How to Teach Your Kids to Become Entrepreneurs

My goal for my kids is to learn to work hard, do their best work, and be able to create income even if traditional jobs aren’t plentiful.  Helping them with their own businesses as children is one way we work on those skills.

A loyal reader sent me this suggestion: I absolutely love your kid’s money month, learning about their businesses. I was wondering for those of us less inclined, would you be able to do a blog tailored for the how to a kid would start a business? I loved the little tip about the fictitious name. I wonder how that “self employed” tax thing works. I was thinking about Abby and what she’s good at that she could help earn her some money and the party planning, cake baking came to my mind. While she’s still a teen and it may not be just like a professional baker, I think for what little practice she’s done that she’s knocked it out of the park.

I’m still learning a lot about running businesses, but here’s what I’ve learned so far.  Hopefully this will steer you in the right direction:

Choosing a Business

Have your child answer these questions and see if anything sparks a business idea:

  1.  What do I enjoy doing?
  2. What problem can I solve for someone else?
  3. What do I already have the supplies/equipment to do?
  4. What do other kids my age do to earn money?
  5. What adult jobs appeal to me?

Setting up a Business Plan

Keep it Simple, but include these things:

  1. What service will you provide or what will you sell?
  2. How will you make money?
  3. What will you charge? Make sure your fee covers your expenses plus profits.
  4. What are your expenses? (including supplies, equipment, advertising, transportation….)
  5. How much do you want to earn? (set a time frame) What do you need to reach that goal? (Specify the number of clients, Hours to work, or items sold)
  6. How will I keep records?
  7. How will I expand and grow?
  8. How can I leverage this business? (Earn a percentage of what others sell; Train others to start their own similar business)
  9. Do my prices reflect current market value (for my age?), allow for expansion and growth (to pay someone else and still make a profit.)  You want your prices low enough that you will get customers, but high enough that you won’t have to raise prices for several years. If you are worried you are charging too much when you are getting started, set your prices at market value, then offer a coupon incentive for your first few customers while you gain experience.

Finding Customers

  1. Who is your ideal customer?
  2. Where does your ideal customer hang out?  How can you reach them with your message?
  3. If you are doing something other than babysitting, you probably need a website to direct prospective customers to.  This is a great place to outline your fee structure, showcase your work, give customer reviews, and offer scheduling. There are free websites available but to save a headache in the future spend a few bucks to buy a domain name and have it privately hosted. You can set up hosting for about $6 a month. Then upload wordpress.org for the easiest to build website.  There are great youtube tutorials or you can get someone to do it for you from fiverr. (Most stuff there is only $5.)   I use Hostgator for domain registration and hosting and have been pleased with them.  If you use someone else, find someone who also uses Cpanel.  This simplifies things if you end up needing help from someone on fiverr or similar.
  4. You should also set up a facebook business page. Tutorial here.
  5. I’ve been able to help my kids get clients through facebook. It was a great first stop for us since I wanted them to work for people I knew well.  I just popped out a note that told the business, their availability and rate.  We were booked for the summer within a couple of days.

Business Licenses

  1. Most states have a Cottage Food Law that allows you to sell home baked goods and jams and jellies from your home without a license or health inspection. So if your daughter wants to bake cakes for birthdays, she probably can :). You can check the laws for your state here and here.
  2. Other business licenses–this gets tricky.  If you do a search for “Do I need a business license for_______.” you’ll get answers ranging from “definitely” to “probably not.”  We did not get licenses for any of our kids since none of our businesses require traffic to the house.  When I started my first home business, I got a fictitious name registry since my business name did not have my legal name in it.  That allowed me to get a bank account with my business name so I could cash checks made out to the business.  You can skip all that mess if you put your legal name into your business.  For example my official business name is: Angela Coffman: The Grocery Shrink (no fictitious name registry necessary–in Missouri.)  Get more info on whether you need a business license here.
  3. If you are advertising with flyers door to door or on cars, you probably DO need a permit for that.  You can get that at your county courthouse.

Taxes

  1.  Federal income tax:  Your child MUST file their taxes when they earn $400 or more.  The good news is when your child starts filing federal income tax, they become eligible to invest in a Roth IRA.  Make this happen.  (I’ll talk about it more later this month.)
  2. Self-employment tax:  This is social security and medicare tax.  Normally an employer pays half of this tax for you.  When you are self employed, you play both halves.  You can learn more here.  It’s 15.3% at the time of this post.
  3. State and local taxes–these are in addition to your federal income tax.  BLESS the states that do not have a state income tax: AlaskaFloridaNevadaSouth DakotaTexasWashington, Wyoming, New Hampshire and Tennessee.  (47 states charge corporate income tax, keep that in mind when deciding if and when you should incorporate.) In addition your city may choose to charge a local income tax– 😛 Learn more here.
  4. State and Local sales tax: Your tax rate will vary based on your zip code.  These taxes generally apply to goods (but not services) sold to the end consumer (not sold to a distributor or to a tax exempt entity, such as a church.) This might come into affect if you are selling crafts or baked goods, which is one of the reasons I steered my kiddoes towards service industries. Learn more here.  Some states have also enacted internet sales tax laws.
  5. Tax Deductions: Having a cottage business makes taxes a bit more complicated, but there are whole list of tax deductions that can help reduce your child’s tax burden. Here’s an official list from the IRS.
  6. Whatever you do keep good records. This is great experience for your kids.  For every tax deduction you need proof, a receipt, calendar of appointments…something.  Keep everything together and save it for 3 years just in case you get the dreaded official letter in the mail. (Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction–probably won’t apply to the kiddoes :).)

This is day 8 in our series 31 days of Kids and Money

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