Smart Money: Business requires federal tax ID number, tax forms

Bruce Williams is a national radio talk show host and syndicated columnist

Dear Bruce: I am a college student. My wife and I started our own business selling T-shirts online. I had close to $200 in sales in the first week. Do we need to file any government or legal papers?

We accept credit card payments but have not set up a business account with a bank. Based on our volume of sales, I wouldn't think it would be economical as most charge a monthly fee. We have zero employees and make the shirts in our garage. I want to make sure that everything is legit. J.B., via e-mail

Dear J.B.: If you are going to go legit there are several things you are required to do. One is to collect sales tax on sales in your state. You will need a Federal ID number, and you will have to fill out the appropriate tax forms.

When you start doing some decent business, consider setting up your credit card accounts with a consolidator that will allow you to take Visa, Master Card and others and bill you monthly. Congratulations on your industriousness.

Dear Bruce: I have an idea to create and market a new product. I think it's a good idea. What steps should I take? Should I start by completely outlining the idea and at least have the document notarized to show I came up with this, blocking someone else from taking it away from me? J.M. e-mail

Dear J.M.: I don't know any way just an idea can be protected. If you have an invention of a mechanical nature and no one has beaten you to the punch, this could very possibly be protected with a patent. That aside, I know of no way an idea can be kept for your exclusive use. One thing you can protect is a name.

If you come up with a catchy name for your product and get the product into the marketplace, the trademark and the name can be protected. Understand this: If you come up with a good idea and get it to the market, you can count on knockoffs. I'm rather hopeful that someday I'll have an idea that's good enough to be knocked off, so that I can get a decent piece of the action.

Dear Bruce: I am looking into a business where I purchase compact disc and cassette displays, along with the CDs and cassettes, then set up the displays in convenience stores, book stores, etc. The company I am purchasing this from sells the units in five, 10 and 30 lots, including the CDs and cassettes, and charges from $6,750 to $30,000, depending on how many displays I purchase.

They also offer aid in finding businesses that offer the best opportunity for sales. The business displaying the items gets a percentage of the sales. The company I buy the units from gets their money only from the sale of the displays, CDs and cassettes. Do you think that this type of business could make money? I.R., via e-mail

Dear I.R.: The general nomenclature for the type of business that you are talking about is called "rack jobbing." The name comes from the fact that you own the "rack" of merchandise, which you place in retail locations, replace the inventory and bill the location owner.

This sounds like a simple scenario, but the difficulty is persuading someone with a store that they should give up the appropriate number of square feet for your rack. This has been quite a successful method in convenience stores where the provider of the rack is responsible for choosing the appropriate inventory and knowing what will move and what won't.

When you get into things like CDs and tapes, it becomes more difficult to evaluate. I am not in position to judge whether the customer in the average convenience store will buy this merchandise. I will say that persuading store owners to give up space is not an easy proposition.

They must have a certain return per square foot of space, and you will need to demonstrate to them that your rack will generate this sort of return or they won't be interested.

Before I sprung for a dime, I would find other people who have placed their racks with this company and get a first-hand perspective from them. In short, walk very softly.

Dear Bruce: I have obtained two patents for a mirror that allows people to easily see the back of the head and neck when combing hair. Getting the patents seems to have been the easy part. Do you have any suggestions as to how I can find a company that would discuss licensing the patents for a royalty fee? M.C., via e-mail

Dear M.C.: Your observation that getting a patent for an invention is the easy part is right on. The patent office is loaded with patents that never get to the marketplace. I investigated one that had 18 patents on the idea, and none had ever been marketed.

You can approach any company that you choose now that the patents have been granted. The difficulty is persuading someone that the idea has viability. One method you might wish to explore requires substantial capital. Have your idea manufactured and then take it to market yourself.

If you can demonstrate that it will sell without incredible amounts of advertising, many companies may be interested. It is a very difficult task, but the rewards, if you are successful, can be substantial.

Dear Bruce: I am in the middle of a divorce. I have built a safety consulting business from scratch. Her attorney says the business is worth $750,000 with $120,000 annual gross revenue. I am the only employee, the key person. How do you value something like this? Without me, there is no business. B.T., via e-mail

Dear B.T.: I don't know where that number comes from, but with a gross of only $120,000 less expenses, I cannot imagine where the $750,000 estimate comes from.

As you point out, since you are the only employee, this is a business which is you, and without you it has no value. While your ex may be entitled to some credit because this was developed during your marriage, the reality is that you are not going to find a buyer at that price.

I think your attorney should be able to negotiate this number way down. What you gross is really not significant; it's how much you net.