wisdom of APUG to this task.

i once belonged to an investment group so already familiar with setting up separate accounts, etc and simple accounting principles.

any special pitfalls you might think of. i am shooting first paid wedding in just a couple of weeks and have been asked to shoot PJ wedding in August and request for portraits are starting to come in.

Luke

PROFIT!!! LOL Whats that???

I have been doing over 20 years and we might break even in another 5 years!



Dave

You are in a sticky situation because you are converting a hobby into a business. If you have not run a small business before, get help in setting it up and some management advice. Your accountant should be able to help you set it up. You will need to decide several thing from the outset:

1. Name.
2. Form of business enterprise. You can start a sole proprietorship (the easiest) or corporation. Probably from what you have described there is little need for the corporation in the beginning. You can always change to one later. If you elect to go with a corporation, there are generally higher fees to start and annual requirements for minutes etc.--many of which can be minimized by becoming a LLC. Taxation--if a corporation, do you want it to stand alone or to be taxed as ordinary income, in which case you will want to become a Sub-s corporation.

3. Set up. You will need to designate which of your personal assets (cameras, film, darkroom set up etc.) you are contributing to the business. These will be the initial assets of the business. Do delivery memos showing your contibution and value the assets reasonably. The accountant will help set up a depreciation schedule. The sticky part is that you will be limited in depreciation in the early years because you are converting a hobby to a business. Generally, you are only allowed to deduct an amount up to your income when converting from a hobby, until it is a going concern.

4. Insurance.

5. Record keeping. Keep good records of film purchases (an expense) and processing fees. Your accountant will help you set up a chart of accounts for record keeping.

You should contact the small business Admin if you haven't run a business before. They used to have a program called SCORE, Service Core of Retired Executives, which matches new business owners with experienced retirees for advice.

The above sounds like a lot, but most of it can taken care of with a visit to a good accountant or attorney.

Allen

Satinsnow said:

PROFIT!!! LOL Whats that???

I have been doing over 20 years and we might break even in another 5 years!



Dave

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Dave you crack me up..* lots of wisdom here.* I do the buisness for the love of it rather than the profit.

I've been "in business" now for three years and welcome an IRS audit. Maybe they'll catch a deduction I missed!
If you have no bad history with them, and all is up front, don't worry it. I'm going to Maui for my 20th, and will deduct 50% of most everything because it's a "working vacation". You gotta love this system!
Good luck!

If you want to be really busy call it something like

Richard Avedon Photography

I don't think he's using it any more.





Lighten up it's a joke

Michael

Be very careful with your insurance. A business, even a hobby business, puts you in a different catagory. Check with your agent about business specific insurance for your gear, transportation and liability. Don't rely on homeowners any longer as most companies will not cover your business... and may even find an 'out' for claims at home due to the home office use.

"any special pitfalls you might think of"

Although Dave's profit? comment was, I'm sure, meant to be humorous, I think he hit the nail square on its head. Actually making money at it is the major pitfall, and failing to make a profit is the bottomless hole, tax-wise, right behind it. Remember, in addition to the on-going materials expenses, you'll be "contributing" equipment to the business for its sole use, thus creating an additional amortization expense in accordance with tax regs. As such, generating sufficient income to offset both the job-specific materials expenses and the built-in business expenses can be a challenge - one that will take time away from your family. Thus, both you and your wife need to recognize and accept the consequences of starting the business venture, along with the consequences of shutting it down later.

I'd really suggest working through the process on paper first, just to make sure of that factor.

I dont know if Satinsnow's comment was in jest or not, but in fact many artists go years and years and never show a profit. What is important is being able to show the effort and intent to make a profit. I disagree with what I see as suggestions that you should pretend to make profit or not take legit deductions just to keep the IRS happy-if you have the documentation to back up your assertion that the business is for profit, you have little to worry about. (I will also add right now that I'm somewhat of a hypocrite, because I have done just that in special circumstances when I felt my documentation of intent/effot to profit was rather weak). But you can start depreciating personal equipment used in your new business immediately (or you could just a few years ago when I was doing so). And if you have other income to offset your losses (whether deductible or not), then you really have little to fear from lack of profit.

Wayne