Start-up Automation Control Panel Shop in Texas

dak

dak

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I'm starting a panel shop as a side business that specializes in conversion of industrial automation control systems from relay logic to programmable logic control (PLC). We will also do general magnetic and PLC control panel services including: design, layout, wiring, I/O controls, programming, troubleshooting, and turnkey fabrication of customized panels.

My partner is a licensed electrical engineer with over 35 years experience in industrial automation. We already have a couple customers lined up for conversion of their manufacturing plants.

It will just be me and my partner for a while. He will be handling the technical end, I'll be handling the business end of things like sales, accounts receivable, purchasing, and a good portion of the upfront investment.

I really don't have much background in starting or operating a business, I've mostly worked in academia up until this point. My partner is aware of this, but we are ok taking this slow. I've done a lot of R&D and WotC tax credit studies for C-Corps/S-Corps/LLC's in the past, so I have some exposure to payroll processing and the Federal/State tax code, but I'm by no means an accountant or tax attorney. I understand I'll most likely need an attorney/accountant eventually, but part of this venture is I want to learn the process so I'd like to remain hands on as possible.

Major to-do and in-progress items so far:
  • Set up as an LLC
  • Register for an EIN
  • Draft operating agreement (already drafted, based on a friends, currently around 15 pages and seems like I've covered everything)
  • Figure out which Federal/Texas/Local licenses and taxes I need and apply (Hoping someone can give me a crash course on this, SBA sites information on this is sparse)
  • Setup Quickbooks for record keeping, reconciling with bank statements and invoicing (Seems like getting an accountant to help with this is the recommendation, but is it really that hard for a small 2 man operation?)
  • Seemingly I'll need to make us a UL 508A shop, but I'm unclear if it is the workers, the shop, or the individual panels that must be submitted for UL approval. Admittedly I haven't researched this step much, but I'm just throwing it out there.

As for federal tax, seemingly:
  • Income tax - Seemingly as an LLC this would pass through to our 1040's?
  • Self-employment tax - So this is going to be around 12.4 % for social security + 2.9% for Medicare on the first $117,000. Then I just deduct half off gross income, right?
  • Taxes for employers - If it is just the two LLC members, do we need to pay this?
  • Excise taxes - Would this apply for manufacturing and selling electrical panels?

For Texas state taxes, seemingly franchise tax, but I haven't looked into the rest. Local, I haven't a clue.

I guess I'm creating this thread to seek advice on helping to fill in the gaps in the list of steps I provided above and also to provide the next steps.

I'm wondering if there there a downside to just forming the LLC and sitting on it for a while without generating revenue, just so we can start marketing without having to be limited by the 120 day name reservation limit. Are there ongoing fees or taxes levee'ed just by virtue of having the LLC even if we are not actively generating revenue for a year?
 
OneofOne

OneofOne

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My quick googlefu says Texas's franchise tax (business margin tax) doesn't apply under $1m, so you should be ok sitting on the LLC (you're lucky, here in Caly we don't have it so easy). But I don't do business in Texas, so take it with a bucket of salt.

For your fed questions -

yes
yes and yes
not sure what you're referring to?
I'm 99.99% sure there's no excise taxes on electrical panels, but what do I know

I would highly rec talking to a tax attorney or enrolled agent (EA would be cheaper) who has experience setting up new businesses for people, if you got the cash to spare (business deduction! haha). I understand the desire to want to do it all yourself, but having someone to hold your hand in setting up an LLC and the rest is a huge help, and they should be able to answer any damn question you have (quarterly taxes, potential strategic purchases of equipment for non-depreciating purposes, explain the common fallacy of write-offs/business deductions, noob mistakes not to make to keep your LLC a legally defensible LLC, insurance(s) you should carry, etc etc), other than your industry specific stuff. You'll also want help (at a minimum) on your first year's taxes too so it's good to have the same guy(s) throughout.
 
A

Aetos_sl

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Where do you plan on buying your material from? Will have to get accounts setup with electrical distributors and get a D&B number
 
Shonuff

Shonuff

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The biggest issue any company has is one of getting the word out. Everything else is just detail work. How do you plan on gaining customers?

I knew this when I went into business, but six years into it, I really have learned some lessons. When your marketing is great, all-else-being-equal, you make a hell of a lot more money. Three years ago, when it got slow, I had to lay off. I haven't laid off anyone in years (that wasn't a retard), now that I've refined and grown out ad mix.

I wish I could go back in time and advise myself on what I know now.
 
dak

dak

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Thanks for the input so far everyone.

Oneofone - Taxes for employers was something I came across on SBA and seemingly refers to FICA and Federal Unemployment (FUTA) Tax. FICA is SS/Medicare to my understanding. I do plan on going to an accountant/EA/attorney for help, I just want to outline as much as possible to I'm asking the right questions.

Aetos - We already have all of our component suppliers in place from previous relationships. As for obtaining a DUNS, I don't think we are planning on contracting with the government in the immediate future, are there other implications? I'll probably do it anyways since it's free and I'm familiar with the process.

Lyrical - As for marketing:
  • We're of course going to do the typical website/adwords, Craigslist, listing on Automation related boards (automation.com allows free posting of panel shops, but even so there are only like 30 on there).
  • I've identified some places where this type of work is bid on, we will start putting in proposals for work there.
  • From my prior relationships, I have a very large (400+) database of potential manufacturing clients that includes current details on their production lines, projects underway, products and revenue. I could tap into this if needed.
  • We already have 2 large jobs pending that will keep us busy for at least a few months, I'm trying to get this together and to the point that we can say "open for business" in the next few months.
  • Overall, the services we are providing require a a fairly niche skill set, there isn't much competition. This is more of a side job for both members, so we are going to be very competitive in price.
Any tips on marketing be more than welcome.
 
Shonuff

Shonuff

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dak_sl said:
Lyrical - As for marketing:
  • We're of course going to do the typical website/adwords, Craigslist, listing on Automation related boards (automation.com allows free posting of panel shops, but even so there are only like 30 on there).
  • I've identified some places where this type of work is bid on, we will start putting in proposals for work there.
  • From my prior relationships, I have a very large (400+) database of potential manufacturing clients that includes current details on their production lines, projects underway, products and revenue. I could tap into this if needed.
  • We already have 2 large jobs pending that will keep us busy for at least a few months, I'm trying to get this together and to the point that we can say "open for business" in the next few months.
  • Overall, the services we are providing require a a fairly niche skill set, there isn't much competition. This is more of a side job for both members, so we are going to be very competitive in price.
Any tips on marketing be more than welcome.
Click to expand...
It sounds as if you have a good plan in place. Here's a protip: if you are filling a niche, you don't have to be so competitive in price. Charge more than you think you should. In some cases, where we are doing large jobs that none of our competitors have the insurance or equipment to handle, I've found that the price could be doubled. We bid a state job that had blind bidding, and found out that no one else in the area made it to the final round but us. The job was 60k, but I could have charged 100k and not raised eyebrows.
 
Shonuff

Shonuff

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What is your initial outlay for the shop? How many months until you project a break even? How many employees needed? Are you getting financing?
 
dak

dak

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Thanks for the advice, we are certainly anticipating that substantial markup will be tolerated due to the nature of the work.

Shop layout - The shop space required is minimal, we aren't building the machinery itself, just the panels which aren't particularly large. We don't plan on stocking a large inventory of components at first since we will order supplies as the design specifications are determined. I have a small building on my property that will serve as the initial facility. All of the required equipment and tools (including most of the panel components for the first job) are already at the facility. It terms of the physical layout of the inside of the shop, I'm leaving that to the discretion of the engineer.

Break even - Seemingly, we will be profitable after the first client. This is one of those "everyone wants this service, but not many people know how to do it" kind of ventures, the unit profit on the individual panels will be very large. I'm confident in the abilities of the engineer to produce a high quality product in timely fashion. I feel naive saying this, but barring some catastrophe, I really can't foresee running a NOL the first year.

Employees - It just going to be me and the electrical engineer for the time being, we don't plan on expanding beyond that until we understand the market better. It will be difficult to find someone qualified to perform the work that isn't asking for the compensation that a senior electrical engineer would expect (Probably $120k+ after benefits around here for what we'd be looking for). We might pick up an intern to train if we find the right person and workload demands it, but that won't be for a while.

Financing - We don't need financing at this point, we have the workforce, tools, facilities, the initial clients and the components for the initial projects. Since it is just a two man shop and the work is mostly knowledge based with a minimal requirement for investment in assets I can comfortably fund out of pocket.
 
OneofOne

OneofOne

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dak_sl said:
Oneofone - Taxes for employers was something I came across on SBA and seemingly refers to FICA and Federal Unemployment (FUTA) Tax. FICA is SS/Medicare to my understanding. I do plan on going to an accountant/EA/attorney for help, I just want to outline as much as possible to I'm asking the right questions.
Click to expand...
You aren't an employer, as you have no employees. All you got is SE tax (which covers the above) and income tax, so no worries.
 
BrutulTM

BrutulTM

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Even if you own the company, once you are a corporation, you are an "employee" of the corporation and you're still going to pay yourself a salary and withhold SS/Medicare/Federal and State Income tax etc.
 
OneofOne

OneofOne

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Thanks for agreeing with me even if you're completely wrong about why? lol No, he's not going to pay himself a salary - him and his partner are going to make owner draws by having the LLC write checks to him and his partner.

You may want to read the thread before commenting.
 
BrutulTM

BrutulTM

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I'm no tax expert, all I know is that I own over 50% of my company, but "the corporation" still writes me a paycheck every month and withholds taxes just like a typical employer even if I'm the one signing the check.
 
C

Corndog

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I have an S corp LLC and I pay myself a paycheck and still pay taxes etc just like my employees have to. From what I'm told you have to pay yourself a "comparable wage" through the company, then everything after that is passed through.
 
OneofOne

OneofOne

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The only thing he's mentioned with regard to business type is "things to do - set up an LLC" so my assumption is and has been he's doing a straight LLC. The confusion you guys have is you don't realize you can be either an LLC, an S corp, or both at the same time (and there's other options, too). In an S corp, you are required to take a salary (and if you don't, the IRS is going to assign you one for tax purposes), with any remaining profits available to you via a simple distribution. In an LLC you can't take a salary - all net profits are passed through to the owner(s).

If I'm making an assumption and misunderstanding the OP, my bad. Choosing how to set up your business should be discussed with a professional so you can clearly understand the benefits and negatives of each type, and how they apply to your business. If you're already an expert on this, party on.

I don't mean to be short, but Brutal, you run a pizza chain? And Corndog has a fish store. Well, this is whatIdo for a living. And as such, I'm outty until and unless a check arrives in the mail haha!
 
BrutulTM

BrutulTM

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Well we will all certainly miss you acting like a dick in this thread.
 
Ishad

Ishad

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1) Are you planning on sticking solely industrial or planning on municipal work as well?
2) are you an mbe?
3) you definitely want ul certification.
4) not sure where you are in Texas but in dallas there is definitely competition in this space.
 
BoldW

BoldW

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OneofOne_sl said:
The only thing he's mentioned with regard to business type is "things to do - set up an LLC" so my assumption is and has been he's doing a straight LLC. The confusion you guys have is you don't realize you can be either an LLC, an S corp, or both at the same time (and there's other options, too). In an S corp, you are required to take a salary (and if you don't, the IRS is going to assign you one for tax purposes), with any remaining profits available to you via a simple distribution. In an LLC you can't take a salary - all net profits are passed through to the owner(s).

If I'm making an assumption and misunderstanding the OP, my bad. Choosing how to set up your business should be discussed with a professional so you can clearly understand the benefits and negatives of each type, and how they apply to your business. If you're already an expert on this, party on.

I don't mean to be short, but Brutal, you run a pizza chain? And Corndog has a fish store. Well, this is whatIdo for a living. And as such, I'm outty until and unless a check arrives in the mail haha!
Click to expand...
In an LLC you can also be an employee of the company and get a paycheck (if acting as an S-corp and not a single-member LLC). There are drawbacks and advantages. This also may differ from sate to state. You should definitely, as One said, consult with an accountant. It wouldn't be a bad idea to have one set everything (Quickbooks, set-up any payroll, taxes, etc) up for you as well. If you don't, there is a good chance you will spend most of your time dealing with all that crap instead of actually running your business.
 
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