So You want to be your Own Boss
I often get asked by friends and relatives about starting their own business. Invariably it's one of two questions: What business should I go into and I want to sell "X" what's the best way to do that?
For the first question the inquirer just wants to go into business and doesn't care what it is as long as it makes money. I usually ask why they want to go into business for themselves. Once we get past the money aspect, they say it's because they want to be their own boss and not work so hard.
This is when I tell them the dirty secret of business: no one is their own boss and that working for yourself is even harder than digging ditches. Then I tell them who really runs my business:
- My lawyers tell me what I can and cannot contract for, where I can do business, and who to do business with.
- My accountants tells me when I have to file financial reports and to whom and in what manner I should structure my business so as to minimize taxes.
- The building department tells me how I must lay out my office, who can and cannot repair my building structure.
- The fire department tells me how many fire extinguishers I have to have, where to store my #3 oil, how to secure my exit doors, the maximum number of people that can work in my office, and ride in the elevators.
- The IRS tells me who I can and cannot treat to dinner, how much I can save for retirement, and what kind of health plan I can offer.
- The Health Department watches what I serve to my employees, designates the size of my waste containers and who I must contract for waste removal, that any products in our vending machines must be labeled in compliance with the Uniform Food, Drug and Cosmetic Act as to contents and source, and if manual dish-washing is used, our utensils (after thorough washing and rinsing) must be clean to sight and touch, and shall be sanitized by immersion for at least one minute in clean, hot water at a temperature of at least 170 degrees F, and so on. The "and so on" is quite lengthy so I cut it short here.
- The US State Department tells me who I cannot do business with.
- The Division of Taxation of 50 different States tell me how much sales tax I must charge for sales in their areas. In addition, in many cases, I have to register in those states even though I have no physical nexus in that state if my products are sold there. In some states I have to register for sales tax exemptions.
- I have to split my business into a dozen separate legal entities and incorporate them in different states in order to stay in business against my competitors. I operate billing equipment in New Jersey in order to avoid New York State telecommunications Excise taxes, sell products from Canada to avoid New York State Gross Receipts Tax on Intrastate calls, my equipment is owned by a Nevada corporation to avoid various state property excise taxes.
- My bank tells me how much interest it will charge me.
- My customers tell me what I should be charging for my product.
- My distributors tell me what I should be charging for my product.
- Some States tell me what I should be charging for my product.
- The FCC tells me how much I must pay for calls from payphones, and how much in Universal Service Fees I must pay.
- The Electric Utility tells me where to place my electrical closets, the maximum current they can place in my buildings and when they will give me service.
- Different States tell me how much I must pay my employees, pay in unemployment taxes, and pay in Corporation taxes.
- In one form or another I am told I must file or pay the following: [Some of these only apply to telecom companies like mine or only to companies doing business in New York]
911 Tax - State, County or City
Accounts Receivable Tax
Building Permit Tax
City Excise Tax
City Gross Receipts Tax
City Wage Tax
Corporate Income Tax
County or City Sales Tax
Federal Excise Tax,
Federal Income Tax
Federal Income tax withholding for my employees
Federal Line Charge
Federal Telecom Relay Surcharge (A federal surcharge to support the telephone relay service designed for persons who are hard of hearing or speech impaired)
Federal Universal Service Fund
Federal unemployment tax FUTA
Food License Tax,
Franchise Fee - Telephone (fee paid to a municipality to allow use of the public streets and rights-of-way)
Fuel permit tax
Local Number Portability (pays for upgrades to networks and systems that will allow customers to keep their phone numbers when they change local phone companies)
MTA Surcharge (A surcharge assessed on NY state gross receipts and NY state excise taxes)
PEG Access Fee (The NYC PEG Access fee provides:for the upgrade, purchase and/or rental of public access facilities and equipment for the City of New York)
Port Charge (assessed on Commercial customers using ISDN and DS-1 products)
Real Estate Tax
Regulatory Fee (annual assessment imposed by the FCC)
Road usage taxes
School District Tax
Social Security and Medicare taxes
State Excise Tax
State Gross Receipts Tax
State Income Tax
State Sales Tax
State Unemployment Tax (SUTA)
Targeted Accessibility Fund (fee for lifeline, emergency services, and telecommunication relay service for the hearing impaired. Assessed on intrastate gross revenue and carrier access charges. The fee cannot be passed on to customers.]
Telephone federal, state and local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Vehicle License Registration Tax
Workers Compensation Tax
There are many more, but these are just off the top of my head. I waste 20% or more of my profits on lawyers, tax accountants, financial advisers, bookkeepers just to comply with hundreds of regulatory and taxing authorities.
Yeah, it's really great to be your own boss so no one can tell you what to do and you can just sit back and leisurely smoke that big cigar.
1. Manifold Lamps, 2. Window shopping...., 3. Glass Beautiful Glass ~ Oglebay Glass Shop,
4. Carnival costume shop, 5. Flower shop, 6. beautiful shop space,
7. Delightful village-shop window, 8. The orange Shop, 9. Seattle shopping
To answer question number 2, "I want to sell 'X' what's the best way to do that?" I ask first, what distribution assets do they currently have. That is, if you want to sell dolls, are you already selling products in hobby stores, or online toy stores? This will direct my answer as to whether they should open a brick and mortar business or online presence. But unless they are already doing business it is unlikely that they will be able to start a new one and be successful in any big way.
Obviously if someone wants to open an Italian restaurant in a certain part of town, they don't ask me for business advice; I get questions of a more nebulous nature when someone wants to go on their own but isn't sure how to start or what to sell. These are usually doomed to failure.
The best way to go into business for yourself is when opportunity presents itself, not when you want to do it. Here's what I mean: In 1977 my father had to have his leg removed and so needed someone to operate his retail costume jewelry business. Although the business made enough money for my father it didn't make enough for him, my wife and me. So I added 14 karat gold items and diamonds. I already had retail customers, a location and store credit. In 3 years time we had the largest fine jewelry store in Hudson County and 5 other stores in various states. We started buying gold and other scrap and by 1980 when gold prices reached 800 dollars an ounce we had opened up outlets in Holiday Inns throughout the Mid-Atlantic region to buy gold. Eventually in less than 4 years I was arguably the largest buyer of gold scrap in the New York area with millions of dollars monthly being purchased.
I used my contacts, business experience, vendors, retail locations to expand into a new business. During that time I saw hundreds if not thousands of entrants into that business with 99% eventually failing and folding. They may have had the desire, and money to enter the business but no distribution channels, outlets, contacts to compete against people like me.
Let me give you another example: A Russian fellow I know originally was in the business of giving immigration advice to new immigrants. He also helped with translation services and getting apartments for them for a fee. He contacted us and added prepaid phonecards to his business mix. After a few years he was selling more in phonecards than all his other services combined. Other competitors came along who only sold prepaid cards and eventually failed because they lacked his customer base and knowledge of the Russian immigrant market in Coney Island. His competitors had the desire and even market capital to get into the business but lacked the distribution channels he developed over the years.
Let's say you work for a city government and you deal with construction projects. After a number of years the opportunity might come to start a firm that deals in municipal construction. After you leave city employment, you then could use your contacts and experience to further your business. Someone else, lacking your contacts and experience, even with the desire and the money, will not be able to succeed as well as you could.
So my advice about starting your own business is, if all you have is the desire and money to do so, wait until an opportunity comes along that can utilize your skills and contacts before venturing into a business of your own.
In today's world, even more than in the past, business success has nothing to do with your product or million dollar idea. You can have the cure for cancer, but unless you know people in the FDA and pharmaceutical business you will get nowhere. Believe it. On the other hand, you can sell frozen dog-turd and make millions if you have contacts, a customer base for any other product, thousands of retail outlets that already sell something, distribution channels, distributors, wholesalers, manufacturers reps, and significant web traffic (and it doesn't matter what you're already selling).
Otherwise, you're spinning your wheels.
Here is a graph that shows how many days you have to work to pay all your taxes over the past quarter century:
tax free days
Photo Credit: The Tax Foundation