Mailbag: Are We There Yet? (When to start monetizing)
Q.: I applied for a Project Wonderful ad box last night, and now I’m having misgivings. I wanted to hop on the ad train for a good handful of reasons:
- My pageviews are consistently between 100 and 600 every day (meaning we’re potentially losing out on revenue)
- I get mentioned/plugged once every 3 months or so, and it’s always a bummer not to benefit financially from the giant influx of readers (even if it’s only for a day or two)
- My goal was always to host ads eventually, and we don’t want people to get too comfy with our unblemished Web site
- As I do more and more work on the Web site itself, I want to design around the presence of ad boxes, especially if I have one up in the banner area since the whole layout will sit lower than it does currently.
- Ideally, comic stuff should be paid with comic money, and if the comic isn’t making money, I shouldn’t spend money improving it. But a longtime goal has been to hire someone to build us a really slick website, and it would be nice to have a little trickle of money coming in towards that.
Green as we are, all of this seems logical to us (I’ll welcome any evidence to the contrary). But then I got to thinking… if we’re making money, it’s got to be taxed. And all that means that we’d formally be a business. So wouldn’t we need to apply for a business license, and a whole load of other things? It sounds like we would based on this discussion I found in the archives.
So I guess my question is…am I there yet? Am I in a position to legitimately worry about ads, and is earning a scant $10 a month on our piddly pageviews worth the trouble?
A.: I agree with everything you said. And I’ll add this Forum discussion for more helpful information — especially this checklist submitted by one of the members. But it’s not as overwhelming as it sounds, so don’t panic!
I’m going to copy-paste it below, but I’ll add that you’d be well-served by sitting down with a trusted CPA before you do anything, abd bring this list with you to discuss it — in case there’s anything they can add or alert you to. (Here’s a thread for sharing infiormation on good CPAs by geographical region, if you need it.)
New Business Checklist
- EIN number (call or register online with IRS.gov)
- Registering LLC, S-Corp, Sole Proprietor, etc. with your State. I personally recommend Sole Proprietor, but talk to your accountant. I also, recommend that you do NOT use the name of your comic as your business name, as you may some day wish to expand and/or kill that comic but not your business.
Both of these will be required first before…
- Get a checking account for your business.
- Keep a ledger (get into the habit of preparing a monthly profit/loss statement)
- Make a business plan (See this thread)
- Create a company logo (if different than for your comic… as suggested). This might be printed on your checks if you wish to be fancy.
- Register business with your city/county clerks if necessary. Check with your city/county. Yes you may have to do BOTH if you fall in their jurisdiction.
- Business Cards (useful for networking situations)
- Register domain(s)
- Register with the D&B for commercial credit. Do the free option… do not pay.
I differ with the member who posted the above checklist in only one category, and that’s the issue of sole propritorship vs LLC. My opinion is that you’re pretty well off filing as a sole proprietor — especially starting out. The big reason to form an LLC is to protect yourself from litigation in the event you’re sued for something you did professionally.
Of course, that’s an uneducated opinion — and you should take it as that. However, in your sepcific case, I’d feel pretty comfortable telling you to start out as a sole proprietor and address it with your CPA.
And later, when you start selling merchandise out of your Web site’s storefront, you’re going to want to register for a sales tax license in your city/state. It’s no big deal. Four times a year (maybe less, depending on your local tax laws), you tally up your sales and pay a percentage. Until then, if you’re only selling at conventions, you’re safe applying for temporary permits with the host city.
First of all, everything you said in your opening remarks is right on target. You need to start separating your professional income, and there’s no time like the present. In fact, as you noted, you’re missing out on revenue every month you let this slip by.
A separate checking account for your business? Easy-peasy. Looks towards your neighborhood credit union first. They’re more likely to have the least expensive options, like free checking, etc. And it’s a great experience to walk in and make these relationships. Later on, when you’re in the position to open a line of credit for your business, these are the people you’ll be talking to.
And, yes, you’ll have to pay taxes on the money you make, but you’ll also be allowed deductions. Everything you purchase in the act of doing business — from your art supplies to convention fees — can be deducted from your income. If you work from home, you can even deduct things like heat and electricity, provided the room you work in is only used for comics-related activities. Measure the square-footage of the room and figure out what percentage of your home’s total square-footage it is. You can claim that percentage of certain utilities on your business taxes. You can also claim business lunches, travel expense, and so on.
If you spend more than you make, you may not even have to pay taxes (or you might only have to pay a little). Just be careful of this game. After several consecutive losses (this source says three), the IRS may step in and classify your business as a hobby. And that’s going to make growth very difficult down the line.
I would encourage someone in your position to “just do it.” Take baby steps. Get a CPA who you trust to guide your steps. And start learning how your business works. This is the perfect time to learn. Later one, when there’s a lot more stuff popping around your head, taking time to understand this stuff is going to be twice as scary… and much more risky.
“You can’t make a mistake. You’re too young,” he chuckled.
“Wait until you’re my age. Then you gotta watch your every move. But you?! This could be the worst purchase in your life, and it’ll be a distant memory in ten years… with little or no lasting effect on your life. In fact, this is the perfect time to make mistakes. Right now, mistakes are cheap. Later on, they get expensive.”
I bought the car.