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     | Tuesday, March 14, 2000 - 08:55 am  I recently started my own software training business. Does anyone have information on how to build business credit. Should I try to open a small local account . . . (Kinkos, for example). I am a sole proprietor with a registered business name (assumed name registered locally) Your responses are greatly appreciated. Thanks - Have a Good One. Also, thanks for those who take time to contribute helpful info to this Forum. I have learned so much!!
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| | Tuesday, March 14, 2000 - 06:39 pm Do you have a separate tax ID number for your business? You should consider leaving the sole proprietorship setup for a limited liability company (LLC) or a corporation. Suggest you read a fine article entitled Top Ten Ways to Get Sued.
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| | Tuesday, March 14, 2000 - 07:57 pm I was a sole proprieter for many years and as far as I can remember every account required my personal credit report. As a sole proprietor you're liable for all business debts anyway. Does anyone else have experiences with sole proprietor credit? As far as limiting your liability goes, it depends of course on what you got to lose. If you don't own many assets, why bother? You want to be sure you understand the tax consequences before you do anything. It's definitely time and money consuming to have to file corporate returns. Is it worth it?
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| | Wednesday, March 15, 2000 - 06:01 am It's really not that bad to run a small S-Corp. Filing tax returns is pretty easy if you keep good records. I use Quick Books and Turbo Tax. My coporate taxes took me an hour with the use of these products. My personal tax return took me all day using Turbo Tax. Forming a corporation is very cheap and easy, I've done it numerous times (with myself and others). The headache of running a (even a small) corporation is all the little details: filing for the tax id, state tax id, if you have employees, getting workman's comp, keeping corporate resolutions, minutes, etc. But once you get these things done, it is smooth sailing. But it's worth it, you not only reduce your personal liability, but there are many tax advantages, especialy if you go LLC or S-corp. Remember, the difference between the way a corporation pays taxes and a person pays taxes: A corporation pays for expenses and is taxed on the remaining income. A person is taxed first and then pays for expenses with taxed dollars.
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| | Wednesday, March 15, 2000 - 10:30 am I agree that corporations are the way to go for businesses that are well funded and profitable. But it's not true that a person (sole proprietor) pays tax first. As a sole proprieter you even get your exemptions, so you can actually have a Sch C business profit of $5,000 or much more, income TAX FREE, depending on the number of dependents. That's if you have no other income. This could also apply to the S-Corp, I don't know. There are expenses involved in setting up the corporation, and in the 90s California had a minimum $800 tax per year. You have to pay an accountant to set up the corporation, possibly pay a lawyer to incorporate, and you need to buy the corporate tax software. As Kristi says, there are the ongoing costs/hassles of filings, minutes, etc. Don't forget you have to DISSOLVE the corporation if the biz isn't working out. You can't just stop doing business. Most startup small businesses would be very happy if they had any profit at all. Spending $1,500 or $2,000 a year just on the corporation is still more than pocket change for most. Other States are probably much cheaper to operate in than California. The employee reporting/withholding requirements are identical, it makes no difference whether you incorporate. I hope I'll never ever have another employee. But back to credit: Kristi, did you have to cosign for your corporate accounts? How easy or difficult was it to establish credit for the corporation?
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| | Wednesday, March 15, 2000 - 05:44 pm We're straying from the topic. The point is how to get business credit that is separate from personal credit. That will never happen until you have a separate tax ID for your business that is different from your social security number. Some sort of legal entity will be required, whether it is an S Corp, C Corp, LLC or LLP. Each of these structures has tax advantages, however nothing I say here should be considered tax advice. You should consult a tax professional to make tax-related decisions. I suggested Bill Bronchick's site because I know he sells an asset protection product that is a "cookie-cutter" approach to creating Limited Liability Companies (LLCs). You can use the course to easily create as many LLCs as you need. He also sells a course on creating corporations but I do not own it and I'm not here to say anything about it one way or the other. Using his course was much cheaper for me than any other solution. We have a company around here called "We the People" and they're a bunch of paralegals who offer to do basic legal things for you like bankruptcy, simple divorce and creating wills without an attorney. I was quoted $800 to create an LLC. Yikes!
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| | Wednesday, March 15, 2000 - 08:35 pm I had a federal tax ID starting with 94- This must have been the year I first had an employee? Is that the number we're talking about?
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| | Thursday, March 16, 2000 - 03:37 am Yes, but if you're a sole proprietorship and you go to apply for credit every bank is going to want you to personally guarantee the loan because you are the business. Literally. You die, no more business.
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| | Thursday, March 16, 2000 - 09:16 am Yes, I had to co-sign for my business credit. Which sucks. But it's really not a problem for me as I am only getting things like office furniture leases, ONE credit card, etc. I haven't applied for a small business loan, but I believe you need to co-sign for those as well. I haven't seen a business credit card application yet that doesn't ask for a personal co-signing. I just received an CC app in the mail yesterday from American Express Optima for business credit. Not only did they ask for your personal SSN, they didn't even ask for my Corporate Tax ID (EIN)! Yes, Christine, you are right about sole proprietorships (Schedule C income) also having some of the same tax exemptions as a corporation. I just prefer to get as many tax advantages as possible, (One time tax-free bonuses, for example) plus having liability protection. Of course, the liablity protection of a corporation is certainly not bulletproof. I don't know what state you live in, Sean. Here in good ole' Arizona, the fees for forming a corporation were for me: $95 filing fee (included an expedite fee) $160 to publish articles of incorporation in the local "record reporter". That's it, plus my time and gas. I used a "boiler plate" set of articles, made some changes, that was it. Forming an LLC is the same fees here, you just need to file a slightly different set of paperwork.
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| | Saturday, March 18, 2000 - 05:12 pm Filing a "Ficticious Business Name" statement doesn't separate the business from you. As long as you are a sole proprieter, then any business credit will be based totally on your own personal credit status. Also note that prospective creditors tend to be suspicous of self-emloyed applicants, and may request documentation of income, like the last two years tax returns. Some suggestions: Get a business checking account. This can be used as a reference for applying for credit. Make sure to keep your business income/spending strictly separated from your personal transactions. Get a free business tax ID number (Employer Identification Number, or EIN) from the IRS. Go to the Dun And Bradstreet site ( http://www.dnb.com/ ) and register to have your business listed. This will help in establishing a credit record for your business. Some office supply sources may be willing to open low-limit accounts, with the bank reference. American Express is a popular issuer of business credit cards. Once you have things started up, and are generating some income, consider forming a corporation. For some purposes, a corporation is viewed as an "artificial person." One of the major benefits of this is to insulate you from the company's debts. For example, the corporation could be sued without necessarily creating personal liability for you. As I understand it, a Limited Liability Corporation is the simplest type. Remember that new businesses are considered to be very high risk by lenders. Even with a corporation, creditors may insist on a personal guarantee from you (and require your personal credit to meet their standards) until the corporation has been doing business for at least two years. Generally, business credit applications require more documentation and references than personal credit applications. Building credit takes time, so you must be prepared to work very hard a very low budget until you are established. Good Luck http://www.cardreport.com
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