What do I need to worry about behind the scenes of a wife's business?
November 20, 2016 9:22 AM   Subscribe

My wife wants to leave her teaching job and do Teachers pay Teachers full time with her mom. I have some questions before they go full fledged into this.

My wife is wanting to try doing Teachers pay Teachers full time (basically Etsy for teachers for those who don't know) and leave her teaching job. I have full faith in that part of things, but I do have some questions about the behind the scenes parts.

1 - What's the best type of business to form if the business is under 5 employees? Right now the plan is for my wife and her mom to be the main people involved. That will probably be it, but I'm leaving the option open here for growth later.

2 - Her dad and I might get roped into doing enough things to need to worry about. Do we need to be employees? Do we need to be paid a certain amount as contractors? Do we even need to be paid at all?

3 - What accounting programs will handle taxes and payroll easily and efficiently? The way Teachers pay Teachers is set up we're both thinking that the easiest thing will be for Teachers pay Teachers to pay my wife and for my wife to then pay her mom whatever ends up being owed that way. Every computer we'd have access to is Windows running Windows 10.

4 - How would you split the money earned in the situation I've described? Right now they have an Etsy account together and sell some of that stuff at farmer's markets and craft shows, where they split the money based on who made the product that sold. Sales aren't huge here, and they're using this for extra spending money as opposed to survival living off of money. So they can obviously work together under that setup, but would it make more sense to split it so that they both get part of every sale? Especially with the fact that my wife will be handling a large portion of the behind the scenes stuff.

5 - I'm assuming having a separate bank account for the business is the way to go here. What should we be looking for in a bank account for the business?

6 - Is there anything else you can think of that we should be considering?

Thanks for your time.
posted by theichibun to Work & Money (8 answers total) 4 users marked this as a favorite
 
I know nothing about the kind of business you're talking about but I absolutely you recommend talking all of this out with an accountant. Fees for an accountant would be tax deductible for the business so you should not skip this step. You should start the discussion by saying that you want to be self-employed and it would be a partnership, your wife and her mom. Then go from there. Because your income will wildly change from one tax year to the next, you need to know what the tax implications are. DO NOT SKIP THIS STEP. (You may want to get your other ducks in a row and then do this step after the first of the year to wrap all your biz expenses into one tax year but contact an accountant now and you may get some early free advice.)

Assuming you are U.S., I think your wife and mom should be a partnership. You should all log your time in support of this business but you and your Dad should probably not expect to get paid. My gut says something called "Etsy for Teachers" is not going to be a big money-maker but who knows? In your own family, you should have a good understanding of what your "break even" number is as a household. You should have a budget that shows how much income you take in and where that income is allocated on a monthly basis. When I started my business a year ago, I took a look at the minimum required for me to bring in in order to ensure that our household basic needs were met and that our lifestyle was essentially staying the same. For the first three months, I met this minimum requirement through savings. After that, as income started to roll in and startup costs were reduced, I started easily making that amount. Now, at years end, with careful tracking, I can look at how I will spend my profits.

One way to spend your profits is with a Simple IRA. Talk to your accountant about this. For myself and any employee, I can put a % of pay into an IRA account and this counts as a deduction. For this first year, I will put money into a Simple IRA for myself and we are looking at next year, doing similar for my husband who contributes to the business but currently receives no pay.

I use a regular checking account for my business that is separate from our household accounts. This is a must. She should pull in any savings that you are putting toward the business into that account. If she and her mom want to be able to draw from that, then she may need to see about opening a joint account and look into whether a business account makes sense.

On pay, I think that they should track their time and their production. They should probably start out being 50/50 with a set paycheck and then re-assess quarterly and then have a plan for a "bonus" at the end of the year if that's how things go. Don't forget re-investment in the business for the next year and savings for lean times. They should look for a free online time tracker or something for their phones. They should look for something that lets them do start/stop times, date, and a "notes" field at minimum.

They should also track their expenses and mileage. I really love the XPense Tracker app - you can enter in all the details of your expenses and take photos of the receipts in the app. Make sure the mileage rate is updated to the current IRS mileage rate, though. Export expenses on the monthly and review them.

Year 1 - you and your Dad should not expect to be paid. However, you should be expected to have a collective understanding of what the startup costs are. I started a small side project with a friend and we started off by saying, okay, how much money can we commit to losing to explore this project? We both put in $500 to explore it. We have a spreadsheet that says, +$1000 at the top and as we put expenses in toward the project, we update the spreadsheet to show who spent what. We will each do our own taxes and I believe (have a call to my accountant this next week) we will each claim whatever expenses that are our share including mileage. Here's info on sole proprietorship and partnership.

Year 2 - you expand or contract as necessary. Learning is not a failure.
posted by amanda at 9:58 AM on November 20, 2016 [3 favorites]


Yeah, most of your questions should be directed to an accountant.

For practical matters like "what software" and "what bank account" the answer is: the cheapest option available until you actually have a running business. Realistically this could and maybe should be spreadsheets - Excel if you own it, you can find templates out there for basic bookkeeping, Google Sheets will also work - because it forces you to fully and completely eyeball up to your assets and liabilities. One person can easily keep up with 10 orders a day doing manual entry, in less than 30 data-entry-minutes a day, and hard truth: ten orders a day may be some ways off yet. The visibility of a simple set of spreadsheets is one of the ways you can best learn to run your business.

You are miles off from needing payroll functionality, ("doing payroll" is for companies with employees, which this isn't and that point would be at least a year off, if ever, and I urge all my customers with more than maybe 10 employees to use ADP or Paychex or whatever else is out there right now for payroll services) but the cheapest version of Quickbooks will do as a step up from spreadsheets. I've migrated companies doing millions of dollars in revenue off Quickbooks onto something fancier (and half of them could have stayed if they didn't have more complex inventory purchasing or manufacturing needs than QB can do), Quickbooks will suffice for you for quite some time.

Just watch your costs there, because this kind of competition market means slim margins, don't eat them up with hugely overpowered software that runs $20+/month. (And there are quickbooks competitors, but I have found that most of them are only really good for freelancers who get paid for services rather than products, and they lack actual ledger accounting and don't have much/anything to offer in terms of inventory management or job costing, which are things you might care about eventually.)

Decide on your business wrapper - likely sole prop or partnership - and get that paperwork done, because you'll need that paperwork to open a bank account. For my husband, who's a full-time independent contractor with a stage name, he just got a D/B/A and took that to Chase, where the rest of our accounts are, and got their basic business checking account. The fees are pretty minimal since we have three other checking accounts, two savings, and three credit cards with them.

My primary advice is don't let big dreams get in the way of the fact that you are, right now, a very small business. All things are upgradeable more easily than they are downgradeable. The IRS is not laying in wait to get its hands on your tens of dollars if you make a mis-step (but sometimes your state/county/city is eager to get every one of your pennies it can, which is why you talk to a local accountant), it's actually pretty hard to screw this up.
posted by Lyn Never at 10:38 AM on November 20, 2016 [2 favorites]


Even as mother-daughter, seriously consider having a work contract drawn (of any sort).

I'm not so much a cynic, but am pragmatic. And businesses evolve - what if mom thinks they should be making more of one thing than another? What if another company comes by and loves their crafty widgets and wants to buy out the business or invest? What if daughter decides she wants to jump ship? Or mom's not carrying her own weight anymore?

These kinds of things happen everyday band everyone assumes all parties will be on the same page and see things the same way at every step. It's rarely the case.

If you're going to start a business, assume it will be successful and have a contract that reflects it.

It's a business, it's not personal and it's not family. Sometimes business decisions need to be made and feelings have no place there. And a real working contract is the first step.
posted by crankyrogalsky at 10:55 AM on November 20, 2016 [3 favorites]


4 - How would you split the money earned in the situation I've described?
This question can't be answered unless you also think about how they're going to split the costs they incur in earning the money - everything from the price of supplies to the accountant's fees.

Also, does your wife have a plan for health care coverage and retirement savings? Healthcare and pensions are pretty big factors in most teacher's contracts, and she'll need to factor the cost of replacing them into her thinking about whether this business might be viable.
posted by une_heure_pleine at 11:55 AM on November 20, 2016 [1 favorite]


If it's like Etsy for teachers it'll pay like Etsy, right? Their customers will check out and pay, T4T gets their cut and then they pay you via PayPal or direct deposit to your checking account if the customer uses a credit card. If you reach the dollar threshold they'll issue a 1099. Here's my concern, though- my wife is mostly retired but she earns money selling vintage goods on Etsy. Some superstars on Etsy quit their day jobs, but my sense is they're rare. My wife doubles her social security income, she works 50 hours a week at it. Will it be enough revenue for two people? It looks like a few people have quit teaching to do it full time but maybe they are outliers?
posted by fixedgear at 12:03 PM on November 20, 2016 [2 favorites]


I'm not familiar with Teachers Pay Teachers, but if this is structured like Etsy, the best way to do this is basically the opposite of what this question is asking about, assuming that this is not a longstanding business that your wife is looking to "quit her dayjob" to do full time. But then if that were the case, few of your questions would make any sense.

Your wife should approach this from the direction of having an idea of what product or service she'd like to offer, FIRST, and THEN afterwards think about literally anything else you've mentioned, including quitting her job, hiring employees, accounting software, etc.

After she decides what her product will be, that would be a great time to do preliminary stuff like name the company, set up a Teachers Pay Teachers account, online store, come up with a logo, and otherwise develop what the business is and how it will operate in the shorter term, in a sustainable way, WITHOUT your wife quitting her job or hiring any other employees. This is how most Etsy users get started. Part time, mostly as a labor of love, with one person and the small-scale architecture of an Etsy store. This might also be the time to think about accounting and tax implications, just so that she's doing the books the right way from the beginning. There's probably no need to incorporate as a business right now, unless she's already making money doing this and needs to for tax or legal reasons.

Then, after she has developed a customer base and is turning a tidy profit, that would be time to start thinking about quitting her dayjob, bringing in other people, etc. Especially if, with her other obligations, she is not able to keep up with the demand for her services.

Example: someone I know started an Etsy store a few years ago to sell her calligraphy services and a few products related to that (she makes fancily lettered stationery items). At first, she was doing it as a hobby while she worked full time at her main career. It's now been a year or two, and her store has started to turn a profit. She is now working part time in addition to running her calligraphy business/Etsy store. She is hoping, in the next couple years, to transition to doing the Etsy store as supplemental income while she's a stay at home parent. The idea of the calligraphy business as a full time job isn't even remotely on the table yet, after over a year of doing it. The idea of employees, payroll, how much to pay people, profit sharing, etc. would be a pipe dream to even consider discussing.

Now, obviously businesses can grow faster than my friend's. It also probably depends what one is doing, what the profit margins are like, and how much demand there is. But if this isn't something your wife has already been making money at for years, all of this is very premature.
posted by Sara C. at 1:21 PM on November 20, 2016 [7 favorites]


I occasionally purchase from TpT, but I can't imagine giving up a full time job to create materials. It surely can't be lucrative enough to replace the benefits and salary you earn in a full time teaching position. Plus, once you are out of the classroom you are not in touch with what is needed by others in the profession. A compromise would be for her to go with a half-time teaching contract until she sees how well this is going to go.

As for all the other stuff, definitely sit down with a good accountant.
posted by OkTwigs at 1:24 PM on November 20, 2016 [8 favorites]


1 - What's the best type of business to form if the business is under 5 employees?

A partnership for now, then an LLC as profits pick up and they start employing people regularly part- or full-time. Contracts for everyone, including them. Consult an accountant and a business lawyer to assist with creating a business structure and bylaws.

2 - Her dad and I might get roped into doing enough things to need to worry about. Do we need to be employees?

No. If they do pay you, they can hire you as contractors. Any contractor receiving over $600 in a fiscal year needs to be issued a 1099. Depending on your state, businesses with over a certain number of full-time employees are sometimes required to pay health insurance and pay into workers comp insurance.

Do we need to be paid a certain amount as contractors? Do we even need to be paid at all?

Need? No, not legally. You are perfectly free to work for the company for no compensation. Whether that's ok with you is your choice. If they do pay you by the hour, minimum wage laws will apply.

3 - What accounting programs will handle taxes and payroll easily and efficiently? The way Teachers pay Teachers is set up we're both thinking that the easiest thing will be for Teachers pay Teachers to pay my wife and for my wife to then pay her mom whatever ends up being owed that way. Every computer we'd have access to is Windows running Windows 10.

Quickbooks is fairly easy to use. You will have to buy it. They can also set up spreadsheet to track income and expenses at first, while it's small and things are simple. If things grow quickly, they can also outsource accounting and payroll to a third party organization.

4 - How would you split the money earned in the situation I've described? Right now they have an Etsy account together and sell some of that stuff at farmer's markets and craft shows, where they split the money based on who made the product that sold. Sales aren't huge here, and they're using this for extra spending money as opposed to survival living off of money. So they can obviously work together under that setup, but would it make more sense to split it so that they both get part of every sale? Especially with the fact that my wife will be handling a large portion of the behind the scenes stuff.

If your wife would like to be compensated for administrative duties, she needs to work out with her mom what rate she will do that work for, and track her hours. They could agree to each 'pay' 50% f that expense, and the rest of the profit is doled out to the creator of the item(s) sold.

5 - I'm assuming having a separate bank account for the business is the way to go here. What should we be looking for in a bank account for the business?

Absolutely necessary. You can use the EIN and DBA paperwork to set up a business bank account. Credit unions usually have the best rates for fees etc, but not all of them do business accounts. Compare all your local banks and see what each requires in terms of minimum balances and fees.

6 - Is there anything else you can think of that we should be considering?

Are you comfortable as a couple for the business to cost more than it makes at the outset? Are you comfortable living without her regular salary? Will she be able to go back to teaching if it doesn't work out, or if she doesn't like running the business?
posted by ananci at 4:26 PM on November 20, 2016


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