Some things do grow in the desert.
Take, for example, the entrepreneurial spirit that has been cropping up all over Nevada, giving way to a rash of small businesses in recent years. As independent companies continue to bear fruit, one thing is becoming glaringly clear: When you want to get your own business off the ground, it is crucial to avoid the pitfalls.
Accomplishing that requires some education and possibly some assistance – there is no centralized governmental agency where you can go on your own to get all your questions answered and your needs met. But let it suffice to say that operating a business in Nevada is truly a tri-level affair. The state, county and city hold the key that can literally open the door of a company or proprietorship correctly, without costly errors. These three entities will give you license…as well as permits and anything else you need… to operate your business, based upon your type of operation, the activities that will be taking place in your facility and the locale.
Negotiating The Regulatory Maze
“When you’re opening up a business, you have to check in with the state, county and city governments to determine what licenses are needed,” says John McKearney, a CPA with SCORE (Service Corps for Retired Executives), a resource partner of the Small Business Administration. “The place that has the most requirements and the most focus is the county. I would start at that level and fill out the necessary applications – the county will assume responsibility and tell you what you need. You’ll then want to follow up by going to the state and local governments and find out from them what you need on those levels. The state will want control if you’re incorporating and it is the state that is going to want to tax you. But it is the county that is really in control.”
One of the functions of SCORE, which has offices in Las Vegas and Reno, is to advise people on how to start a business or actually help them start it. McKearney explains that the first step depends on the type of business you want to open. In general, though, he says that people should take the following steps in this order: 1) get licensed; 2) contact a banker if a loan is needed; and 3) if you’re going to incorporate, file incorporation papers. Many of the necessary forms can be located on the web site for your county. Except for the more complicated situations, a business license only costs a few hundred dollars.
Still, McKearney warns, licensing is not the only concern in starting a business. “If an entrepreneur is a sole proprietorship operating out of the house or a little shop, it’s fairly easy to get licensed,” McKearney says. “Once you start talking about inventory and inventory display, it starts to get complicated, not from a licensing standpoint but from a planning standpoint. You need cash to get the inventory, which you want to minimize. That means inventory planning. Then you have to search and find a suitable place from which to do business – you might have to modify the premises to suit the way your business is presented. You might need permits to get something done – a permit is given for a specific function such as to build-out (expand) a store and it expires after the function is completed.”
“On the other hand, a license is for operating a business,” he continues. “It is really a judgment about controlling your activities. There are no pitfalls in licensing – the main pitfalls I see are that people haven’t done enough research to see if they should go into business. Statistics show that three out of five businesses fail within the first five years. The main causes of failure are undercapitalization, lack of planning, lack of experience and lack of market research. You have to determine if there is a demand for what you are doing. You have to analyze the competition and see if you are offering something better so that people will leave the service or product they are currently using. You have to examine your personal motivation to see whether this is what you really want to do with your life and whether you want to make the commitment in time and effort. You have to do a lot of homework and you have to have a plan. I always say that you wouldn’t get in your car and drive to Kennebunkport, Maine, without a road map so why would you start a business without a business plan?”
McKearney also makes the point that each business may require specific licenses Someone who operates an Internet business from his home would only need minimal licensing, assuming that the business is not incorporated. But someone in the printing business would need the regular operating licenses, plus the environmental department of the county would require him to comply with its requirements for handling hazardous material. People who own a business entailing slot machines have to deal with gaming regulations. Those who buy a product such as jewelry from a source and then sell it door-to-door need a resale certificate since they are tax exempt on what they buy but collect taxes on what they sell and are technically collecting them for the state.
Starting a construction-related business is even more complicated. Besides a normal construction permit, a contractor’s license is needed, and there may be all sorts of other issues, such as environmental and dust control permits and the like. And if you think that’s difficult to follow, then take the case of a restaurant that has slot machines and serves alcohol. “In this circumstance, the county not only wants you to have a license, it wants to control your activities because you’re into gaming and alcohol,” McKearney informs. “It’s not only interested in getting licensing fees, it wants to protect the public and make sure you’re the right person to own that business. Extensive background checks will be done; the food is subject to state and local health district laws and there are separate regulations for alcohol and gaming.”
There’s also a whole professional area of licensing under which such people as taxi and limousine drivers, carpenters, exterminators and the like fall. In this case, the state actually provides a license to qualify you to perform a service. One thing to remember is that a contractor’s license or limousine driver license says that you’re qualified to perform a service, but it doesn’t give you the right to be in business. You still need a business license.
If you live in the city of Las Vegas, for example, you need a business license from the city, another from the county and one from the state. And each city is different. There are some counties in Nevada that don’t have business licensing, so it’s important to check local regulations. If you have employees in your business, state labor laws, workman’s compensation, unemployment insurance and risk management may have to be dealt with as well. Tax laws are another issue.
One good source for information about regulations in your area is a web site sponsored by the Center for Business Advocacy, an office of the Nevada State Department of Business & Industry. The web address is www.state.nv.us/binn. It contains a New Business Checklist for both southern and northern Nevada, as well as information about, and Internet links to, licensing requirements, government programs, financing, small business resources, and other valuable sources of information and advice.
Should You Incorporate Your Business?
One way to protect yourself against liability of any kind is to incorporate your business, which provides a layer of protection called a “corporate veil” between the individual and his business. “One of the main benefits of incorporation is limited liability, meaning that once you put a corporation in place, it is like another person that can do everything that you and I can do in business except think,” says Casey Andrews, Sales Manager for Laughlin Associates in Carson City, a business service that sells already formed corporations. “So if a lawsuit does come down the line, the corporation would actually be the business and the person would only be the employee of the corporation. As long as a person is acting in the best interest of the corporation, he would not be personally liable. It is a statistic that every person living in the United States will be sued five times in his or her lifetime on the average. Everyone is at risk whether his business has a high liability or a low liability. Anyone who has customers, vendors, contractors, etc. would benefit from incorporating.”
Andrews says another benefit of incorporating is that there is no corporate income tax in Nevada. Plus, a corporation has the distinct benefit of being taxed as a separate entity and is able to write off items an individual cannot. And a corporation can live forever.
“One of the easiest ways for the corporate veil to be pierced is by not maintaining proper corporate formalities,” warns Andrews. “If the corporate veil is pierced, the corporation is disregarded altogether and you will be looked upon as an individual. Therefore, whatever the reason you incorporated, it has just gone down the drain. Corporate formalities are rules and guidelines that all corporations must follow in order to be treated like a corporation. They include keeping minutes of the annual board meetings, using bylaws, writing resolutions, and issuing stock. You must remember to sign documents as an individual and not as an officer of the corporation and avoid co-mingling funds, which means using a corporate bank account to pay for personal items for personal use.”
According to Andrews, corporations can be formed in numerous ways. It can be done by the individual filing paperwork directly with the Secretary of State; again, the forms can be gotten from the Internet (the Secretary of State now has a web site). However, this method leaves room for error because most people have never formed a corporation before. And that’s where the services of an attorney or a company like Laughlin Associates comes into play.
“Laughlin Associates sells already formed corporations complete with all the paperwork, instructions and other necessary instruments to operate a corporation effectively,” Andrews comments. “It all depends on the Secretary of State. The process normally takes two to three weeks, but you can get an expedited corporation if you pay an expedite fee.” The Secretary of State filing fees are based on the amount of authorized capital in the corporation. They start at $125 and cap at $25,000.
“The day before you start doing business is the day you should incorporate,” Andrews sums up.
One thing’s for certain – there’s no business like your business, so mind your own business…carefully.
