Single member LLC owners, talk to me

I will preface this post by saying I do have a CPA whom will be handling this sort of thing for me, but his experience is only as the CPA. I'm looking for owners opinions and experiences. This will be a single member llc, and at least for the first year, will be taxed as a sole proprietorship. 

My plan for my first year of operation is to use my personal vehicle and tools to operate my new business with. I intend to leave the maximum amount of revenue I can in the business to reinvest in the second and third year to buy a company vehicle and company tools. The reason for doing this is to absolutely minimize my first year operating costs, so future expansion won't hurt my personal bank account very hard, as well as to prevent a massive debt burden if I fail. I plan to only take draws large enough to cover my quarterly taxes, any overestimate on my part will go directly back to the business. 

How have you done this if you have done this? Does the company pay for repairs of the vehicle or tools? Do you just get mileage back, and how do you keep track of it? Are there limits in regards to the vehicle age or mileage?

It's my understanding that I can loan or rent the tools to the business, is that better than donating them as a capital investment?

I may be able to acquire private investors, but for this discussion, let's assume banks only exist for business checking accounts. No credit cards, no small business loans, so big purchases, no matter how helpful they would be, will need to wait until the money is there to make them.

The way I see it, after inventory, licenses, insurance, and fees, I should be able to open my first day for about a grand. It should take me, best case scenario 2 days to make that back, worst case, I'm an epic failure and don't make a dime and I'm only out that grand. The short term goal is to grow that to 5, and reinvest it into proper tools. Medium term goal is another 10, for a decent, newer lower miles vehicle for a company exclusive vehicle. The longer term goal is to maintain profitability for 3 years to be able to get a proper location. Once a solid location is acquired, I can start to worry about building a nest egg for myself.

I have always started s corps. In every case both my lawyer and CPA advised against an LLC. I did not ask specifically why. 

Is there a particular reason that you need an LLC? Unless this business has a high liability risk or is being used to hold real estate, not sur eit is worth the extra effort. In most states there are additional filing requirements for an LLC and you hav eto be very carful how you conduct your business as the liability protection can be pierced easily by an attorney if it can be shown you were operating an a sole proprietor. 

To be honest Insurance is better liability protection than an LLC. I would give a second to the s corp, offers better protection than sole proprietor, and taxes are fairly simple. One advantage of sub s corp is that you can  pay yourself a salary, that has FICA taxes withheld, and then take distributions that are only taxes on the federal and state levels. As a sole proprietor all of profit is subject to self employment taxes.

One thing to be aware of, from your description you may not be understanding the retained earnings of "leaving money in the business".  First you should always maintain separate checking accounts for personal and business, but in either of these cases all of the profit from this business will flow to your personal income tax regardless of what account the money is in. If you make $50K profit and only take $10K home, you are paying taxes on the $50K even though by your standards you left $40K " in the business".

Any entity can buy tools, inventory and own or lease real estate, and the company can write off against profits purchases either as depreciation or section 179 expenses. One thing you mentioned is preventing a massive debt load if you fail. In my experience with any new business the owner will be required to sign a personal guaranty for any loan , so the only way to avoid a massive debt load is don't take any debit.  I think you plan of expanding out of revenue is the best way to go, it is how I have run my businesses for many years.

Good luck with your venture

Just make sure you take out a business policy to cover your tools. Your Homeowners/Renters policy has very, very low limits regarding personal items used for business.

I was on the unfortunate side of that conversation too many times when I handled theft claims.

z31maniac said:

Just make sure you take out a business policy to cover your tools. Your Homeowners/Renters policy has very, very low limits regarding personal items used for business.

I was on the unfortunate side of that conversation too many times when I handled theft claims.

Z31, what is is a typical limit for that? (I know, read my policy--just looking for a ballpark figure)

I looked into incorporating into either an S corp or an LLC a while back. I did not, because I'm an independent contractor and it is a very small portion of our household income--but I remember that if it was my only income, or if I was technically paying myself (I wasn't, because entities were paying me, not me paying me), it would have made sense to incorporate IF it was a significant part of my income because of the payroll tax. 

I'm not an accountant though, and I never got too far into the research because it quickly became clear that I didn't need it.

mtn said:

z31maniac said:

Just make sure you take out a business policy to cover your tools. Your Homeowners/Renters policy has very, very low limits regarding personal items used for business.

I was on the unfortunate side of that conversation too many times when I handled theft claims.

Z31, what is is a typical limit for that? (I know, read my policy--just looking for a ballpark figure)

$1,000 when I worked for State Farm years ago. I assume it's the same or less as all the companies have raised deductibles and limits in the policies. I don't have my HO through State Farm anymore as they wanted $3000/year for an HO policy on my 1800sq ft house.

z31maniac said:

mtn said:

z31maniac said:

Just make sure you take out a business policy to cover your tools. Your Homeowners/Renters policy has very, very low limits regarding personal items used for business.

I was on the unfortunate side of that conversation too many times when I handled theft claims.

Z31, what is is a typical limit for that? (I know, read my policy--just looking for a ballpark figure)

$1,000 when I worked for State Farm years ago. I assume it's the same or less as all the companies have raised deductibles and limits in the policies. I don't have my HO through State Farm anymore as they wanted $3000/year for an HO policy on my 1800sq ft house.

Yeah, what is up with that??? I  need to call around and get someone else, our HO policy has gotten out of control.

In reply to Fladiver64 :

Farmers market cooked food stand. Cooking on site, serving straight off the smoker. I've never worked for a food proprietor that wasn't an LLC, whether it was brick and mortar, food truck, or concession stand. It's also what my cpa recommended until incomes hit $30k + per year.

Best case scenario, I sell out every week, after overhead, insurance, etc, I'm looking at year end gross profits around $12k for the first year. With a temporary mobile food facility license, I get out of a lot of difficult and expensive requirements, but am limited to only operating 14 days per year. With a max potential gross income of $700/day combined with deductible upgrades, first year profits should be in the black, but will be negligible on my taxes. 6 good days upgrades the smoker, I can't get quotes yet but I'm guessing 2 good days will cover insurance, 1 day covers my licenses and associated fees, that leaves 5 days of actual profits, or roughly $3500, to pay taxes on. Holy E36 M3, that's an angle I hadn't looked at it from yet.

I'm meeting with my accountant Saturday afternoon to go over things in more detail. This is more a reaching out "what am I forgetting about" thread so I can get my questions for him together. It helps a lot that between him and me there's 30 years of cooking and kitchen management experience, but neither of us has actually been an owner before.  I have an appointment Thursday with one of my old bosses who still owns a few restaurants to beg him to sign off as my health inspected prep station, currently the only thing standing in my way from opening in April, aside from my mobile food facility license. He will also be subjected to a few pages of questions since he quite literally "woke up one day and opened a restaurant because he wanted to". 

I just think it's a good idea to avoid debt until I can prove to the area that "no, pulled pork should NOT be as dry as the bun its served on and doesn't need half a gallon of sweet store bought sauce to add flavor". I'm sick of complaining about the local food options, I know people are sick of listening to me complain about it, so I'm putting my money where my mouth is and doing something about it. When I can prove it, there's a great location for sale, has been for over a year now, that I'd like to grow into. At asking price, I'd need to sell 30 sandwiches a day 120 days a year for 8 years to pay it off. Doesn't sound terribly difficult on paper, but before I take on something like that I need to make sure the cash flow will be there. Being closed 6 months a year doesn't mean the mortgage payment goes on hold. I had actually started writing a business plan to convince someone with money to buy the place and just let me run it when I figured out how cheaply I could just enter the market myself and get my name out there, with the potential to buy it, or another spot, down the road. 

"But rev, wasn't it just last week you were asking about small dollar investing?" Yes, and I decided investing in myself with what little I have would be a better investment in the short run at least. 

I just want to say that whether it's investing, or now this, it's good to read posts where you seem upbeat and optimistic about your future. To a casual internet outsider, you seem much more enabled to improve your own situation than you have at times in the past. Maybe I'm off base, but it seems like there's been a shift in your outlook and I think that shift will result in good things for you moving forward. I'm looking forward to reading more about your plans.

Have you done any research about the amount of traffic and customer demographics for the farmers market? I'd guess that you have since you seem to have figured out pricing already but I wanted to double check.

In reply to STM317 :

I'm trying to get better. Every single day I wake up in this house, I'm reminded what greedy, selfish, horrible pieces of E36 M3 my extended family wound up being. I'm trying to channel that hatred and anger into anything else instead of just dwelling on it like I have been. 

Of all the things I've done in my life, there are 2 that I excel at, and only one of them is legal in this state, so I'm trying to focus myself on exploiting that to it's full potential, because it isn't fair to my daughter, or what few friends I have left, to need to deal with my attitude when they've done nothing wrong to deserve it. 

That said, I have been doing my research. Tuesday's the farmers market runs 3pm to 6pm, and averages 500 visitors in fair weather, mostly soccer mom's with kids and old people.  Tuesday is also the day there is only one food stand there, one of the local farms selling burgers to convince people their $8/lb ground beef is worth the price. I'm also not counting the youth sports teams that practice there Tuesdays, so I'm running with "if I'm always sold out, I'll get more customers from curiosity".  Saturday's are where the big crowds are but also more competition from the cooking side of things, not to mention a need for me to start cooking at midnight. When I can get a big boy tow behind smoker, I want to extend to Saturday's as well, but I'll probably need an employee or volunteer to keep up with the flow of people. Talking to the guy that runs the market, a slow, rainy Saturday still sees 1000 people come wandering through the venue. 

There was an old black preacher who showed up about a decade ago, with a grill on the side of the road selling chicken. I still haven't figured out how he got away with it because none of the rules I'm reading say it's ok, but he built himself up to having his own brick and mortar place selling chicken, ribs, and southern sides. I want to do basically the same thing with pork. I started looking around for locations to just setup on the side of the road, maybe do some guerrilla advertising and start up a following that way, but then I saw the signs for the farmers market and it clicked that a steady location would be a lot easier than appearing randomly at different businesses. 

Truthfully, I pulled a price out of thin air based on what I'd be willing to pay for a sandwich then ran the numbers on it. I can sell a better product for less money than all the bars and restaurants in town, and still make enough money to keep the lights on so to speak, even paying retail prices for all my ingredients. While charging less than everyone else could raise some questions about quality, I also won't have the overhead of chefs, servers, utilities, etc to contend with.

I've watched a lot of BBQ joints fail around here through the years, and I think it's because they spread themselves too thin. Trying to run a full menu instead of specializing in one or two things drove costs through the roof and drained them financially. The ones that have succeeded are all limited menu or a Smokey Bones, which sells booze so they don't count. 

Also, something I know that most places don't, is that the women's shelter will happily take restaurant leftovers as donations, so if I don't sell out, I can still get a decent deduction from donating to a worthy cause. 

I'm not sure how the laws work out or if these are viable options, but if you do end up having a hard time selling at the farmer's market you can probably use social media to your advantage and operate similar to the food trucks by saying I'll be parked at X location and serving during this time window and/or once you get a bit of a foothold pick up some party catering? 

RevRico said:

In reply to STM317 :

I've watched a lot of BBQ joints fail around here through the years, and I think it's because they spread themselves too thin. Trying to run a full menu instead of specializing in one or two things drove costs through the roof and drained them financially. The ones that have succeeded are all limited menu or a Smokey Bones, which sells booze so they don't count. 

 

Excellent. The most successful [small] restaurants that I know sell basically 1-5 things. On top of stretching yourself thin, consumers buy less when there is more choice. I personally, without knowing much about this, would have 3 meats max, and if you do sauce, one mild and one hot. 

I like that you want to do it with pork. Pork is the king of BBQ, if done well, for me.

You can keep your chickens, brisket, and ribs.

In reply to RevRico :

Good to see you thinking things through and because of the food issue might be worth the LLC. I would say a lot of people open LLC's because they think it gives them protection that really it does not. I started a company form nothing ran it for 20 years, sold it ran that company for 6, left and started a smaller gig myself, so I have been in the self employed business a long time. I would like to pass along another resource that can be very helpful, https://www.score.org/ . This is a volunteer organization of people that have been in business and now work on helping new entrepreneurs. The local office usually has classes for very nominal fees typically $0 to $30. and offers free mentorship and business counciling. I am sure you will find someone there with the food/catering experience to help you chart a path.

I volunteered at the Orlando chapter for a couple of years, taught some of the classes and worked with several businesses both getting off the ground and growing. I would say a business plan is essential as a road map to help you mak e decisions, and a mentor that is not emotionally involved to bounce ideas off is a tremendous help. All of the mentor programs are free, but take a bit of time and meet with a few of the mentors to see who you ge a long with. They can help you in many different areas.