Accountants, lawyers, and doctors, oh my! A designer’s guide to business.

Accountants, lawyers and doctors oh my

Before I get started I want to stress a few things. First and fore most, it should ALWAYS be your goal to run your business 100% legally. This means paying ALL your taxes and following ALL laws. If you truly want to achieve great success with your company, it’s best to do it right (as right as possible) from the very beginning. You do NOT want to end up like Enron or Martha Stewart; cheating on your finances, getting caught and going to jail. If you start your business by cheating it will be a very hard habit to get out of.

This Tutorial will cover:

Starting a business can be VERY intimidating. You need money to live on. You need money to buy equipment. You need to find customers. You need to comply with all state and federal laws – and trust me, they do NOT make this easy on you. You need to pay taxes. You need to pay your employees. You need to provide benefits and you need to keep your customers happy. So, why on earth would ANYONE want to start a business? You would have to be crazy right? Well… maybe, maybe not. I’m going to give you my BEST advice on how to start a company (specifically a design firm) the RIGHT WAY. Now, this is NOT how I started Go Media. I did it all wrong. But if I had to do it over again – this is how I would do it.

General Strategies:

As a designer that creates brands (logos, color schemes, etc.) I have had the opportunity to work with a LOT of start-ups. And each time I start working with a new company, it’s the same story; they walk through my door and say: “I need you to design me a logo, letterhead, envelopes, stickers, t-shirts, a website and posters for my new business.”

And when I ask them why they need all that stuff they simply say: “Because I’m starting a business! Don’t I need all that stuff?” So I’ll ask: “How often do you even print and snail-mail a real letter that will require letterhead?” To this question they think for a while, then begin to realize; maybe they DON’T need to spend all that money to get their company started.

I suggest to all my clients: “Ask yourself, what do you TRULY need to start your business?” I suggest spending as little money as possible at the beginning. If you’re a graphic designer you don’t need much: a desk (this could be a piece of plywood and two saw horses), a computer, some power and one customer. That’s it. You don’t need a team of lawyers or a payroll company or an accountant – not yet.

Let’s face facts, if you’re just starting your company – you aren’t making any money. And if you’re not making any money yet, why go spend a small fortune on things like setting up a corporation or getting a trademark on your logo? In my opinion I would “fly below the radar” when you’re first getting started. By “flying below the radar” what I mean is: don’t worry about legal stuff or taxes or anything you don’t understand. I am ABSOLUTELY NOT suggesting this as a long-term company strategy. This is JUST about when you’re getting started.

Lawyers are expensive. Accountants are expensive. Taxes are even MORE expensive. And if you’re just getting started – these things can make getting started impossible. At least, it can make getting started so unsavory that you’ll just decide to not try. Well, that’s no fun at all. So, for now – I’m suggesting that you NOT worry about a vendor’s license. Don’t worry about taxes. Don’t worry about getting trademarks or protecting your company logo.

When you’re FIRST getting started, you should only be worried about one thing: MAKING MONEY. Until you can figure out how to make money, you don’t have a business. And the faster and better you can get at making money, the easier the rest of building a business will become. Because once you’re making money, you can HIRE THE HELP YOU WILL NEED to build your company right.

My logic behind this is simple; when you’re just getting started, your company is worth NOTHING. You are making NO MONEY. You are worthless (sorry but it’s true.) Why would you start spending money on something that’s worthless? So, I suggest that you start to make some money first – then prioritize what you start spending it on. As you grow and earn more and more money – you will THEN start to invest in things like protecting your logo with a Trade Mark, paying lawyers to insure your business is set up properly and paying accountants to make sure you’re paying Uncle Sam appropriately.

Also, if your company isn’t making any money – Uncle Sam doesn’t care about it. You don’t pay taxes on zero income.

Ok, now that I’ve told you to not worry about all this stuff until you’re making some money, let’s now assume that you ARE starting to make some money. And now you do need to start thinking about how to handle the business side of your business. After all, this IS a blog about lawyers, accountants and payroll.
lawers graphic design

So, let’s get started.

What type of company should you be? Here are just VERY simple layman’s explanations of a few legal entities. Eventually you should consult a lawyer to discuss what is best for your circumstances (but once again, don’t worry about this at first.)

Sole Proprietor:

Basically, a “sole proprietor” is just YOU. It’s one person. The government needs a business to have a Tax Identification Number (TIN) to track your income and taxes paid. In the case of a sole proprietor, your social security number IS your TIN (Tax Identification Number.) It’s most likely that when you start your company – you’ll be a sole proprietor. You don’t really need to set anything up. At the end of the year, you’ll just report your income from your services and pay your taxes. Your second year you’re in business the government will make you pay estimated taxes based on the previous year’s profit (assuming you have any.)

To get your design firm started – THIS is how I suggest you do it. Be a Sole Proprietor. It’s the easiest way. Eventually you’ll want to switch over to a corporation for tax benefits, but for starters – this is it. If you need “employees” you’ll actually have sub-contractors. You don’t need to worry about paying their taxes for them –

Partnership:

A partnership is like a bunch of sole proprietors that got together and wrote up an agreement. This type of business I know the LEAST about. I think the relative strength or weakness of this business model is all in the partnership agreement. This is a legal document that outlines the exact arrangement of the partnership. A partnership agreement would include things like what each person’s responsibilities are and how the money is split up. I THINK a partnership is good for short-term business arrangements. Let’s say for instance you and your buddy are going to go sell some t-shirts at a concert that is coming into town. You’re not going to hire a lawyer to set up a corporation, but you might write out your deal with your friend; I provide the design, you pay for the printing then we split the profits 50-50. Something like that.

S-Corporation:

An S-Corporation is a particular type of corporation that is set up for small businesses. This is what Go Media is. The advantages are that it’s easier to set up and requires less annual paper work than a C-corp. This type of business entity has it’s own TIN. In layman’s terms: the company is it’s own being. The company earns the money, not the individuals. Then the company pays it’s employees. So, yes – even though I am an owner of Go Media, I am also an employee of Go Media. I get a W2 just like the rest of my co-workers. At the end of the year, any profit or loss that the company has incurred is split up amongst the owners based on the percentage of the company that they own.

So, if the company has 100K in profits and I own 50% – I get a check for 50K right? Well, not exactly. Technically – yes, that’s what’s happening. But we cannot afford to just empty our bank accounts at the end of the year. So, what ACTUALLY happens is we take just enough money out to cover our taxes, and the rest of the money stays in the bank account to finance the company into the new year.

C-Corp:

This is what most large corporations are. It gives the owners the best tax advantages. But it is the most difficult to set up and requires more paperwork than an S-Corp. While an S-Corp requires you to split up the responsibility of the profits at the end of the year, a C-Corp allows you to just leave money on the books.

There are actually many more forms of businesses – but I just wanted to give you a little starter-course. As I mentioned before – you will most likely start out as a sole proprietor. I really wouldn’t worry about this stuff until you’ve started making some money.

Finding a Lawyer to help you set-up your business:

Setting up your company should be done by a lawyer. It’s important to do this right, so you’ll need someone you trust to give you advice. I suggest starting your lawyer search with your family and friends. Does your family already have a lawyer? Do you know a friend who has a good lawyer? Even if this trusted lawyer is not a business lawyer, there is a good chance that they will know one that they can recommend.

Vendor’s License

A vendor’s license is one very early, inexpensive step you can take towards making your business legal. A vendor’s license is a way for your county to track and collect your sales tax. The exact procedure to get this license may vary from one county to another. Also, the items each county taxes may also vary. So, I will tell you how I got my vendor’s license, but make sure to check all the specific rules for your county.

The way I got a vendor’s license was to do a Google search on the term “vendor’s license” and “cuyahoga county.” I live in Cleveland Ohio and my county is Cuyahoga. The search results gave me the web address for the Cuyahoga County Auditor. The auditor is the agency that tracks sales and sales tax. So, I went down to their office and filled out a little form. Since I was starting a design firm – I applied for a “service vendor’s license.” Within a few minutes I was given a little piece of paper with a vendor’s license number. The total expense for the vendor’s license was $25 with no annual renewal fees. Now, I think I’m somewhat lucky because services do not require sales tax in Cuyahoga County. I only need to charge my customers when I sell them a tangible product, like if I broker printing.

Now that I have the vendor’s license the county knows I’m in business. Now they expect me to report my sales twice a year. Which leads me to my next subject – which you will need to have in order to report your sales to the county.

Sales Tax

Sales tax is different in each state. You will have to do a little research to find out how your state handles it. I will tell you how it works in Ohio so you have some understanding. In Ohio sales tax is paid to the county auditor’s office that the business is located in. The payment is due every six months. Fortunately for Go Media, design services are not a taxable item in Cuyahoga county (and in all of Ohio, I think).

We only need to pay sales tax on tangible items – like if we sell a t-shirt or poster.) To calculate our sales tax due I use QuickBooks. As you set up each product in QuickBooks you assign it as either taxable or not taxable. Then every six months I just run a report in quickbooks and it shows me exactly how much I sold and what I owe. In cuyahoga county they have a website where I log-in to pay my sales tax. I just type in my total taxable sales and the amount due, then select the payment option. I guess the hardest part is just remembering every six months that it’s due.

accounting bookkeeping graphic design

Bookkeeping and Accounting

Now, I know for most of you, this will be just about the most annoying part of your job. Personally, I am lucky. I was born with some strange passion for BOTH art and bookkeeping. Ok, maybe I wouldn’t call it a “passion” for bookkeeping, but I would say that it doesn’t bother me to keep business records.

So, how do we keep track of our sales; two words: QuickBooks. QuickBooks is accounting software. Before you go running for the hills screaming, hear me out. QuickBooks is a huge scary piece of software, yes, but you don’t need to use all of its many features. Try to remember the first time you used Photoshop. Did you know how to use layer masks, apply filters and run actions? No, you just knew how to pick the brush, pick a color and start drawing. Try to think of QuickBooks like that. It has tons of features you’ll largely ignore. All you need to do is make invoices and record payments. Over time you’ll start to explore and learn more and more about QuickBooks. Soon you’ll be feeling like an accounting wizard. You won’t be, but you’ll feel that way.

I won’t get into step-by-step instructions on how to use QuickBooks. You can probably find a book at the library. Like I said – start with the basics. Just learn how to make an invoice and record a payment on that invoice. This is a good enough start. As you grow, eventually if you have tons of transactions – you’ll need to hire someone to record all these transactions. But QuickBooks IS the industry standard, so starting on this will insure that you don’t have to learn new software in the future.

Also, QuickBooks offers super-cheap online credit card processing. I shopped around a while before I started running my credit cards with them. I think it’s a great value.

Finding/Hiring an accountant

As your business grows you will eventually need an accountant to help you with your bookkeeping and taxes. I have found that big firms charge lots of money and tend to work with big companies. So, I’m suggesting that you grow your use of accountants along with the growth of your business. When you first realize you could use some accounting advice, I would just start with a one-time consulting. After this, you should be able to employ an accountant at the end of the year. Basically, you’ll walk into one of those store-front accounting shops with your QuickBooks (digital) file and a big box of receipts.

They’ll tell you how disorganized you are and how you need a full time accountant. But at the end of the day, they’ll have your taxes done properly and it will be cheaper than keeping an accountant on retainer. Each time you go through this – just ask tons of questions. Most of the accounting work can be done by you in QuickBooks. So, ask questions like: “If a customer disappears on me and only half of the invoice is paid – what do I do with that open invoice?” Ask enough of those types of questions and you’ll have yourself an education!

When you realize that you are truly in need of some regular accounting help I would follow the same rule of thumb with finding an accountant as you did with finding a lawyer. Start with your family and friends. Try to get a referral. It helps to start with someone you trust. Even with a referral I suggest meeting with two additional accountants. Then pick the one you are most comfortable with. It’s critical that you pick a good accountant. They will become a trusted advisor that will help you make important business and financial decisions.

Payroll for your design firm

When you first start out (as a sole proprietor) you won’t actually have “payroll.” You will simply take money out of your bank account and spend it as you need it. The money you spend on the business will be a business expense and will not be taxed as income by the government. The money you spend on yourself will be considered your income and you will pay taxes on that. At the end of the year any money left in your bank account will be considered income and you’ll have to pay taxes on it. So, as you’re approaching the end of the year and you have some stuff you need to buy for your business, do it before December 31st! This will save you up to 35% in possible taxes on that money. This is very common in businesses; year-end spending to empty out the bank accounts.

When you eventually switch your business structure from a sole proprietor to a C-Corporation, you will be running payroll. A corporation is an independent entity. So, if you need money from your own company – that’s now payroll (income.) And when you take payroll you have to not only cut a check for yourself, you need to pay all the appropriate government agencies. These include, but are not limited to: Federal Tax Collectors, State Tax Collectors, City Tax Collectors, Social Security, IRA account (if you have one set up) and Medicare.

Now, you might think the government would organize this in some way so it’s easy to keep track all this stuff. After all, you’re paying them right? They should make it easy. But they don’t. It’s an absolute pain in the ass. Each agency has its own system, its own schedule for payments, its own rules, it’s own forms, etc. Keeping track of who you owe and when to pay them is very difficult. I ran Go Media’s payroll for one year. I probably spent 10-15 hrs a month working on it. It was ridiculous. And when the year was over I discovered that I had missed a bunch of payments and owed the government a bunch of money.

Here is the better option: hire a payroll company. They do everything for you. All you have to do is jump online and log your hours worked for each employee – or simpler, set-up salaries for regular full time employees. They will either mail you checks or wire the money into each employee’s account. They also send payments to every government agency – on time, with the correct amount. They pull the money from the company’s account to pay for everything. And for all of this, they charge Go Media about $60 per payroll ($120 per month.) If you consider I was spending 10-15 hrs a month to do this work – that’s a real bargain!

Medical Insurance

This is another one of those things that needs to grow with your company. I’ll admit, when I got started I had no medical insurance for about two years. But I was taking a huge risk. If I had gotten really sick I would have been financially ruined, possibly dead. As soon as I had a little extra cash I invested in a personal medical insurance plan. I was a healthy young male, so it was about $100/mo. Females are twice as expensive (since they can make babies.) As the company grew we switched over from a bunch of individual plans to a single company plan. This company plan saved us some serious $$$.

Summary

Well, that’s about it. Obviously, this was just a starter guide. The important thing is to focus on getting started and making money. Then, as you start to earn some money, improve the legal and organizational side of your business. The more money you earn, the more you need to spend it on getting “legit.” Obviously as your company grows in value you need to protect it by not cheating. The execs from Enron cheated. One committed suicide, the others are in jail. Ok, that was a little grim – but you get the idea. If you have any specific questions – leave me a comment and I will try to get back to you in a timely manner.

About the Author, William Beachy

I grew up in Cleveland Hts. Ohio and was drawing constantly. As a child I took art classes at the Cleveland Institute of Art and eventually became known as the "class artist." I graduated from The Ohio State University's department of Industrial Design. I have always tried to blend my passion for illustration with Graphic Design. Go Media was the culmination of my interests for both business and art. I'm trying to build a company that is equally considerate of our designers AND our clients.

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