Starting a Business for Micro and Hybrid School Entrepreneurs Part 3: Filing Paperwork and Getting Started
In Parts 1 and 2, we discussed legal schools vs homeschool supplements and LLC’s vs Nonprofits. Now it is time to get into the actual filings. This part can feel a little scary! I get it! But it’s not really that bad. Whether you decided on LLC or Nonprofit, you will go to your state’s business website and find the Articles of Incorporation documents. You will fill this couple-of-page document out (you can hire a lawyer if you have the money or use a site such as LegalZoom or Tailor Brands, neither of which I have used!) accordingly.
Some things to know: You can use your own name as incorporator and your address as the business address if you’d like. You can alternatively use a ‘Registered Agent” to receive business mail (this costs a small fee), or you can use your location (but don’t do this if you think you’ll move soon or often!). If you are filing as a nonprofit you are likely going to be a non-member nonprofit and you will want to include IRS approved language such as that found here (This site is a wealth of information, spend a few minutes here. I am not a CPA, Carol Topp is!).
As an LLC, the information will pretty much all be you. You are the owner and incorporator and will likely use your home or business address. There is no Board or any other members. As a nonprofit, you are “incorporating”, but you are not creating a “corporation” that has stock holders and all that. Sites such as this one can walk you through in more detail. Remember that each state is different so read your state’s requirements. You may be required to file a docketing statement, which is really just a shorter summary of your business. You may have to choose a 'fiscal year’, which will determine the start and end of your tax year. For a school operating on a fall to spring schedule, July 1 to June 30 often makes sense since most of the transactions for a full school year will take place within that time.
You may also be asked if you will be using a DBA. This is just a ‘nickname’ that you may want to use that is a little different from your official name.
Send in the form with your fee and you’ve got a business! Now you will go to the IRS website and get an Employee Identification Number. This is actually quite simple as well. Even simpler, in fact, than the last part.
Now you will go to a bank (I advise NOT an online one if you’ll be collecting any cash. It can be a pain to deposit cash in an online bank. Pick one conveniently close by your location and with low fees for small businesses. You can upgrade later if you need to) with your ID, Articles of Incorporation, and EIN and open a business account. Make sure you check with the bank ahead of time to be sure you have what they require! You’ll likely also need some money…ahem. You can wait to open the account until you receive initial enrollment fees, or you can use personal money and reimburse yourself later when you have business income.
Now you can operate ..which means collecting and spending money, while you start offering your services. You are going to need insurances as well as some other infrastructure and supplies before you open your doors (which is why you’ll want to have some revenue before the first day by collecting enrollment fees as well as starting tuition payments a month in advance). You will need insurances liability, worker’s comp, and probably some property insurance, and either professional (for an LLC) or Director’s and Officer’s for a nonprofit. You want these in place before your first day as well as your payroll system, and, of course, your curriculum and supplies.
A sample timeline would be to collect enrollments through informational nights and online registration in March, begin collecting tuition payments August 1st, and opening your doors the first week of September. This way you have a little money for curriculum and training and supplies over the summer (but may need to invest a little of your own or fundraise the first year) and then can purchase insurance, pay rent, and setup payroll in August. Once you have regular tuition payments coming in, your budget - that one you made before you opened when you were planning and strategizing- should have equipped you such that your “in” exceeds your “out”. Taking some payments upfront as a lump sum can also help make sure you have money in the bank for some of the expenses that might be large payouts but only happen once or twice a year (insurance payments and curriculum purchases, for instance).
You will also want to use bookkeeping software (or a person) from Day 1. It’s not fun, but it has to be done! Do it right from the start and save yourself a lot of pain later on. You can start with WaveApps, or you can use something more robust like Quickbooks. There will likely either be a yearly fee or transaction fees for the service and you will still need to actually label transactions, either yourself or with a hired bookkeeper. The service will link to your bank account and each transaction will be labeled regularly. You will be categorizing for the purposes of tax time as well as for your own budget planning.
If you are tracking transactions yourself, I’d advise coming up with a system that works for you and is consistent at the very LEAST. Otherwise, take a course or hire a pro! If you are quite small and have few transactions, just stay consistent and on top of it. You want the accountant to be able to understand what he is looking at at tax time even if you have to explain your own little system. At least you have one! The best thing though, is to educate yourself well or hire a pro.
Nonprofits are a whole other type of bookkeeping that is more complex and really needs to be done right. Quickbooks Made Easy for Nonprofits is a good course for nonprofessionals and you can get it affordably through TechSoup or you can use a service like Foundation Group if you budget for it. Recommended, but you have to work it into your budget from Day 1). If you plan on fundraising and cultivating donor relationships, it is essential that everything be tracked properly. Your Board needs to educate themselves on this and make sure that it is being done right. More on this in an upcoming series on nonprofits!
Remember that actually starting a business is fairly simple. Fill out the Incorporation document with the state, pay the fee, get the EIN from the IRS, open a bank account, and make sure you have some bookkeeping software connected so you can immediately start labeling transactions. More on this upcoming!
Disclaimer again: I am not giving legal advice. Please talk to a lawyer if you have any questions! A CPA and Lawyer can be very helpful during the process, but it can certainly be done without them.
