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Vol. 1 issue #14 May 29, 2002

 

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So you want to start a web business -
well let me tell you something....... Part I

2002  John Bubula



Like a lot of people, we often thought about having our own business, but weren't sure what to do.  One day my wife, Kim, was talking to her brother, Chris, and he started to talk about his six pack abs. 
Not to let an opportunity to needle my brother-in-law go by, I told him he didn't have six pack abs, but had twelve pack abs from all the Budweiser he drinks.  Of course this brought on an insult melee, which turned into a brainstorming session on a company called 12 Pack Abs., which offered humorous athletic apparel. 
As the discussion progressed, we felt that it was a novel concept to offer this kind of athletic apparel, but "Abs" was too narrow and thought Gym would be more encompassing.  From that point on a business concept was born.  After that we met almost nightly, getting ideas for different shirt designs.  When we had ten or so, Kim, who is an artist, drew up color pictures so we could see the designs.  What transpired below are our experiences in setting up our company, 12 PACK GYM, Inc., and our web site www.12packgym.com.

Domain Name

Since none of us ever put together a business before, the prospects of doing so appeared daunting.  However, we figured we were a reasonably smart group of people with backgrounds in business, art, management, and distribution.  The first order of business was to secure a domain name or internet address.  I got a recommendation from a coworker. 
I looked up that company on the internet, and they were offering a two year registration for forty dollars.  I did a search on www.12PACKGYM.com, and it came up as available.  The price seemed reasonable, so I signed up for www.12PACKGYM.com domain name.  I later came to learn that we could have gotten that cheaper if we had researched other companies that offer that service.

What type of business


The next order of business was to figure out what type of business we wanted to be.  Since there are three of us, our choices were Partnership, Limited Liability Company or L.L.C., or a Subchapter S Corporation.  Each entity has its own advantages and disadvantages.  Partnerships are relatively easy and inexpensive to set up.  The downside to them is you have unlimited liability.  With an L.L.C. you have the income treatment advantages of a partnership, but you have limited liability.  The downside to these is that they are more complex and cost more to set up.  Also, there are differences in how L.L.C.'s are treated depending on what state you are formed in and doing business in.  In addition, if you get into legal trouble, because of their relative newness, there is limited case law for these entities.  The last type of entity and ultimately the one we went with is a Subchapter S Corporation.  These are actual corporations that you own stock in where the IRS treats income distributed to the shareholders like a distribution from a partnership.  You have limited liability.  There is very strong case law for this type of entity and the rules are the same no matter which state you are in.  The downside to these is that they are complex to set up; there are a host of different filing requirements with the state you are incorporated in, and they cost more to set up.  We set our S Corporation up with the assistance of a company called Par Corp Services, LTD, which I found on the internet.  For a fee of approximately $400.00, they filed the necessary paperwork with the State of Illinois to incorporate 12 PACK GYM and answered questions we had.

 

 

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Sales tax and payroll


There are also additional things to be aware of when doing business.  In Illinois we have to collect and remit sales tax to the state.  Because we are so small, this is done on a quarterly basis.  The state contacted us shortly after we were incorporated. 
They also need to know if you have employees for payroll tax withholdings.  Another beneficial thing to get from your state is a tax exemption reseller's certificate.  You contact your state government, in Illinois they have a web site, and apply for a tax exemption number.  Once issued by the state, you can use it with your suppliers to not pay sales tax on materials used in the creation of your product.  The theory is that the tax will be collected and remitted to the state when that product is sold to the end user. 
Be careful only to use this for things that are ultimately sold to the end user, otherwise, if audited you could face back taxes, penalties, and interest.  Look through your state's web site or call them.  They are happy to help you with making sure you are following all the rules and doing things properly.

Suppliers 

Another critical element to your business is lining up suppliers for the raw materials used in your product.  Kim went on-line and researched dozens of clothing companies and transfer companies. 
We requested information from them and talked to the ones we were interested in using.  Most of them are wholesalers and require the reseller's certificate number.  If you do not have one, they will either charge you tax or not sell to you.  I would also suggest you find different, multiple companies that offer the same or similar products that you can use in production of your product. 
This is just in case one is out of stock or goes out of business, you have another place to go to get what you need.
At this point, you will need to also think about is packaging. 
A good starting point for packaging materials is a company called Uline.  Generally, their prices and selection are the best and you receive your order the next day.


Shipping


Another decision you will have to make is on shipping.  Who will deliver your goods to the customer?  Chris looked at all the big names like Federal Express, UPS, and the U.S. Post Office.  For our purposes the U.S. Post Office Priority Mail was the best solution.

Accounting

Keeping track of your company's financial information is critical.  There are numerous accounting software products on the market for small business.  Depending on the size and complexity of your business, and your own comfort doing accounting, will dictate to a degree what type of software to buy.  With our business I looked at Quick Books and Peachtree.  Of those two, Quick Books is a good program, but geared for someone not that familiar with accounting.  Peachtree, in my opinion, is a little more sophisticated and has a better inventory module.  I priced out Peachtree on-line and purchased it for around $225.00.

In conjunction with all the above it is advantageous to have a business checking account.  We called around to many different banks and received information on all their small business checking accounts.
We compared fees and services and decided on an account at a local bank that offered free small business checking if we write ten checks or less each month.  Any checks written above that limit we are charge a fee per check.  We can also, at any time, roll that checking account into a regular business checking account, but we will be subject to additional charges. 

To be continued in the next issue.

1. Selling over the website
- website design

- credit cards

2. Marketing

-traffic

--------------------------
John Bubula
CFO
12 Pack Gym, Inc.
http://www.12PACKGYM.com

 
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