Advice for potential basement business

[NewbReefer316]

I've been going back and forth over the last year on whether to take my hobby to the next level and start a business. I've come to the conclusion that I want to with the following business plan in mind:

Main goal would be to grow out my colonies and share them within the local community and be able to travel to regional swaps and meet more people in the community. Turning a big profit isn't the main goal, I'm more interested in just getting help covering the costs of equipment, travel and swap fees as well as taking advantage of the tax breaks that cover normal operating costs. I'm not looking to import a bunch of stuff and move lots of inventory, rather grow out healthy and pest free corals that are suited for the home aquarium environment.

First question to those that have either went this route or considered it, does this seem viable?

Also, what type of licensing is required? The research I've done says that a LLC would be the best route for the business part, is that true?

 

[Elricsfate]

I've been going back and forth over the last year on whether to take my hobby to the next level and start a business. I've come to the conclusion that I want to with the following business plan in mind:

Main goal would be to grow out my colonies and share them within the local community and be able to travel to regional swaps and meet more people in the community. Turning a big profit isn't the main goal, I'm more interested in just getting help covering the costs of equipment, travel and swap fees as well as taking advantage of the tax breaks that cover normal operating costs. I'm not looking to import a bunch of stuff and move lots of inventory, rather grow out healthy and pest free corals that are suited for the home aquarium environment.

First question to those that have either went this route or considered it, does this seem viable?

Also, what type of licensing is required? The research I've done says that a LLC would be the best route for the business part, is that true?

Your second question would be best asked of an attorney in your state, rather than strangers on the internet.

 

[NewbReefer316]

Your second question would be best asked of an attorney in your state, rather than strangers on the internet.

Thanks, I've got an appointment set for next week with one to go over everything. Just was curious to see what route others had taken since the lawyer may not be familiar with some of the nuances specifically associated with a marine business.

 

[Zatoichi]

It's a nice notion but it's farming so be prepared for feast or famine. You have to show a profit for three out of five years for the IRS to consider this a business rather than a hobby and thus allow you to write off all of those expenses. You will have to sponsor the forums in order to sell on them which is a big expense monthly. You also have to consider how much electricity, chemicals, bulbs will go into actually growing a coral and figure out if you can compete with Chop Shop wild corals that do not carry all of those expenses and also carry the new fad wow factor

Also it will become work even if you think you will enjoy it forever eventually your hands will crack and your back will hurt and you will lose livestock be it from a power outage pipe breaking excetera it happens

Just be realistic with yourself about how much money you are willing to invest and how much money or savings you hope to accomplish over just going to the events as a hobbyist with corals from your personal tank.

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[rjjr1963]

Careful not to underestimate your expenses they will be more than you think. While it may appear that you have less overhead the LFS has economy of scale. Don't sell yourself short on price or you'll end up losing money. You're probably going to have to charge sales tax and remit to the state. That can be a pain in the butt. You have to make a big profit otherwise the costs will eat you alive.

 

[NewbReefer316]

It's a nice notion but it's farming so be prepared for feast or famine. You have to show a profit for three out of five years for the IRS to consider this a business rather than a hobby and thus allow you to write off all of those expenses. You will have to sponsor the forums in order to sell on them which is a big expense monthly. You also have to consider how much electricity, chemicals, bulbs will go into actually growing a coral and figure out if you can compete with Chop Shop wild corals that do not carry all of those expenses and also carry the new fad wow factor

Also it will become work even if you think you will enjoy it forever eventually your hands will crack and your back will hurt and you will lose livestock be it from a power outage pipe breaking excetera it happens

Just be realistic with yourself about how much money you are willing to invest and how much money or savings you hope to accomplish over just going to the events as a hobbyist with corals from your personal tank.

Sent from my SM-J700T1 using Tapatalk

Careful not to underestimate your expenses they will be more than you think. While it may appear that you have less overhead the LFS has economy of scale. Don't sell yourself short on price or you'll end up losing money. You're probably going to have to charge sales tax and remit to the state. That can be a pain in the butt. You have to make a big profit otherwise the costs will eat you alive.

Thanks for the information and advice. I think pricing will be my biggest issue. As you mentioned, there's alot that goes into it and it looks like the preice per frag changes quite a bit when you go from hobbyist to vendor and it looks like there isn't really a middle ground. Definitely food for thought.

 

[GimpyFin]

IMO, if your main goal is to grow corals and share with the local reef community/go to frag swaps, I'd just keep treating it like a hobby. You don't need a business for that, plus you still want it to be fun right? I don't know that you'd even come close to making enough to cover the basic costs of what you are wanting. Ask a LFS where they make the bulk of their money, and most will tell you maintenance, not sales of livestock/goods. Anyway, just my $.02, good luck with whatever you decide.

 

[Zatoichi]

Lots of us have tried it and there are a lot of hidden costs such as your personal time, stress, learning to hate your hobby LOL there is no real way to plan for how much your corals will grow and you are always trying to hit a moving Target by buying frags of expensive name brand corals to grow them out but by the time they have grown out they are no longer expensive or that exciting to people

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[roli112]

Like you said yourself, there ain't much for in between, its either hobby or full on store, there are a lot of overhead you will need to cover making your prices go up, selling $10 frags here and there wont get you by

 

[billdogg]

IMO, if your main goal is to grow corals and share with the local reef community/go to frag swaps, I'd just keep treating it like a hobby. You don't need a business for that, plus you still want it to be fun right? I don't know that you'd even come close to making enough to cover the basic costs of what you are wanting. Ask a LFS where they make the bulk of their money, and most will tell you maintenance, not sales of livestock/goods. Anyway, just my $.02, good luck with whatever you decide.

Exactly my thoughts. I have a frag tank stuffed full of mature frags - many now small colonies. I need to post some pictures on my local forums to clear them out - I have no illusions about making a profit - I'm doing it for the fun of it. If I get a couple bucks back, well, it's already spent on other stuff....:spin1:

 

[jcjrogers]

As a hobby, you are taxed on your hobby's net income (revenue less expenses). The only shortfall of a hobby is that you can't write-off a loss. You could create an LLC and run as a business, but you will also have to get a tax ID and file a business return. You don't have to get a lawyer to create an LLC or to get a tax ID but if you feel more comfortable going that route, that's fine. Running as a business likely opens you up to more state and/or local regulations and fees/licenses. Some of these might even apply to your "hobby", but as a hobby you're flying a lot lower on the radar and have a lot better chance getting away with the excuse, "I didn't know." Of course, it also depends on where you live as some states and localities are way more business-friendly than others.

Going by your description, "hobby" seems like the best designation. You would still need to keep records but can file on your personal return.

 

[NewbReefer316]

As a hobby, you are taxed on your hobby's net income (revenue less expenses). The only shortfall of a hobby is that you can't write-off a loss. You could create an LLC and run as a business, but you will also have to get a tax ID and file a business return. You don't have to get a lawyer to create an LLC or to get a tax ID but if you feel more comfortable going that route, that's fine. Running as a business likely opens you up to more state and/or local regulations and fees/licenses. Some of these might even apply to your "hobby", but as a hobby you're flying a lot lower on the radar and have a lot better chance getting away with the excuse, "I didn't know." Of course, it also depends on where you live as some states and localities are way more business-friendly than others.

Going by your description, "hobby" seems like the best designation. You would still need to keep records but can file on your personal return.

Thanks for the information, I'll have to do a little more research on filing the hobby expenses. I saw it mentioned on the IRS page a couple times but didn't realize you could deduct expenses for a hobby.

 

[sde1500]

Throw a couple frag tanks in the basement, sell to locals and at some swaps, cash only. Straight cash, IRS doesn't need to know.