Carts of Cash Book 2 – Chapter 2 – Startup Requirements

Chapter 2
Startup Requirements

In the last book, “Hot Dog Profits: Make Big Money with Hot Dog Carts”, we covered the permits required by the city, county, and health department.  In this section I will cover the documents and forms that are most commonly required to operate a small business.  This list is not all-inclusive because the requirements for operating a small business vary by state, county, and municipality.  As I stated previously, a good way to find out exactly what is required in your location is to contact your city or town government, the County Clerk, and the Secretary of State.  Ask them to send you information on starting a business in your area.  The local Chamber of Commerce is also a valuable source of information as well as a great networking opportunity.

Federal EIN number.  Just as each person in this country needs a social security number, each business must have an I.D. number.  We wouldn’t want the government to loose track of us now, would we?  If you work alone as a sole proprietor you can use your Social Security number.  Sole proprietorships with employees, partnerships, corporations, and LLCs need a Federal Employer Identification Number (EIN).  This number functions as your business I.D. whether you have employees or not.  You can get one by filing form SS-4, or you can get an EIN instantly over the internet at http://www.irs.gov.  If you don’t have employees, line 12 should be marked “No employees – does not apply”, so that the IRS will know not to send you payroll tax returns.

Your EIN number allows you to purchase your hot dogs, chips, sodas, napkins (anything that you will be re-selling to your customers) tax free.  You will be collecting sales tax from the customer and remitting it to the state.

Most hot dog vendors don’t actually calculate and add sales tax to each purchase made at the cart.   We just keep track of our sales and pay the state sales tax percentage on that amount quarterly.

State sales Tax  You will be responsible for collecting sales tax.  You will need a reseller’s permit (also called a seller’s permit, resale license, resale number, sales tax certificate, etc.)  Some states require a security deposit or bond that may be returned to you after one year of satisfactory sales tax payments.  When you apply for the reseller’s permit, the state may ask you to estimate your annual sales in order to determine the amount of your deposit.  Since this really just a wild guess for a new business, keep it low and the security deposit may be lower or waived altogether.

Permits or licenses of some sort are usually required by local governing bodies (city, township, county, etc) and, of course, they are not free.  What do you get in return?  You guessed it – a piece of paper.  I regard these so-called “permits” as nothing more than another tax in disguise.  As they say in Chicago, “You gotta pay to play.”  You will probably need a local business license which is issued by the city or county, perhaps both.  You may need a special permit to operate a home based business if your city health department allows commissary facilities in your place of residence.  In addition to a license, you may be required to purchase a Business Registration Certificate.  All this can cost anywhere from $50 to several hundred dollars.  Call your state and local governing bodies and ask what permits or licenses are required and what they cost.

Zoning can be a factor in operating a business in a residential area, and some homeowner’s associations have covenants against “home occupations”.  These are intended to protect the residential atmosphere in a neighborhood and rightly so.  Unless you are having 1000 cases of weenies delivered by semi, a lot of employees coming and going, or you are disturbing the peace in some way, no one will notice your home based business.

If you are a sole proprietorship and you conduct business under any name other than your own, you need to file a Fictitious Name Statement with your county or state.  This is also known as a DBA (Doing Business As) or Assumed Name Statement depending on the state.  In most states, this applies to anything other than your real name, so “Jimmy Jackson Hot Dogs” will require a DBA filing.  Some counties require you to publish your DBA in a local newspaper so the public can see who they are dealing with.  These ads can be small and inexpensive classifieds.  A partnership must file a DBA unless they are doing business under the names of all the partners.  Corporations and LLCs doing business under a name other than the one on their charter must also file a DBA.

Business Name
This brings us to a fun subject – choosing a business name.  There are a few things to be aware of when deciding what to call your business.  You obviously don’t want to choose a name that is already in use.  When you have decided on a name, go to the county and ask to see an alphabetical list of the names registered there and see if your name is taken.  Also check the Secretary of State web site where you can usually do a search of names registered to corporations, LLCs, and other licensed businesses.  If you choose a name that is already being used by a corporation in another state, and you periodically travel there to work some a big festivals, you could run into problems. States grant corporations the exclusive use of a business name statewide.  Choose a name that contains your personal name if you are trying to build personal relationships with your clients.  If you want to appear large, pick a “large sounding” name, or use an acronym.  David Mark Smith might do business as “Dave’s Hot Dogs”, when dealing with the customer, and “DMS ” or “DAMARSCO” when dealing with suppliers and banks.  It depends on the image you are trying to project.  It is legal to use more than one business name as long as you file multiple DBA’s.

Avoid “creative” spelling. Think about how a yellow page listing for your hot dog cart would look.  Many potential customers will be not able to find you in the phone book if your name is “Kreative Haute Dawgs”.  Likewise, “The Dog Wagon” may get listed under T.  Who does the customer see first in the phone book?  The A’s.  A listing that appears before your competition is more likely to get the business.  “Aardvark Frankfurters”, anyone?  Also, think long term.  If you plan on becoming a full-fledged permanent restaurant in the future offering hamburgers and Italian beef, don’t call yourself “Strictly Hot Dogs”.  Finally, be aware of federally trademarked names. Even if a name isn’t registered anywhere, it can be trademarked which grants the owner of that name exclusive nationwide rights.  Do a trademark search at the U.S. Patent and Trademark Office at www.uspto.gov.

DBA (Doing Business As)
Naming your business is an important branding exercise, but if you are operating as a sole proprietorship or partnership, and you choose to name your business as anything other than your own personal name, then you’ll need to register it with the appropriate authorities.

This process is known as registering your “Doing Business As” (DBA) name.  Corporations and LLCs do not need to register a DBA because those business structures are “legal entities”  with their own legal names in the eyes of the law.

What is a “Doing Business As” Name?

A fictitious name (or assumed name, trade name or DBA name) is a business name that is different from your personal name, the names of your partners or the officially registered name of your LLC or corporation.

It’s important to note that when you form a business, the legal name of the business defaults to the name of the person or entity that owns the business, unless you choose to rename it and register it as a DBA name.

For example, consider this scenario: John Smith sets up a hot dog business. Rather than operate under his own name, John instead chooses to name his business: “John Smith Hot Dogs”. This name is considered an assumed name and John will need to register it with the appropriate local government agency.

The legal name of your business is required on all government forms and applications, including your application for employer tax IDs, licenses and permits.

Do I Need a “Doing Business As” Name?

A DBA is needed in the following scenarios:

Sole Proprietors or Partnerships – If you wish to start a business under anything other than your real name, you’ll need to register a DBA so that you can do business as another name.

Existing Corporations or LLCs – If your business is already set up and you want to do business under a name other than your existing corporation or LLC name, you will need to register a DBA.

Note: Not all states require the registering of fictitious business names or DBAs.

How to Register your “Doing Business As” Name

Registering your DBA is done either with your county clerk’s office or with your state government, depending on where your business is located. There are a few states that do not require the registering of fictitious business names.

Business Insurance
We just released a great audio lesson on general liability insurance (listen to it here) , but there are other types of insurance to consider.  There are all sorts of policies that your agent will be happy to sell you.  Do you want meteor insurance?  How about insurance against wild animal stampedes?  You can get it if you’re willing to pay for it.  Some types of insurance may be required by law, depending on your state, but if you bought all of the insurance available to small businesses today you’d go bankrupt.  You need to weigh the risks against the costs.  I am not an insurance expert.  This section is intended to familiarize you with the many options and requirements so that you may speak intelligently with your insurance agent.

Vehicle insurance is required by law in almost every state.  If you are planning to use your personal vehicle for towing your cart, talk to your insurance agent to find out what additional coverage is required.  Be sure to tell the agent if employees will be using this vehicle as well.  If employees are going to use their own vehicle, you may need liability insurance coverage in case your employee causes property damage or personal injury while on company business.  This protects the company, not the employee.  Their insurance is up to them.  Company owned vehicles must have insurance coverage of course.

Workers Compensation Insurance provides coverage to your employees in case they are injured or killed while on the job.  It includes disability as well as death benefits.  Almost all states require employers to carry this coverage for full and part time workers.  The employer pays for this coverage, not the employee.  Even if your state does not require it by law, workers comp is a good idea because the company is still liable for on-the-job injuries and deaths.

Fire insurance covers you in case of fire damage or loss to buildings and equipment.  Meet with your agent and find out what is required to protect your home based business as well as damage or loss to the rest of your home caused by a fire in your business.

Liability insurance provides coverage against claims of food poisoning, and bodily injury such as slip and fall accidents.  It does not cover you or your employees, but does cover visitors to your business such as delivery people.

Start up Capital
We discussed start up money previously, but I thought it would be good to go into a little more detail.  One of the great things about starting a hot dog cart is the small amount of money required to get up and running, especially if you buy used equipment.  In light of this fact, I won’t go into great detail about the financing methods which are geared toward “big” small business startups.  Let’s look at some possibilities geared toward a small business such as this.

Self-financing from savings is used to some degree by almost every business start up, and many are entirely financed this way.  The biggest advantage to self-financing is that you don’t have outside investors making suggestions about how to run your business, or the weight of a loan pressing down on you all the time.  You also don’t have to share profits with investors.  The low start up costs involved with a mobile food business make this option very realistic.

Bank loans are available to small business but are pretty hard to get if you have no previous experience in running your own company.  Interest rates, if you are approved, are usually high.  As the saying goes, banks only loan money to people who don’t need it.

Home equity loans or lines of credit are a better option.  You can tap into the equity in your home at a very reasonable rate (at the time of this writing).

You can usually borrow against the cash value in your life insurance policy, your 401K or other retirement plans, and any stocks and bonds that you own.  Ask your insurance agent or plan administrator about these options.

The Small Business Administration guarantees loans made by banks, but does not actually loan money itself.  In order to get an SBA loan, you must be approved by both the commercial bank and the SBA, so this may also prove difficult.

Family and friends are a good source for a loan.  Unlike a bank, they know you well and trust you, and would be more willing to take a chance on you.  These people might know other people that would invest in you if the return looks good.

Leasing can be a great way to afford that shiny new hot dog cart without having to come up with thousands up front.  Leasing offers many benefits such as conserving your cash and working capital. 
Cash is not tied up in equipment. Instead, money is available for opportunities such as marketing, working capital, or seasonal cash flow needs.  You can preserve your credit lines. 
Your existing lines of credit and borrowing availability are left untouched and ready to use for operational and short-term financing needs.  Monthly payments allow you to use your cart immediately – your only initial cash outlay is the first and last rental payment.  Profits are generated by the use rather than the ownership of the cart. Leases finance 100% of the cost of the equipment. You can include “soft” costs in your lease such as shipping. Unlike a bank loan, there is no down payment required.  Leasing eliminates equipment obsolescence by letting you regularly upgrade your equipment to a state-of-the-art level, eliminating the hassles of owning old, worn out equipment.  Unlike loan payments, lease payments may be fully tax-deductible as an operational expense.  In situations where limited budgets would ordinarily delay or prevent the acquisition of a new hot dog cart due to a limit on capital expenditures, a lease can fit the tightest of budgetary constraints.

Venture Capitalists (or V.C.s) make their money by investing millions of their own dollars in start up companies, although they usually prefer the high tech sectors where returns can be astronomical.  These heavy hitters are usually out of our league.  Having just said that, I want to tell you how I found a way to finance my hot dog cart business entirely with capital from a V.C.

O.K., so it was a Visa Card.  You would be surprised at the number of businesses that are financed with one, two, three, five or more credit cards.  It’s the easiest “loan” to qualify for – I’m sure you get several pre-approved offers in the mail every day.  Most of them offer zero interest for a year. That’s free money as long as you pay it back in time.  No local bank is going to offer you the use of their money for a year for free.  The beauty of this business is that once you get some regular customers, they keep buying from you on a regular basis.  You only have to make that one initial “sale” and then they keep coming back.  Paying down your debt happens fast after you get a lot of regulars.

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