The business of web design

I am amazed at how often I receive e-mail from people saying that they purchased a web design program for the purpose of starting their own business, only to find out that to do it correctly is proving to be much more difficult than merely buying software.

Designing web sites for a hobby is far different than doing so for profit, and to approach it the same way is a recipe for financial disaster.

First, it must be realized that running a small business is not just sitting down and designing web sites. It requires finding clients, mastering software, knowing how to keep books, knowing what paper needs to be shuffled to be in business, knowing how to keep the business and home separate so that the home is not endangered if the business fails, and having an emergency plan to combat business disruptions.

Owners of small businesses can easily get into trouble because they find out too late that they cannot handle all the things that need to be done, and in some cases either cannot find someone to provide a solution or cannot afford that person when he/she is found.

The web design business requires a minimum of the following abilities: Financing, bookkeeping, licensing, and insurance. It also requires that a type of business organization be selected. Only then do the abilities to write HTML, design pages, and create graphics come into play, and this column will not delve into those aspects. Here is a look at the different elements needed in the business:

Financing

Financing a business startup can require anything from having lots of cash on hand, a rich relative, great networking skills, excellent credit, or a winning lottery ticket. My personal choice is the winning lottery ticket, but there is some chance that you might not ever hit one. Personally, I've won $12 during the past five years, so it was good I did not rely on that option.

When I started my business in 1989, I didn't have any cash or well-healed relatives, I hated networking, and that only left excellent credit - and I didn't want to go into official debt. Thus, I started my business by borrowing $2,000 from my then 8-year-old son's college account. Granted, the interest he demanded was ridiculous, but he had the cash and I didn't, so I paid it. And, yes, I paid him back, too.

It is important to realize that the first year or two of the business may be profit-impaired, thus going too far into debt is not worth the risk. It is possible to get a government Small Business Administration loan or some other type of financial institution startup, but then there is debt to worry about.

Bookkeeping

Bookkeeping not only requires the day-to-day breakdown of income and expenses, it has to balance out evenly when the day is done. Further, there are taxes to be paid, depending on what type of corporation (if any) is chosen, and that can be time consuming and take some more time to learn.

That is where a business background can be a definite plus. These tasks can be outsourced to a CPA or tax service, but it is imperative for the business owner to keep a close eye on it. Further, there is expense associated with outsourcing that must be considered when the web designer's pricing is established.

Should you choose to keep your own books, there are two systems from which to choose - single entry and double entry.

• Single Entry: All transactions are recorded in either a cash receipt journal, a cash disbursement journal, or a checkbook. Each of the journals is broken down into columns for the various types of expenses and income entries that may arise. Each column should be totaled monthly and annually.
• Double Entry: Same as single entry except that also recorded are cash on hand, equity, equipment, accounts payable, mortgages, loans. There are two columns under each entry, and when all is added these two columns must be equal. Personally, I prefer this method because it has a built-in way of checking entries to eliminate mistakes.

Licensing

Licensing depends upon where you are starting your business. In some places, a state, county, and/or city license is required. They usually are not super expensive, primarily because they often are based upon the income of the business, which figures to not be too great at the start. In other places, a minimum of licensing is required. Having my business in the woods requires nothing other than a Federal ID Number for tax purposes. Where ever you locate, you will need that.

Insurance

Insurance is crucial, particularly for those of us who run a home business. Should a client come to the door and fall over the kids' skateboard, it is better to have the business pay for it than homeowners insurance. Further, should the client file a lawsuit, the home is protected if the business has proper (and enough) insurance. Further, the cost of that insurance is often minimal compared to the cost of home insurance.

An example of how insurance can be helpful is a recent stunt I pulled at a clients' business. He had me test drive one of his high-powered, 3-wheel motorcycles, (worth about $34,000), that he creates. I drove it just fine, but when I returned and parked it, it jumped out of gear and slammed into his garage doors. My son, sitting next to me, never changed expression as he said, "I think that's probably close enough, dad."

The fact is things such as that could happen to anyone at anytime, and without insurance it could be a huge setback.

Types of Business Organization