Want to buy Boss's Business. Need Advice

[Graphic Dude]

Howdy Ho! I've been working as a sole employee at a graphic design and print shop owned by my boss who also owns several fast food restaurants. The main purpose for the shop is for P.O.P. displays including posters, banners and a wide variety of signage to support his restaurants. My boss would rather focus his attention on burger sales than running a graphics shop. He has presented me with what I see as a great opportunity. He'll hand over ownership of the shop to me in exchange for large discounts on the P.O.P. products he needs, for as much time as it takes the discounts to satisfy the purchase price of equipment, art library, etc.. Essentially, everything stays the same, except my ownership will allow expansion of the business in ways he had no interest in.

The only thing that really concerns me, is not knowing exactly how to set my business up for the easiest way to keep income taxes paid and accurate. Would it be a smart move to incorporate and handle myself as an employee - make quarterly payroll tax payments according to my income? Or, is there a more simple approach. My personal credit rating is not that great. The business has a decent credit rating. Will incorporating help keep that intact, with me coming in as the business owner? I don't plan on hiring anytime soon, so it'll be just me. I predict a net $75K to $100K/year by owning this company. Any advise will be much appreciated.

[vangogh]

Welcome to the forum Dude. Can I call you Dude? Sounds like a pretty good deal. Know that I'm not an account or lawyer, but hopefully one will come along soon to better answer your question.

The simplest setup is you being a sole proprietor. You'd file taxes as an individual the same as you always have, but instead of using a W2 for earnings you fill out some forms to calculate and show your earnings. Usually it's a 1040 Schedule C to report income and then there are other forms depending on your particular situation. You do pay estimated taxes 4 times a year (April, June, September, and January). There are rules for how much you have to pay, but you want to pay enough to cover what you'll likely owe at the end of the year. After a year or two you start to get a good sense for what you'll owe.

Another popular option is an LLC (Limited Liability Corporation). An LLC will protected you in some ways. For example say someone sues you. As a sole proprietor anything you own is fair game for the lawsuit. As an LLC some of your assets are protected, a house perhaps. The protection is limited though so it's not like all your assets are suddenly untouchable. I think there are some tax reasons for forming an LLC as well, though I'm not really familiar with that. I think you personally are still taxes and not the business.

One of our members, David, has built a site with great information about LLCs (http://www.limitedliabilitycompanycenter.com/). I recommend reading through some or all of the articles there.

Two other corporations you might form are a C-Corp and an S-Corp. David has some information comparing LLCs to both. Both C and S will be more complex with stricter rules you have to follow. Both C and S have different rules on taxes and I think the major advantage to forming either has to do with taxes. I think with both the business is taxes, though don't hold me to that. Again David has some info about both on his site.

[Steve B]

That does sound like a great deal. It's usually not recommended to be a sole proprietor for the reason stated by VG - you want to protect your personal assets from issues that could arise from the business. I let my accountant deal with all the tax questions for me - so I don't really have much to add to that part of the discussion.

[vangogh]

I wouldn't say it's not recommended to be a sole proprietor in all cases. I think it depends on your situation. For example if you don't own a home or other assets worth protecting then it doesn't make sense taking steps to protect them. Also an LLC doesn't protect everything 100%. You're not locked into a business entity forever either.

Of course if you do have assets you want to protect then an LLC is something to look into. It may not be 100% protection of your personal assets, but it's more protection than a sole proprietorship offers.

David has a good article on his site about sole proprietorships (http://www.limitedliabilitycompanycenter.com/sole-proprietorship-vs-llc.html) with information about the pros and cons. Again I'll recommend spending some time going through his site. In under an hour you'll have a good feel for what kind of entity you'll want to form.

[Steve B]

You missed the word "usually" in my response.

[nealrm]

It does sound like a good deal. One thing I would work out up front is the max amount of time each week you would put towards his projects and how they would be prioritized. You don't want to go into this with you thinking one thing and him another. By working out those details in advance, you can prevent some hard feelings later.

I would look at how much liability you will have as a print shop. As a small business most credit and loans would be personally guaranteed. So no matter how you arrange the business, those would come back against you.

[greenoak]

how much of the business was not from the boss's resturants? you wont be getting all that money....hopefully you have deeply looked into expenses....
sounds pretty good to me if there is other good customers of the buseiness already...
. i would love to hire a good graphics shop if there was one around me...we have a big store that needs more than we can make....so the need is probably there, plus for birthday parties and events, etc etc...

[Business Attorney]

It does sound like a great deal, if all you are paying him for is the value of the equipment and other assets, and getting a guaranteed revenue stream that will pay you a multiple of that (assuming that the discount is no so large that it makes it tough to survive, which doesn't sound like it is the case).

If you are the only one working in the business, conducting business as a sole proprietor or LLC is usually best. In most states (California and Illinois being notable exceptions), the initial cost of forming an LLC is very low, in some cases no more than the cost of filing a trade name as a sole proprietor. Given that there are advantages to an LLC such as limited liability and continuity of the entity if you eventually bring in a co-owner, it typically makes sense to form an LLC.

In most states, an LLC isn't required to have a written operating agreement although I generally recommend one even for a single member LLC (SMLLC) (http://www.limitedliabilitycompanycenter.com/what_is_a_single_member_llc.html). While I think it is always best to get legal and accounting advice before forming a new business, forming an LLC on your own is a pretty simple straightforward process if you decide to do it yourself.