One of my best mom friends, Brooke, is a mompreneur. She might not think of it that way, because the bulk of her time is focused on caring for her family, but she is. Before getting married and having a child, Brooke purchased a couple of houses in Roanoke and started renting them out. She manages the properties, finds new tenants when they are vacant, and keeps detailed records for tax season. She would claim that she “just makes a few work related phone calls a week,” but, really, she is a business woman with responsibilities and legal obligations.
Many people, like Brooke, find themselves unwitting business owners. A knack for graphic design turns into a money-making opportunity. Time behind a camera lens capturing a child’s precious moments becomes a small side-business. Suddenly, what started out as a hobby has turned into an entrepreneurial endeavor. Here’s what you need to know.
First, you should determine what type of business formation your company will take. For very small businesses, sole proprietorships and limited liability companies are common. In a sole proprietorship, you own and operate the business as an individual or married couple. Profits or losses are reported on your individual tax returns, and you maintain personal liability for any business obligations or judgments. The advantage of sole proprietorships is that they are inexpensive to start and simplest in terms of record keeping. The obvious disadvantage? Your assets are at risk in the event of being sued or defaulting on a legal obligation.
Limited Liability Companies (LLCs) provide limited legal liability and can be used when a single person, a couple, two non-spouses or multiple owners are involved. LLCs help protect your personal assets in the event of a lawsuit against the company. For example, if my mompreneur landlord friend is sued by a tenant because of something related to the rental property, her personal home and bank accounts could be protected. Although LLCs are more complex to start and usually require the help of an attorney, the protections they provide often outweigh the initial cost and hassle.
Second, you must register your business. For sole proprietorships, all that is needed is a fictitious name statement. Call the Clerk of Circuit Court in your city or county for more information. For LLCs, you must register with the Virginia State Corporation Commission.
Third, you must acquire the required business licenses and tax identification numbers. Local counties or cities grant business licenses, usually through the Department of Finance or the Commissioner of Revenue. To check if your proposed business requires a professional license, inquire with the Virginia Department of Business Assistance. For any possible tax registration requirements, contact the Virginia Department of Taxation.
As always, consult with a legal professional to ensure that your legal bases are covered, and be sure to check with your accountant come tax season. But most of all, enjoy that sense of empowerment that comes from working toward achieving a dream and setting that example for your kids. My dad was quite the entrepreneur during his working years, and that go-get-em spirit has motivated me toward similar endeavors in my life. I can only hope my daughter will be inspired to carve her own path as well.