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to be aware of their implications.
1. Sources of Information
To obtain reliable information on starting a B&B, the following sources should be consulted:
(a) Municipal government: Municipal governments will be concerned with and have information on the location and facilities of your proposed B&B. Bylaws, zoning, and municipal licenses fall under their jurisdiction. Visit the planning department or clerk’s office of your municipality and ask for any pertinent information.
(b) Regional government: Depending where you live, there may be another level of government that has jurisdiction over a group of municipalities. Generally, regional governments coordinate services that stretch across a number of municipalities. Health and fire regulations could be regional concerns, for example.
(c) State or provincial government: This level of government is interested in the collection of some taxes and in the registration of the business. They are also good sources of general information on how to start a small business, and they may have grants available to the small business entrepreneur.
(d) Federal government: The federal government is concerned with the collection of income taxes and federal sales taxes. They will also be interested in the tax impact of any additional revenue obtained through your customer fees. The federal government may also have grants available to small businesses.
(e) Your accountant: We highly recommend that you seek the advice of a knowledgeable, professional accountant early in your planning stage. His or her advice will allow you to gain the best tax advantages during both the planning and operational stages. An accountant can also advise you on the advantage or necessity of registering your business with the government.
When you are choosing an accountant, select one that has other B&B operators on his or her client list. Ask other B&B operators for their recommendations. Remember that some or all of your accountant’s fees can be charged as a business expense.
(f) Your lawyer: If you seek the advice of a knowledgeable accountant and follow all the zoning and bylaw requirements of your local government, then you probably do not need the services of a lawyer. However, you are in the best position to evaluate your own situation. If you are planning a very large operation or if you are going to form a corporation, we recommend the services of a lawyer.
2. Your Business Structure
Your accountant can provide advice on the advantages and disadvantages of selecting a particular business structure. He or she will be familiar with the tax and liability implications associated with each form of organization. There are three basic forms your business structure can take:
(a) Sole proprietorship
(b) Partnership
(c) Corporation
A sole proprietorship is the most common form of business structure for small businesses, including B&B operators. A sole proprietorship has the following pros and cons:
• Tax advantages for the small operator
• Owner has complete control
• Low start-up costs
• Unlimited liability
• Difficult to raise capital (from banks, etc.)
In a partnership, you share the ownership of the business with one or more people. A partnership has the following pros and cons:
• Tax advantages for the partners
• Liability depends on type of partnership
• Low start-up costs
• May have better success raising capital
• Control must be shared
The corporation is a form of organization more often used by larger businesses. Most B&Bs would not normally choose to incorporate their business. Corporations have the following pros and cons:
• Better tax advantages in certain higher tax brackets
• Limited liability
• Easiest to raise capital
• Expensive to organize
• Extensive accounting required
3. Registering Your Business Name
In the previous chapter we talked briefly about naming your B&B. You should give a lot of thought to the name as you will be using it in your advertising to attract customers. You want to think of a name that is easy for your customers to remember, but unique to your business as well. You certainly don’t want to copy the name of a business close by as that could cause misunderstandings and confusion.
Most jurisdictions require that your business name be registered. This is done by filing a fictitious name statement with county or provincial authorities. The only exception is when you use your own name, for example, “Carol Morris Bed and Breakfast.” Even in this circumstance, you can choose to register the name if you wish.
When you register a fictitious name, it will be checked against those previously filed to ensure the name has not been taken by another business. This is for your protection, too. Once your name is on file, it cannot be used by anyone else.
It is a good idea to have two or even three names ready before you register. That way, if your first choice is rejected, you have another name ready, and you won’t have to start all over again. In Canada, you can have a name search done through Industry Canada. Visit www.nuans.com for more information. This will also tell you if the name is registered out of province. This process takes about a week and there is a small fee, generally under $200. In the United States, your city or county clerk will tell you if the name you have chosen is available for use.
We recommend that you register the name of your B&B because this will define it as a legal entity, and will establish a recognized start date for your business. It can be a costly mistake to not register your name. You may operate for a few months or longer, all the while spending time and money to get the name of your B&B recognized and respected, then one day you receive a registered letter telling you to stop using it. Too late, you find out that the name is already used and protected by someone else. You may even be liable for damages.
4. Levels of Taxation
As consumers, we are constantly faced with ever-increasing taxes, and we have very few ways of recovering those taxes. By starting a B&B, you will join the world of small business, and you will find additional deductions that can be claimed as legitimate business expenses, thus relieving your total tax burden.
As part of your business responsibilities, you will be asked to collect certain taxes and to remit them to various levels of government. Tax regulations are complex and inconsistent, and they vary from one to another. We strongly urge you to consult your accountant, your municipality, your province or state, and your federal government to make sure that you are aware of your tax rights and responsibilities.
The areas of taxation generally fall into the following categories.
(a) Income tax: The federal government is interested in the total revenue of your B&B operation. How they tax that total revenue depends on the structure of your business; an accountant can provide the best advice on effective tax planning.
(b) Sales tax: Most state and provincial governments have some form of taxation on the sale of goods or services. These taxes are not consistent among jurisdictions, and some governments have chosen to exempt B&Bs from collecting sales tax.
Check with your state or provincial government taxation authorities, and if you are required to collect sales tax, make sure that you register with the appropriate authority and obtain the correct permits.
(c)