No one has started a thread on this yet, so I thought I'd get the ball rolling. This isn't a comprehensive HOWTO, just my experience and opinion as a full-time indie who started a business in California and has sold games online in the past year. I was a total beginner when I started.
Note: I am not a lawyer or accountant. This is not legal or financial advice. Use your own judgment and/or consult a professional.Pulling the TriggerFirst, I know some people avoid starting a business because they don't want to go through the hassle of the paperwork, taxes, risk of lawsuit, lack of insurance, etc. Some people even release their products for free just to avoid this. I think a lot of this attitude stems from fear of the unknown, and overestimating the difficulty of it. They will work a life-time at a "safe" job that they hate, to avoid a few days of work that could lead to an independent livelihood doing something they love.
It's not as hard as you might think.If you can program or design computer games, you're smart enough to start a company. If the guy running a hot dog stand at the local park can do it, so can you. There were 17 million small businesses in America in 2002, outnumbering "big" businesses 3-to-1. So you're not alone.
Plus, a software company is probably the easiest business to start: no inventory, no real estate, no customers visiting you, no complicated licensing or health codes to follow, no credit card processing, etc.
Recommended Reading: Small Time Operator, by Bernard Kamaroff
Paperwork and LicensesIt's not fun, and sometimes the bureaucrats tell you one thing and then someone else says another, and some still don't understand that you can sell software online. But the pain of setting up only happens once, so stick it out.
If you do something wrong, they'll tell you what you need to do to fix it. Remember, despite the attitude you'll get from the bureaucrats,
the government actually wants you to make money... so they can tax you. As long as you're paying, and aren't a risk to the public, they seem to be indifferent about the details.
These are the things I had to get in Alameda County, California:
Business LicenseSo the city of Alameda can tax me once per year.
DBA (Doing Business As)This is so I could use a clever name like Flea Circus Games instead of my boring real name. Once you file, you need to publicly announce it by sending it to a newspaper, who will publish it in their legal notices section for about $30.
Home Occupation RegistrationYes, they made me pay a fee for permission to sit my home computer. They actually had to look at a map of the city, find my apartment, and make sure I wasn't violating a zoning code. I also needed permission from my landlord, confirming that I wasn't taking customers on the premises, that I wouldn't be too loud, and that I wasn't storing inventory in the apartment.
California Seller's Permit (optional)
This is for California Sales Tax. This is only required if *you* sell physical merchandise (including CD's). I got one just to be safe, but I didn't need it because 1) my payment processor is selling my software and paying me a royalty, and 2) it's downloadable bits, not physical.
Total time: about 8 hours. Most of it traveling and waiting for my name to be called.
Total cost: about $300. But startup costs are tax deductable.
TaxesTaxes aren't that big of a deal, either. I did everything myself this year. If I start making real money, I will probably get an accountant, but I think it pays to grasp the basics by doing it once on your own, without tax software.
Here's the thing: The tax code is pretty much set up so that by default, you're paying the maximum tax owed -- after that, every minute you spend to claim your deductions is
$$ money in your pocket $$. A penny not given to Uncle Sam is a penny earned.
Just remember: Keep bullet-proof evidence that your deductions are legit. At minimum, you need
proof of the price paid (a receipt), and that
*you* paid for it (credit card statement). So set up a good filing system, and think of this bit of extra work as money in your pocket when you file each year.
Here are some of the things I deducted: a bunch of marketing, art, and business books, RAM upgrades, text editor license, web hosting, DSL, sound files, domain registration, rent, and utilities. Note that I only deducted part of things like DSL and computer upgrades, relative to how much it is used for business vs personal reasons.
Tax FormsBeing a sole proprietor means that I file all business income with my personal tax return. Here are the forms I filled out for 2006:
1040 - Individual Tax Return - 2 pages
Schedule C - Profit or Loss from Business - 2 pages
Schedule SE - Self-Employment Tax - 1 page
Form 8829 - Expenses for Business Use of Your Home - 1 page
Total time: about 10 hours. Mostly reading and organizing my paperwork.
Recommended Reading: Deduct This!, by Stephen Fishman
Health InsuranceThis may be the most common reason people are afraid to leave a full-time job. Sometimes it makes sense, especially if you have a family or pre-existing medical conditions. But I'm sure most members here are like me: single, healthy male under 35.
I had insurance with my previous employer which,
by law (for up to 18 months), you can continue if you leave the company. I found it cheaper to get my own as an individual, thanks to the miracle of the Internet.
I highly recommend eHealthInsurance.com. They have *great* explanations on what all the terms mean, and makes it really easy to compare health plans in your price range, from all the major insurance companies. You can submit your application online and they will actually make sure it gets to the right people at your chosen insurance company.
I pay about half as much per month as I would have if I had kept my employer's plan. My goal was to just get insurance in case I had an unexpected major expense, not as something to cover dentist or eye doctor visits. This way I could keep the monthly payments low, but had a high deductible. And as it happens, I had a major health expense about 6 months ago, so it was worth every penny.
Total Time: about 5 hours. Mostly research and learning the lingo. Once I submitted the form, I just had to wait for a response and fax a form.
Recommended Site: ehealthinsurance.comConclusionOverall, most things you'll encounter in starting a business aren't that hard. It's all about being willing to break from the pack, doing the necessary legwork, and most of all,
learning as you go.
Recommended Reading: Growing a Business, by Paul Hawken