Startups 101: Business Basics for Kidpreneurs and the Parents Who Love Them
Ready? Set. Start(up).
If you have a promising kidpreneur or future founder in your family, it might be good to know a few logistical things about starting a business. Your daughter may not care to move much beyond lemonade stands and babysitting, but if she does decide that she wants to start a legit business, it’ll be helpful to know some of the basics for how to make that happen.
This Startups 101 for young entrepreneurs will get you started.
Young Entrepreneur Basic Steps
First, make a plan.
A good strategic plan is the foundation of any startup. The importance of planning and scoping out the big picture can’t be overlooked. For example, if she wants to start a business that involves animals, what will she sell—pet sitting services? Dog treats? Or maybe a dog-walking service? If she wants to create a child care or babysitting business, help her think through what could set her business apart from other girls doing the same. She might want to take a CPR or first aid course or create business cards with references or qualifications.
How much time does she think the business will take and how will she balance it with her other activities? Will she borrow money from you to get started? Other family members? Use her savings? These are good questions to ask and discuss to get a high-level picture of what a small business will entail.
Second, make a plan.
Not a typo: You need a business plan, as well. Let’s say your daughter has decided she wants to sell organic pet treats, and she even has a recipe ready to go. Next step: Have her create a list of all the equipment and supplies she’ll need to launch her business and approximately how much money she’ll need. This is when she maps out her cost of ingredients and supplies to figure out how much she can charge per unit to make a profit and still sell at an attractive price. There are some great business plan templates out there, including this kid-friendly version at Bizkids.
Open a bank account with her.
Open a joint bank account in both your name and hers so she can see how her money grows and/or declines based on expenses and income. If possible, keep all her business activity confined to this one account so she can get a realistic sense of how expenses impact her profits. This will encourage her to make smart financial choices.
Learn and manage any legal requirements.
Just because your daughter is a minor, it doesn’t mean she’s exempt from business laws. Child business owners are subject to the same rules and legal requirements as adults. You can find out if any local licensing or permits are needed from your local city/county clerk’s office or secretary of state. In particular, food service businesses will require permits as they grow.
Be mindful of tax laws.
If your child’s earnings are greater than $400, she’ll need to file her own tax return. Most likely, she won’t earn enough to owe income tax, but she will need to pay self-employment tax. You can help her prepare for this by having her set aside a certain percentage of her earnings for tax time and by encouraging her to maintain records of what she spends and earns. Keep in mind that your child won’t get the deduction for her personal exemption (you can still report her as a dependent). But the good news is she’ll pay tax on her income at her rate, not yours. It might be tempting to let your daughter’s business fly under the radar, especially if she’s not earning much over $400—but you can look at this as a great teaching opportunity, both about tax laws and business ethics. And if she’s super successful and really starts raking it in? Hire a professional to help you.
Form an entity
Depending on the type and scope of the business, you may want to think about forming an official company structure. While most young entrepreneurs operate as sole proprietors, this business structure can put your family’s assets at risk if something should happen with your child’s business venture. Here’s a quick look at three basic business structures:
• A sole proprietorship is very common. It’s easy to form and gives the owner complete managerial control. The downside is the owner is personally liable for all financial obligations of the business.
• A partnership is two or more people who agree to share in the profits or losses of a business. A primary advantage is that the partnership doesn’t bear the tax burden of profits or the benefit of losses. Profits or losses are “passed through” to partners, which they report on their individual income tax returns. A primary disadvantage is liability, similar to a sole proprietorship.
• A limited liability company (LLC) has become a common small business structure with several advantages: it protects your personal assets against lawsuits, cuts down on paperwork compared to other business types, prevents your business from being taxed twice, and lends some credibility to the business. It’s the simplest way to structure your business in order to protect personal assets.
This is by no means an exhaustive list, but hopefully we’ve given you a good start to thinking about the right way to set up your daughter’s business before it goes viral. And while we have you here, we’d love to introduce you to some girls whose businesses have already taken off. Meet some of our favorite girl entrepreneurs.