I have written several times about how many resources are out there for entrepreneurs.  This is especially true in any place like Darden and the University of Virginia.  Here we are lucky enough to have both people with significant experience in entrepreneurship and several young entrepreneurs we can learn from and share ideas with.

A few benefits I have received from my network already include banking help, free legal work, and help in recruiting and selecting interns.  Today I had a great opportunity to sit down with Rick White, a CPA, who I was introduced to by Philippe Sommer, the Director of Entrepreneurship Programs at Darden’s Batten Institute.

Rick and I had a phone conversation about a month back and agreed to meet closer to the launch of scrubadoo.com.  We spent about an hour talking about the company and, more importantly, the things I need to be thinking about now, that will make our books and tax statements easier to handle in the future.  I wanted to relay a few key points that anyone else working on a start up may find useful.

1.  Make sure you have a thorough operating agreement (everyone I talk to emphasizes this).

2. You are responsible for paying taxes, sales and income, in any state that your company has “nexus” in.  Every state differs slightly in what defines “nexus” but there is a loose rule to follow it is defined by property, employees, or sales. (Remember this is loose and I am not an accountant).

• Property -  If you own or rent property in a state that you operate from you will likely have nexus in that state.
• Employees – Any state that you have employees in likely qualifies you for nexus in that state.  What is defined as an “employee” can vary greatly state to state.  These days states are doing everything they can to define this term loosely so they can create revenue.
• Sales – Any state that you sell from, i.e. have a storefront, qualifies you for nexus.  In the case of e-commerce your “storefront” is the state in which your servers are located.

3.  If you hire people on a contract (1099) basis, which we will likely do, make sure they sign the appropriate tax paperwork prior to issuing their check.  We, like many small businesses, will utilize the 1099 as a way to avoid payroll issues that can be expensive and time consuming.  There will be a point when we need steady full-time help and at that time we will move to the more traditional payroll system.

4.  Any start-up costs a company has prior to the time that they are physically ready to bring in revenue can be capitalized.

5.  QuickBooks is a solid program for any small company.  We use QuickBooks Pro, mostly because the inventory features are superior to the free version.  If you don’t have inventory I think you can get away with the free version of QuickBooks.

Rick also went through what will happen at tax time and what we would need to provide an accountant, the costs associated with it, and what we can start doing now to be ready for it.  He answered all of my questions, was a huge help, and did it pro bono for the first meeting.  If you are interested in talking with him I don’t think he would mind an email at rwhite@hoffmanwhite.com.

Aside from the accounting advice just remember that it isn’t enough to have a network.  You need to take advantage of that network.  Don’t be afraid to ask for help and you may be surprised at how willing people are.

-Brett