Establishing your pet sitting business as a legal, state-certified entity confers several advantages. It adds legitimacy to your enterprise, facilitates the deduction of business expenses from your taxable income, and it satisfies prerequisites to obtain a business checking account. Business checking is useful to minimize fees, enable payment by credit card, and provides a method to separate personal and business holdings.
If you are interested in starting a small business, here are the key steps to get you on your way. Start-up cost estimates have been included.
Step 1 – Go to a Small Business Center Network location at a municipal complex or community college nearby to find free resources on how to start a small business in the state you live in. Unlike this list, however, it will not be tailored to pet sitting. Stay with me.
Step 2 – See an accountant. The consultation fee to setup a business is less than $100 but will save you thousands over the life of your business. Your accountant is able to decipher nebulous and ever-changing tax codes so you may set up the appropriate type of business entity, prepare deductions properly, and complete your taxes (additional fees apply).
Step 3 – Develop a Business Plan. This excellent idea may be an optional requirement in your state. It is generally required only when applying for a startup loan, selling the business, or if sponsors, partners, or third parties will be involved in your dealings. A business plan describes the services that will be provided, advantages to using your business, an overview of market competition, and business development strategies.
Step 4 – Attain state license information and Federal referrals. The secretary of state website (in your state) will have a searchable list of registered businesses. This will help to choose a business name that isn’t already in use. Web Hosting services utilize a similar tool when setting up a website to verify that the URL you wish to use is available.
Step 5 – Set up a website! This is an entire blog topic all by itself but once you have a name established, building a professional looking website is a vital component to any business development plan.
Step 6 – Once a name is established, the secretary of state website will have online forms for the type of business you wish to establish. Pet sitters may begin as a Single-Member Limited Liability Corporation, and in North Carolina this form is called the Articles of Organization. Expect a $125 fee for startup and around $200 to renew each year.
LLCs usually are required to complete an Annual Report each year (due on April 15). The Annual Report requirement is in place to verify a business is still operating, and that the contact information for the Owner and Legal Agent are unchanged.
Important: Establishing your pet sitting business as an LLC does NOT automatically indemnify you from an unfortunate event such as a dog injuring a third party. Injured parties may still file a civil suit against you personally.
Step 7 – For a LLC, an Operating Agreement may be required. This legal document defines the business, identifies its registered agents, lays out how proceeds will be allocated, and provides other descriptors of how the business will be managed. A lawyer, or an online legal technology company, can provide this legal document. A typical fee for this is $300.
Step 8 – Apply for a Tax ID number from the IRS. You will need an Employer Identification Number (EIN) to open a business checking account. Businesses also use an EIN for payroll distribution tracking and credit filing, should those become applicable to your operation.
Step 9 – Register for a Business (Privilege) License in your town or city. Anticipate a nominal fee ($25 or so) to acquire this.
Step 10 – Establish a property tax account with your County Revenue Department. This is where you establish your home office dimensions, which is important for tax deductions. You may list your computer, desk, and other relevant assets as taxable business property. The tax burden here is small (less than $50) compared to the benefits of establishing a home office.
Step 11 – Research local and state permits, zoning, and inspection requirements. There is a long list of commercial and industrial activities that are not permitted in a residential zone. Establishing a home office for your business is not one of them.
Step 12 – Procure business insurance. Pet sitting is interesting in that you can’t run down to the nearest Progressive or State Farm office and sign up for pet sitting insurance. You can obtain insurance by joining a national pet sitter organization like the National Association of Professional Pet Sitters (NAPPS) or several others. I joined NAPPS, they charge $160 a year to be a member, and basic pet sitting insurance is at least $400 per year. These fees are tax deductible.
The running total of the cost estimates mentioned in these steps is about $1,500 (all tax deductible). After year 1, expect to pay around $1,000 per year for renewals.
Taking the classes required for Pet CPR and First Aid certifications is highly recommended. You may never need to save a pet’s life during your career, but it definitely is better to have it and not need it. Besides, it is a confidence booster for you and your clients. Also be mindful of local emergency vet locations and keep a first aid kit (or two) handy in case of mishaps.
Notes on Limited Liability Companies
Limited Liability Companies (LLCs) were invented in Wyoming in 1977. Twenty years later, LLC statutes had been adopted in all 50 states to encourage small business growth. LLCs are the most popular and the most flexible business structure for business owners, entrepreneurs, and real estate investors.
LLCs provide liability protection so that the personal assets of owners are protected against creditors. LLCs also offer pass-through taxation. This means that company income passes through the owner’s individual tax return. LLCs offer relevant advantages when compared to sole proprietorships and corporations.
A sole proprietorship is when a person operates their business as themselves. These owners risk losing property assets if their business loses in litigation, since courts can hold them personally responsible for debts and liabilities. Advantages of a sole proprietorship include pass through taxation, ease of setup, and flexible management.
A corporation is best suited for companies that need to raise a significant amount of money to run a large company with shareholders and investors. Corporations must also elect a Board of Directors and Corporate Officers. Aside from being complicated and costly to maintain, corporations must pay taxes at the federal level, and the owners pay taxes again on their dividends (double taxation).
Although companies and corporations are designed for liability protection, serious violations involving fraudulent use of company funds, or negligent practices that cause third parties to be severely injured, may pierce the corporate veil.
Featured photo – Puppy Duncan already knows small business like nobody’s business. That’s Rex napping in the background (November 2020).