How to Start a $60K/Month Dog Boarding Business (2024)
July 22, 2021
Do you love dogs? What if you could harness your affection for animals to provide a fun and safe place for pets to hang out while their owners go about their routines, vacations, and unexpected events?
According to the latest statistics, Americans recently adopted new pets at a staggering rate, especially dogs. Rover.com reports that 49% of Americans adopted a new dog during the early COVID pandemic.
If you ever thought about working with dogs, here’s your cue to secure the rewarding livelihood that a dog boarding business can provide.
We interviewed Larry Fosnick Davis and his wife. They conditioned their Seattle-based dog daycare and boarding business, Metro Dog Seattle, for continued success.
With all the great insight Larry offered, we were able to compile this step-by-step guide to help you start your very own boarding business. Keep reading to find out if opening a dog daycare is the right business for you.
Step 1: Learn more about pet boarding
Let’s start with an overall view of the pet care services industry.
What is dog boarding?
Simply put, dog boarding is the act of caring for dogs while their owners are away. Boarding facilities charge a set fee to pet owners for an agreed-upon length of stay.
The goal is to provide a safe and fun place for animals to lodge when pet owners have obligations to attend to or want their animals to socialize. Simple, right?
Learn the lingo
Learn the “dog words” associated with this business by checking out this glossary published by the American Kennel Club (AKC), a leading authority on dogs in the United States.
Study other terminology sources, such as this grooming glossary provided by Petco.
Trade organizations
The good news is that there are wonderful organizations that set standards for the doggy care industry. Here are a few notable ones.
Dogs
The AKC is a respected, 130-year-old non-profit organization dedicated to canine pets. Turn to them for expert advice on breeds, behavior, products, and services.
Cats
The Cat Fanciers’ Association (CFA) and Alley Cat Allies provide information for feline pets.
Other international and national organizations
Related trade organizations for animal lodging and care include:
- The International Boarding & Pet Services Association (IBPSA)
- National Association of Professional Pet Sitters (NAPPS)
- National Dog Groomers Association of America (NDGAA)
Last time we checked, organizations like these are an excellent place to dig up some research. So be sure to go out and do it.
Publications
Pick up a copy of Pet Boarding and Daycare magazine and leap into this list of other pet-related publications.
Certification
Research if Professional Pet Boarding Certification (PPBC) might help you achieve credibility in your desired market.
Other certification programs are available through the IBPSA, NAPPS, and NDGAA.
After all, earning a certificate from a respected organization could be a good selling point to set you apart from the local competition. It makes sense, right?
Step 2: Pick up some training and experience
You’ll want to fetch some training and experience. There’s a lot that goes into caring for dogs, so you’ll need to be sure you have what it takes to keep both them and their owners happy. Let’s get into it.
Training
Now let’s go over some skills you’ll need to operate a boarding business confidently. Technical abilities are a must.
Of equal importance is nurturing the soft skills furry four-legged friends need to feel safe and secure. Let me explain.
Technical abilities
Complete a course on pet handling techniques like low-stress and fear-free. According to Larry, these skills—along with pet first-aid—are essential to pet owners.
He says:
The public as a whole started to realize how important it was that their hired caregivers have the same sort of qualifications that you might find in a human daycare provider.
Pursue additional training in the following areas:
- Pet safe cleaning and sanitation to limit the spread of disease
- Breed knowledge to understand their various needs
- Grooming, such as nail clipping, brushing, and bathing
Soft skills
OK, I know what you’re thinking: what about those soft skills? Here are some tips on techniques to learn and practice:
- Clear communication because owners love their pets and want to talk about them!
- Patience because you will need to learn and adapt to many personalities, both human and pet.
- Empathy because you’ll be caring for someone’s best buddy, often considered a family member.
In truth, treating each pet as your own will be the key to success in this business.
Reference material
The American Society for the Prevention of Cruelty to Animals (ASPCA) maintains an engaging library on dog care that I recommend you review and save to your favorites list to reference as needed.
Experience
Gain experience by jumping at the chance to:
- Work for a boarding business.
- Walk dogs or pet sit with apps like Rover.com or Wag.
- Work in a related field, such as for a veterinarian, groomer, or animal shelter.
- Watch pets for friends and family.
- Take a pet first-aid class, like the one offered by Metro Dog.
Pets at home are OK, but not enough
Prior experience with pets, not just the ones at home, is highly recommended because you will need to determine if you can:
- Physically handle different breeds and sizes of dogs.
- Deal with various personalities and behaviors.
- Properly feed, medicate, and groom them.
- Know how to recognize issues that require you to call a veterinarian or the owner.
The best part is that experience is easily accessible and, in many cases, requires no formal education or training.
Step 3: Decide what type of animal boarding business is right for you
When you think of the ubiquitousness of pets and how much people love them, the number of pet business ideas from which you can profit is wide open and very promising.
As such, boarding kennels can trail off into several different directions, so you’ll want to know which is best for you.
Prepare yourself for this important decision by taking IBPSA’s complimentary webinar on business models. The following sections offer some specific points to consider. Keep reading.
At-home kennels
There are two types of home-based kennels: at the customer’s home or in your home. And here’s a fun fact: Experts feel this is a wonderful option for anxious dogs.
If you offer this arrangement, be transparent about other pets and pet guests in the home and the conditions of the house. Consider setting up a meet-and-greet with prospective customers.
Before trotting off in this direction, check local laws and ordinances, especially if you’re a renter.
Pet sitting and dog walking
Larry and his wife started small. Initially, they sat pets and walked dogs for extra income. Two decades later, they invested $700k to open a larger location to serve as a local “community center for pets.”
Please keep it simple by registering with a service like Rover.com, a bookings portal for sitters and dog walkers. Also, read this article on how to start a pet sitting business.
Housesitting
Don’t snooze on offering dog sitting as part of housesitting as these services are often combined and allow you to travel to exciting destinations.
Like pet sitting and dog walking, housesitting is an excellent way to begin your business with limited start-up funds.
Investigate how to start a dog kennel
Kennel-based animal care facilities might be what most people think of for boarding. There are crated and private room facilities, like The Doggy Dorm. There are even crate-free layouts, like at Dogs Unleashed.
If you’ve got the resources to make it happen, consider opening a brick-and-mortar location. Big or small, physical space will provide the most freedom to allow you to accept more furry guests than doing it at home.
Start a doggy daycare at a veterinarian’s office
If you are a veterinarian, then assess how to offer kenneling as an additional service. Pets with age-related or health issues usually benefit from this amenity.
Include cats and other pets
Tips for boarding other types of pets are available on petinsurance.com.
Diversify
Larry and his wife diversified their services to include daycare, boarding, pet sitting, walking, first-aid training, and more, made possible by their years of experience in the industry.
Some providers endorse and sell products, such as personalized tags and collars, shampoos, and collapsible dog dens.
Larry says retail is new for his business and, while speaking about Metro Dog’s new location, mentions:
We also have multiple play floors and … private dog rooms for dog breed meetups, dog birthday or adoption parties, etc.
In addition:
We have our own classroom to teach pet first aid … we have a treatment room where we can offer a variety of animal health services.
So, don’t be afraid to add on products and services related to pets.
Step 4: Write a dog boarding business plan
You’re super excited about the idea of making tons of fluffy friends, right?
So, let’s document a plan to put this idea in motion. A business plan is crucial, and we have advice and resources to help.
Sniff out the market
Before drafting your business plan, it’s best to analyze the market. Tease out your target audience and local options for pet lodging. Here’s the magic: you’ll land in a better position to make intelligent decisions.
Be specific
No matter the type of business, the sections of a business plan are the same. Make it a practical, living document by delving into specifics within each area.
Specific items to highlight in your kennel business plan are:
- Additional services you might provide
- Answering the question, “Are there kennels in my area?”
- The best location for starting a dog kennel
- Financial projections and costs, especially as the business grows
- Pet boarding kennel insurance to provide adequate coverage
- Regulations for being a pet boarding business owner
- The unique competitive advantage of your professional dog kennel
When you’re ready to play ball, use our in-depth guide that comes with a free business plan template.
Be flexible
We’ve all done it: create a beautiful plan on paper only to realize that bringing it to life requires adjustments.
Larry says:
When we did our original business plan, it looked great on paper. But in practice, many of the ideas were not as great as we thought and required a change in paradigm.
The bottom line is that while you need to go through the exercise of writing a business plan, it’s not a static document. Just remember to be flexible and embrace change, and everything will work out.
Step 5: Choose the right name for your pet care business
After figuring out your boarding business model, devise a memorable and playful name. Let me show you how.
Have fun, but leave some wiggle room
Make sure the name is easy to spell, pronounceable, and gives strangers some idea of what your business does.
For instance, Room & Bark Boarding Services is light and easy to say, and there’s no guessing what the enterprise offers.
Are you not sold on cute and quirky names? Then try sleek and elegant or something that includes your location, like South Austin Pet Lounge or Metro Dog Seattle.
Try to ensure it won’t need changing in the future because that can be troublesome and expensive.
Hang a tag with a brand
Remember branding when choosing a name because it’s like a shiny label your business wears to distinguish itself from others.
Ask yourself how your name will look on a logo or graphics and an image you might incorporate that complements your selected moniker. Learn more in the sales and marketing section (Step 13) of this guide.
Gobble up a dot com
Check to see if your business name is available as a dot com. Using one for your website will give you an established look and make your virtual address easier to remember.
Search for available domain names and dig into UpFlip’s guide on creating a website. Give it a go!
What if I buy an existing business?
In most cases, boarding kennels that are “for sale by owner” already have a name. Research the business’ reputation to decide if you want to keep the name or rebrand with a new one.
Chew on a bit of feedback
Run your name through Google Trends and seek your friends’ and family members’ feedback.
Google Trends will tell you what searches are trending on the Internet, while your friends and family will just tell you their opinions.
After that, you decide, but it can’t hurt to hear what others think, especially if they’re looking out for your best interests.
Registration
If all looks good and you’re ready to make it official, then register your business name with the government.
Step 6: What is legally required to start a dog daycare business?
Selecting a legal structure is like placing your doggie daycare in the right-sized crate. The truth is, this step is usually beyond the expertise of many entrepreneurs.
So, expect to incur costs engaging the services of an accountant, attorney, and tax professional. The best part is, many of these professionals make excellent business coaches!
Licenses and permits
Figure out what licenses, permits, and tax forms you’ll need. It all depends on your location and the services offered. For example, your city might have a barking ordinance. It’s understandable.
Structure
Evaluate how to set up your business as one of the following:
| Type | Description |
| Sole proprietorship | The easiest option, but doesn’t protect personal assets. |
| Limited liability corporation | Protects personal assets and provides tax advantages but has time-consuming administrative requirements. |
| Franchise | It’s an agreement to sell services for a franchisor in exchange for an already established business, sort of like a pre-assembled doghouse. |
| Corporation or partnership | A less likely option because most pet boarding businesses employ fewer than 50 people. Learn more on Investopedia. |
Regulations
As expected, dealing with live animals and their byproducts merits a figurative collar and leash to control the effects on the facility, community, and environment. Learn about regulations in your locale and comply with them.
For example, the Ohio Environmental Protection Agency (OhioEPA) has precise rules about animal waste. Non-compliance can result in serious penalties. Don’t let this be you.
Step 7: Select a location
Larry and his wife found a dog daycare location in 2001. He says:
We found a suitable location in August 2001 and signed the lease a month later. We opened for business November of that year.
The location you can have or access goes paw-in-paw with the type of boarding business you can own. Let me explain.
How much does it cost to build a dog boarding facility?
A brick-and-mortar location requires you to investigate the feasibility of building a new facility, leasing a space, or buying an existing building.
While investigating, ask yourself the following questions:
- Can I find a dog boarding business for sale in the area where I want to do business?
- Is there commercial leasing for a pet boarding business near me?
- What’s the proximity to similar boarding facilities?
- What are the area’s demographics, and how do they compare to my targeted customer base?
Dig a little deeper by making these inquiries:
- Is this location the right size for the services I want to offer?
- Should I buy a business for sale?
- What utilities and infrastructure are needed?
- What are the zoning laws for my type of business?
A quick note about leasing a commercial property
Investigate the condition of the property to ensure business disruptions will be minimal. At least make sure the building passed its code inspections.
Nevertheless, some things are unavoidable, like when Larry’s landlord closed his whole building for two weeks—right in the middle of the busy summer boarding season—to upgrade the electrical system.
Designing a kennel or at-home location
The right location and design will elevate you to alpha status in this business.
The Barkleigh Store (cute name) sells a book on how to design a kennel. Information for an at-home operation is also available in Upflip’s guide on starting a pet sitting business.
No matter your location, zoning is super-important. Learn as much as you can so that you don’t bark up the wrong tree with local authorities, especially the public health department.
Step 8: Hire the right people
Now let’s consider your labor options. Like Larry and his wife, you could start on your own or with a partner, at least until business picks up.
Limiting staff keeps costs down without worrying about whether you can pay employees fairly and keep them around. It’s a perfect option if you plan to start with walking and sitting gigs rather than a full-on boarding facility.
However, hiring someone who has experience could get things off the ground sooner rather than later if you have the money to do it.
Just be sure that whomever you hire has the same level of passion for pet care as you and that they’re comfortable and confident working with dogs of all breeds and sizes.
For inspiration, view this kennel attendant job description and interview questions.
If you bring on some helping hands, use the following checklist to comply with employment laws:
- Obtain an Employer Identification Number (EIN) from the IRS.
- Keep employment tax records per this guide provided by the IRS.
- Pay federal unemployment tax.
- Hang Workplace Posters in a visible spot.
Step 9: Stock your boarding facility with equipment and supplies
However you decide to outfit your boarding business, just remember that cleanliness and organization are your keys to success. Now let’s go over the equipment and supplies you’ll need.
Basics
If you’re planning to start small like Larry and his wife, only basic supplies and equipment are needed.
It should include the following:
- Hands-free leash and waist pack
- Poop bags
- Pet first-aid kit
- Dog wipes
- Treats and water
- Headlamp
For an extensive list of pet-sitting supplies, have a look at this guide from Pet Sitters International.
Brick-and-mortar
For those opening a brick-and-mortar boarding business, there’s quite a bit more to consider.
Most importantly, the days of crated dog care are on their way out, as many dog owners now prefer cage-free environments for their precious companions.
Overnight boarding
Have some crates and large kennels for overnight care.
To keep up with the progression of daytime dog care, customers prefer open areas where dogs can socialize and play.
Indoor and outdoor spaces
Cutting-edge boarding facilities include indoor and outdoor spaces, so you’ll want to consider materials for outfitting both if that’s the route you take. The Home Depot offers a delightful collection of dog playground equipment.
Cleaning and sanitizing
Once you build a safe and secure space for your four-legged guests, you’ll need plenty of cleaning supplies to keep everything sanitized.
Pick up basic grooming supplies, like bathing stations, soaps, shampoos, plenty of towels, and nail trimmers.
Decor
There are so many whimsical and clever ways to decorate a pet-focused business. Take advantage of the possibilities and be creative!
Larry says this about his new facility, “It’s also bright on colors and lighting. Even during the public health inspection, the inspector commented on how nice and bright it is.”
If you’re looking for inspiration, then check out what Amazon.com has to offer.
Step 10: Incorporate safety protocols for boarding kennels
The most important part of dog boarding is keeping your furry guests safe and healthy. After all, that’s why their owners brought them to you. The safety of you and your staff is also a top priority.
First aid
As we mentioned earlier, you and your employees will need training in first aid for dogs. Keep contact information for each pup’s veterinarian on file.
It wouldn’t hurt to have a working relationship with a local vet’s office, just to be safe. Being up to speed on basic human first-aid will also be helpful in the case of a bite or other injuries.
Meet and greet
Require a “trial day” to help prevent incidents. During the evaluation, closely monitor new dogs to get to know them.
Be sure you and your staff can accommodate and address any anxiety and behavioral issues your pet guest presents.
Require all clients to provide vaccination records for their dogs to limit the spread of illness and disease. All dogs should also be spayed and neutered.
In addition, discuss these areas in your safety plan:
- Americans with Disabilities Act (ADA) compliance
- General things that can go wrong and how to handle them
- Regular inspections for safety issues
- Sanitation
- Working conditions per Occupational Safety and Health Administration (OSHA) requirements
Step 11: Get the right insurance
I’ve been there, thinking there’s insurance for everything nowadays. You’re probably asking if you need to take on that extra expense. The short answer is a resounding yes.
Insurance protects your business if something happens to a dog, you, or your property. General liability insurance is a must because it covers bodily injury, property damage, and medical payments—all-important for a pet business.
On average, kennels spend $300 to $700 for every $1m in coverage, which is about what other types of businesses spend on this type of insurance policy.
Other types of coverage to consider are:
- Commercial property insurance
- Commercial umbrella insurance
- Commercial auto insurance
- Home-based business insurance
Make it a priority to spend some time reading more about insurance for kennels.
Step 12: Handle your kenneling costs and revenue with a sound financial plan
It’s time to talk finances. Ambling in this area will prevent your kennel business from covering the ground it needs to succeed. Let me explain.
Bank account
Accounting, taxes, and money flow are easier to manage in one location, such as a business bank account for all your business transactions. Some businesses even set up a separate account for payroll.
Budget
A well-thought-out budget is like a dog gate to secure your finances by keeping them where you want them to be.
If numbers aren’t your thing, explore affordable budgeting courses from Udemy.com and Coursera.
Manage your budget with an application like Xero or QuickBooks.
Funding
Ways to acquire funds for your new business include the following:
- Angel investor or venture capitalist
- Credit cards
- Crowdfunding
- Government programs
- Home equity loan
- Partnership
- Personal funding
- Loans from friends or family
- Loans from a lending institution
- Rollover for business startups (ROBS)
Each option has its pros and cons. Take a look at this SBA guide for an introduction to business funding to learn more.
Pricing
Pricing is a mysterious obstacle faced by many business owners. Take control of it by determining the value of your service. Start by researching your market and competition.
Refer to the market analysis section of your business plan, check the prices in that market, and then use the information to determine your value proposition on the price of kenneling dogs or cats.
How much is dog boarding?
Most boarding businesses charge by the day, with the option for add-on services like grooming.
The American Pet Products Association (APPA) publishes market research every other year, informing what consumers spend and other significant data. Give it a chance.
Keep in mind that you might need to increase prices annually to keep up with minimum wage increases and inflation.
Revenue
You might be wondering how much a dog boarding business makes.
For Metro Dog Seattle’s first two years, the salary from Larry’s full-time job supported the business. After the start-up period, however, revenues grew enough to employ Larry and his wife full-time.
Although Larry and his wife opened the doors in 2001, weathering economic and global events over the years, within the last five years, his revenue increased from $660k to over $800k annually. Not bad.
Cuddle up to this dog daycare cash flow. See what the average consumer spends annually on pet ownership—including boarding costs—on Investopedia.com.
Step 13: Kick-off a sales and marketing campaign
Marketing attracts customers, and sales bring in revenue. Be the leader of the pack by following the advice in the sections below.
Know your customer
Here’s the magic: Tapping into the pet care services market won’t be difficult as consumers are already spending tons of money on pet hotel costs.
In fact, according to recent Economic Census statistics, consumer spending on pet care services totaled $5.8bn. Think about that for a minute.
Figure out what your ideal customer looks like by creating a customer avatar. Keep reading.
Partnerships and Specials
Build relationships with other entrepreneurs. Veterinarians, pet stores, and groomers might be open to exchanging service promotions.
For instance, “Buds N Suds” grooming can provide their customers a unique promotional code to redeem with your business for 10% off your services—or vice versa.
At Metro Dogs, Larry offers special deals for foster and service dogs. Think about what this could mean for your business.
Establish a logo and brand identity
DIY or hire a graphic designer to develop a simple and effective logo and brand identity. Branding is your visual introduction to the public, so be sure to do the work required.
While you’re at it, follow Forbes’ expert advice for small businesses. It provides excellent guidance for establishing your:
- Tone – Are you professional, casual, or funny?
- Values – What’s important, and how will you communicate it?
- Blog – Because 81% of readers trust the information.
You can DIY your logo and brand identity, but if it’s too time-consuming, then consider hiring a freelancer to assist.
Digital marketing
The digital age all but demands a strong strategy for online marketing. You’ll fare much better if you set up a website, social media profiles, and email newsletter subscriptions.
If you’re interested in going further, buy digital ads, try search engine optimization (SEO) techniques, and set up a digital business card with Popl.
A fun fact is that featured snippets can establish you as a dog-boarding authority. It’s worth your time to learn how to optimize for these in your web-based content.
Printed marketing collateral
Include printed materials in your marketing strategies, such as brochures, car magnets, flyers, door hangers, t-shirts, and other printed items. Take advantage of the robust templates and graphics-editing tools on Canva.com.
Direct contact
Direct contact can be effective. Visit dog parks or even try cold calls to fetch initial clients.
Professional appearance as a walking advertisement for your business
Sales and marketing tactics are super important, but what reigns supreme is your level of service and how you represent your business.
Maintain a clean and organized facility. Provide efficient and friendly service to match. Implement neat uniforms, even if it’s simply a branded polo shirt.
Reviews
Proactively seek reviews and respond to negative reviews professionally.
Take it from Larry, who says:
The achievements we’re most proud of are what our clients have to say about us.
Media outlets
Don’t leave traditional media outlets out of your marketing plan because they can still provide great exposure for your business.
Television talk shows interviewed Larry and his wife, and he’s written articles about pet safety. The Seattle Times quoted him about safety hikes with dogs, and the couple demonstrates pet first aid at events.
Step 14: Establish sound business processes for daily operations
Business process maps might seem like something giant corporations pay consultants tens of thousands of dollars to create.
However, they’re a simple tool that any entrepreneur can use to:
- Establish operational processes.
- Create customer-facing materials.
- Deploy new products and services.
- Work through the ideal and alternative paths of daily processes.
LucidChart has several excellent tutorials, videos, and a free cloud-based application to get you started.
Well-thought-out processes will also give you a better idea of which tasks to delegate to staff. Use them as a starting point for a policies and procedures manual.
Key processes to document
Here are a few ideas of process diagrams you can create to document your business operations:
- Acclimating new pet guests
- Answering pet parents’ questions and concerns
- Handling incidents
- Laying out the facility
- Keeping people and pets separate and secure
- Processing payments and reconciling accounts
- Running the back office and providing administrative support
- Sanitizing on a schedule and performing the related activities
- Scheduling exercise, feeding, and grooming
Refer to this article by AKC Pet Insurance to guide you to the kinds of processes you might need.
Policies
After mapping your processes, set expectations of acceptable and prohibited behavior (by staff and customers) with clearly written policies centered around topics such as:
- Behavior
- Emergencies
- Hours of operation
- Food
- Health conditions and medications
- Payment
- Pick up and drop off
- Weather events
- Vaccinations
Check out the policy and procedure templates available on Smartsheet.com and Template.net.
People will always need pet care, so go out and do it!
The three pillars of Metro Dog Seattle’s success are tenacity, knowledge, and flexibility. As Larry says:
You always keep your options open and never ever give up.
Now that you know what it will take to open your very own dog boarding business, what’s your next step?
At this point, there’s not much standing between you and a room full of loveable furballs!
Ask yourself the following questions:
- Am I the right person to own a pet boarding business?
- Do I have what it takes to handle customers and their concerns?
- How can I ensure my facility is profitable?
- Do I still want to be a dog daycare business owner?
Learn even more by watching our video on how to start a business. Now go out and do it!
Author
Donna C. Arceneaux
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[su_note note_color="#dbeafc"]We’ll dive into the following topics with small businesses in mind. Click on any section to jump straight to it.
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The most popular plan is $59.90 monthly. But there are plans ranging from $21.90 to $119 per month.
Bonsai
Small businesses can manage customer relationships, projects, finances, and banking with a single software. It’s called Bonsai and has everything you need from a business management system for $25 to $79 monthly. Each additional user is only $10 monthly.
Housecall Pro
Housecall Pro is a great business management platform for service businesses. This business management solution makes managing the customer relationship as easy as can be.
While you can use the $65 per month plan, the $169 monthly plan has some crucial features in a business management solution like Quickbooks and Zapier integrations.
Pro Tip: I’ve tested this software, and it was the most user-friendly client management software I’ve ever used. I particularly loved the client onboarding and review process.
Teamleader
This comprehensive business management software is European. It helps you manage projects and customer relationships, but some catches might impact business operations and growth planning. You’ll want to be aware of the following:
- Teamleader doesn’t charge in USD, so your cost will vary based on exchange rates.
- There are only quarterly and annual payment options.
- The price per user drops after six users.
Timely
AI powers this time-tracking software and automatically assigns time to specific projects. As you use the project management tool, the software learns which project each time-tracking task should be classified.
Timely charges for time-tracking based on the number of users and features. The minimum is $11 per user monthly, while the most advanced features are $28 per user monthly.
Bigin by Zoho
Most business management software is built with employer organizations in mind, but solo entrepreneurs can drastically improve their efficiency with Bigin by Zoho.
The free plan is the best business management software for solopreneurs, and the paid plans are $9 per month or $15 monthly. They offer more features than the Zoho One free plan but slightly less than its paid plans.
ProWorkflow
On the surface, there isn’t anything special when you look at this business management tool. Then why’s it on the list? Almost every review for this business management tool mentions their support is phenomenal, and the project management features make resource management more accessible.
The only negative review for ProWorkflow was from 2015, and it was because they made a change to their invoicing without providing the proper training. No reviews mention that issue afterward.
Start with the $20 per month plan and build from there.
Met Average Review Score Threshold
These business management systems scored above the minimum threshold of 4.0 but did not have over 50 reviews. That means reviewers were happy with them, but more reviews would build our confidence in the average rating.
These business software applications may eventually make it to the list of best business management tools, but they need to keep proving their chops for now.
A business software solution on this list works remarkably, but they may need more marketing to stay in business long-term. Check other review sites before purchasing these software applications for business.
| Business Management Software | Average Rating | Number of Reviews | |
| 13. | Homebase | 4.4 | 10 |
| 14. | Connecteam | 4.2 | 22 |
| 15. | Proofhub | 4.1 | 6 |
| 16. | Basecamp | 4 | 15 |
You’ll find a communication app, a business management app, and two project management apps in this category.
Chanty
Chanty focuses on helping team communication. This business management software is similar to Slack but half the price. Most teams can use the free version forever, but it’s only $3 per user each month if you need more.
Connecteam
Connecteam is one of the best business management software for small businesses because it offers ten users for free. The Small Business Plan has all the features of the Expert plan.
You can get three types of accounts: operations, communications, and HR. When you buy one, you get limited functionality of the other two.
Once you have more than ten employees, you’ll have to upgrade to paid memberships, which are $59 monthly for up to 30 members. Each additional team member is $1.80 per month.
Learn more about Connecteam’s pricing.
ProofHub
ProofHub is a communication and project management platform that allows unlimited projects and unlimited users for $99 per month or up to 40 projects and unlimited users for $50 monthly.
Having unlimited projects and users is especially useful for businesses like construction, which work with multiple companies and industries to get a job done.
Learn more about ProofHub’s pricing.
Basecamp
Basecamp is similar to ProofHub, but it will save you money if you have up to four users. Otherwise, just use Proofhub, as Basecamp is three times the price for unlimited users.
Met Review Quantity Threshold
Many people use this business management software, but they came in below the minimum review score threshold of 4.0. Even so, anything above a 3 deserves your attention.
Most of the software in this group is well known, but their review score could be lower because they try to be everything for everyone. As many successful business owners have found, sometimes it is better to focus on doing one thing well.
As you look into these services, avoid those with reviews mentioning inflated prices, a bad user experience, and poor customer service.
| Business Management Software | Average Review Score | Number of Reviews | |
| 17. | monday.com | 3.8 | 3100 |
| 18. | FreshBooks | 3.7 | 770 |
| 19. | Hubspot | 3.3 | 608 |
| 20. | Keap | 2.9 | 453 |
| 21. | HoneyBook | 3.9 | 258 |
| 22. | ClickUp | 3.4 | 258 |
| 23. | Trello | 3.8 | 154 |
| 24. | Wrike | 2.5 | 171 |
| 25. | Asana | 2.6 | 161 |
| 26. | Odoo | 1.7 | 129 |
| 27. | Thryv | 2.7 | 79 |
| 28. | Microsoft Onedrive | 1.7 | 116 |
| 29. | Smartsheet | 2 | 64 |
Since HoneyBook, Monday, Trello, and Freshbooks barely missed the list of best business software, we’ll review them below.
HoneyBook
HoneyBook allows you to track inquiries, automate workflows, send forms and questionnaires, book and schedule, sign contracts, send invoices, accept online payments, and manage projects.
Honeybook is effectively a comprehensive suite for business operations—as long as you get the $39 per month plan. They also have a $19 monthly that lacks business process automation and a $79 monthly plan that allows unlimited users.
monday.com
Yes, monday.com is one of the more sophisticated business management platforms. Unfortunately, the way it charges is less than friendly to small businesses.
It charges by seat, and you’ll need to pay a minimum of $60 to make it where most core business processes are automated.
The main advantage of monday.com is that it has more templates than any of the best business management software. Check out our monday.com business management software review.
Trello
Trello provides a user-friendly project management solution. While there is freedom in how you use the service, you generally attach tasks to “cards,” which you can click and drag through a series of steps you define.
The free version could work for solopreneurs and small companies. The paid versions range from $5 per month to a monthly per-user fee for larger companies, and they progressively unlock features like new workspace views and increased automation.
Trello project management is typically the management software that software development teams prefer. Our design team likes Trello, but our content team chooses ClickUp.
FreshBooks
FreshBooks is another financial management tool. The plans vary dramatically in what they offer. The $8.50 plan has unlimited expenses and estimates but limits you to unlimited invoices for five clients and only provides tax reports.
More expensive plans add additional features, like more clients, recurring billing, other payment options, better reporting features, and mileage tracking.
FreshBooks is also less expensive than QuickBooks, which may benefit your business, assuming the savings aren’t eaten by complicating your tax filing.
Business Management Tools That Failed To Pass
These business management tools failed to pass the minimum thresholds of 50 reviews and an average review score of 4.0 stars on Trustpilot. For that reason, you’ll want to research them more heavily.
But just because they did not pass our criteria doesn’t necessarily mean they are the wrong tools. Reasons for failing to meet our thresholds include:
- Too few reviews: Trustpilot penalizes companies with a small number of reviews by lowering their scores. One five-star review can equal a 3.2 score overall.
- Company Doesn’t Focus on Trustpilot: Many small business owners love Jobber, but the Trustpilot reviews aren’t good. If they directed reviewers to Trustpilot, the score might rise.
- New Company: Simply put, it takes time for a company to establish a reputation.
- User-Friendliness: Some software could be more user-friendly, and people abandon it due to challenges.
- Support: One of the most common complaints about business management software is that customer support could improve.
| Business Management Software | Average Review Score | Number of Reviews | |
| 30. | nTask | 3.7 | 6 |
| 31. | Productive | 3.6 | 3 |
| 32. | Favro | 3.3 | 3 |
| 33. | Insightly | 3.2 | 6 |
| 34. | Flodesk | 3.2 | 3 |
| 35. | TimeCamp | 3.2 | 2 |
| 36. | Deltek | 3.1 | 2 |
| 37. | OneSoft Connect | 2.9 | 4 |
| 38. | Deskera | 2.8 | 30 |
| 39. | Podio | 2.8 | 20 |
| 40. | Bitrix24 | 2.6 | 39 |
| 41. | Apptivo | 2.6 | 6 |
| 42. | Jobber | 2.5 | 6 |
| 43. | Teamwork | 2.1 | 19 |
| 44. | NetSuit | 1.9 | 17 |
| 45. | Oracle | 1.8 | 46 |
Pro Tip: I have used Jobber and found it to be very useful for a service company.
Business Management Software with No Reviews on Trustpilot
The following business management software did not have any reviews on Trustpilot. That’s not an indicator that it shouldn't make the list of top business management software—just that side-by-side comparisons don’t work based on our standards.
- Clarizen: This unified business management suite is only helpful for companies that can afford $1,620 per user paid upfront for a three-year subscription.
- WORKetc: Looking for one business management software to run your whole company? WORKetc will work, but there are less expensive options.
- BlueCamroo: People seem to like BlueCamroo, a customer relationship management software. It comes with a free version that allows up to two users, and more advanced paid packages start at $5 per user monthly.
- StudioCloud: This desktop software works offline and uploads information to cloud storage services. There’s a free version and a paid version.
- beSlick: This is a business process management tool with drag-and-drop automation capabilities and compliance monitoring.
- Bit.ai: This is a cloud-based business management tool multiple Ivy League schools use to manage their content.
Other notable software that failed to get ratings were:
- Dubsado
- Striven
- Nifty
- Quixy
- Kissflow Workflow
- iBE.net
- Todo. vu
- Frank
- Paymo
Specialized Business Management Software
Next, we’ll cover types of specialized business management software that small business owners have explicitly recommended.
Scheduling Software
Booking Koala is by far the most impressive software I have tested in nearly 10 years of testing business software. I was first introduced to it by Cristobal Mondragon while writing our blog about how to start a cleaning business.
Booking Koala provides custom quotes online and lets the customer book without talking to someone. The detail you can add to quotes is impressive. It helps you stop wasting time talking to people who aren’t your ideal clients.
The software costs $27 monthly, but most businesses will want to use the $57 plan. There is a 14-day free trial. The downside is it isn’t entirely comprehensive—you’ll need to integrate it with other software.
Customer Relationship Management (CRM) Software
There are so many different CRM programs people can use. The one you choose will depend on what your business needs. I’ve tested 10 CRMs, and there are three that I find genuinely user-friendly:
- Housecall Pro: Easy to use
- Jobber: Not as easy, but popular
- ClickUp: We use this at UpFlip because we have more workflows than many businesses.
Other valuable CRMs that are much more complex include Salesforce, HubSpot CRM, and Zoho CRM. And based on reviews, Begin by Zoho is the most highly regarded CRM. I hope to test it soon and provide a review.
Enterprise Resource Planning (ERP) Software
ERP systems integrate various business processes, including accounting, HR, inventory, and customer relationship management. Some popular ERP software options are SAP, Oracle NetSuite, and Microsoft Dynamics.
The business management software in this category tends to be pricier and will need the assistance of a developer or software development company to use it most effectively. It’s more robust than the standard solutions because you can create anything.
Project Management Software
The best business management software will vary depending on the industry and necessary tasks. Good project management software should help you with:
- Project planning: This includes creating a timeline budget, assigning tasks, and creating Gantt charts to track progress and dependencies.
- Task management: After you assign tasks, you’ll need to track changes against the expectations and adjust the timeline and budget accordingly.
- Project accounting: A business needs to know whether every project is going according to plan or whether expenses are over budget.
- Expense tracking: Expense tracking helps you stay under budget. You can also use this feature for time and expense billing methods.
- Time management: Tracking time is crucial for tracking expenses, especially if you have people working overtime. Overtime pay can quickly impact profits compared to a billing rate at regular wages.
Human Resource Management (HRM) Software
HRM software streamlines HR tasks, such as payroll, employee onboarding, and performance management. ADP, BambooHR, and Workday are reputable HRM solutions.
Check out our reviews of the best HR software.
Accounting Software
To handle financial matters, consider using QuickBooks, Xero, or FreshBooks for small- to medium-sized businesses. Given that we’ve already discussed QuickBooks and FreshBooks, let's briefly discuss Xero.
Xero: Writer’s Favorite Accounting Software
Xero qualifies for the main list, but I held it out because I’ve rarely found U.S. businesses that use it. With its primary team being across the world, you may experience challenges with customer service. You’ll also get your best results if you have an accountant and developer team on hand.
Xero is a small business management software company based in New Zealand. It is popular among small and medium enterprises in Australia and other countries. Its Trustpilot rating is 4.3 stars with around 5,900 reviews, making it the fourth most reviewed management system for business.
This program automates processes in accounting and can be integrated with other business management software, like human resources or inventory systems, to improve your business intelligence.
I particularly liked Xero’s automated expense classification, which allows you to customize how expenses are treated based on the store or other factors.
Inventory Management Software for Small Businesses
You can either get inventory management as part of your complete business management software, or go with a specialized offering, like:
- Sortly: Sortly has a 4.1 score across 125 reviews, which meets our standards. There’s a free version, but you'll need the paid version if you have over 100 items or need custom fields.
- Zoho Inventory: Get inventory as part of Zoho One.
- ShipBob Merchant Plus: You might like this if you combine self-fulfillment with dropshipping or print-on-demand. With a 3.8 rating, it just barely misses our cutoff.
- monday.com: You can get free inventory management with monday.com.
- Cin7: This business management system has a 2.26 rating between their two offerings, meaning it does not meet the quality threshold.
- Ordoro: Forbes calls this software the best for multichannel sellers, but it has no Trustpilot reviews.
Time Tracking Software
We use Upwork’s time tracker for hourly freelancers, but I liked how Screenshot Monitor worked elsewhere.
Many cloud-based business management systems have time tracking software built-in, including ClickUp, but I wish ClickUp had a standalone time tracker that I could get to more conveniently.
Marketing Automation Software
To automate marketing campaigns, consider platforms like:
- HighLevel: GoHighLevel has over 1,100 reviews, and 96% are 5-star. It has everything you need for your marketing for $97 per month.
- Mailchimp: The most famous name in email automation, Mailchimp is not particularly loved by Trustpilot reviewers because of poor support and cancellation issues.
- OptinMonster: OptinMonster is what we use at UpFlip. It has a 4.0 rating across 159 reviews. Plans cost $9 to $99 per month.
eCommerce Platforms
eCommerce platforms function as management software for small business operations. The companies below have a store and other tools you can download to enhance critical features.
- Shopify: I find Shopify the most intuitive eCommerce platform. Its pricing is reasonable, but you’ll probably want additional apps that raise the price quickly.
- WooCommerce (WordPress plugin): WordPress and WooCommerce are some of the most used company software. It’s more expensive, at $70 monthly, and I find it cumbersome.
- BigCommerce: This eCommerce platform is competitive with Shopify pricing on the low end and goes higher for people wanting multiple stores and additional key features.
Unfortunately, none of them have great reviews because they are expensive if you don’t monetize your store quickly.
Point of Sale (POS) Software
Businesses with physical stores or in-person sales will need POS systems. Both of these companies offer a free version and additional plans.
- Square: Most people are familiar with Square. With a 4.3-star rating, those who use it are satisfied. It’s the safe bet for starting a business and needing payment processing.
- Toast: Restaurants will want to go with a company like Toast that offers critical features that restaurants need. They have a 3.7-star rating, and the highest plans have mobile ordering apps.
Business Analytics Software
Analyze your business results with analytics tools. There are both free and paid tools you can use, including:
- AirDNA: This business intelligence system for Airbnb hosts and contractors makes establishing prices easier by providing competitor pricing and demand. Cristobal Mondragon and other Airbnb companies suggest it. They only have a 2.9 Trustpilot rating, though.
- Semrush: Every business needs search engine optimization to improve its results. The Semrush software helps you analyze what you need to rank higher on Google. It only has a 3.3 Trustpilot rating, but it is one of the industry standards.
- Ahrefs: Ahrefs is the other SEO tool many people use. Many consider it more challenging than Semrush, but I love how deep I can dive with it.
- Google Analytics: Every single business will need Google Analytics for business intelligence. There’s a free version most people use, but you might also consider the paid version.
Content Creation Software
Try content creation software to maximize your task management for content creation. Here’s some of the software we use at UpFlip.
- SurferSEO: The SurferSEO software supercharges content creation by helping identify the content subjects you need, then specifying certain thresholds—like blog length, the number of pictures, and the number of keywords—that can help you succeed on search engines.
- Canva: You’ll also want some design software to help create images. Canva makes it easy to create professional photos, with a limited free option and paid options for less than $15 per month.
- ChatGPT: Besides SurferSEO, we use ChatGPT to help us generate outlines for how-to blogs.
- Google Workspace: There’s a reason Google Workspace is the most commonly used team collaboration tool. Where else can you get team collaboration tools like Gmail, Docs, Sheets, Slides, Calendar, and Meet for just $6 monthly?
Want to know what our process looks like?
- CEO will assign tasks in ClickUp.
- I research keywords with Ahrefs and create a SurferSEO “Content Editor” (a tool that tells us the range of acceptable keywords in a blog).
- I write the blog in Google Docs and send it to Editing with ClickUp.
- Editor suggests edits in Google Docs.
- I make changes and send the blog back to the Editor.
- The editor sends the blog back for a second revision or sends it to Design.
- The Design team creates graphics and adds the blog to WordPress.
- The editor reviews the design, requests changes if needed, and schedules the blog.
- Our CEO requests any changes he wants.
Choose your business systems
We’ve covered a variety of business process management software. We’ve discussed solutions for HR, marketing automation, supply chain management, project planning, and other standard business processes.
Most will have a per-user billing strategy that will impact your decision-making.
We’d love to be able to review every software you could desire in one blog, but that would be the longest blog ever. Is there software we missed? Do you agree or disagree with the suggestions? Let us know in the comments below.
Have you ever wondered how to start a t-shirt business? Starting a t-shirt business only requires a little investment and some technical skills. You can start a clothing line and make a great living. We'll show you how.
One of our success stories is about Sanford Booth. He started his own t-shirt printing company by buying a Big Frog franchise and turning his original investment of nearly $200K into a profit in only four months. He took home $80K the first year, and this year he's expecting to make $550K! We'll share his advice for starting a t-shirt company.
[su_note note_color="#dbeafc"]
We'll share everything you need to know to get started including:
The first step is to decide what t-shirt business model is right for you. Your t-shirt business should stimulate your creativity, but it should also appeal to your customers' needs and wants.
Some t-shirt business ideas include:
Follow these steps to apply for a Big Frog Franchise:
You may wish to consider starting a Print-on-Demand (POD) t-shirt business because you don't need inventory to start selling t-shirts. POD is perfect if you're wondering how to start a t-shirt business at home.
You simply create a t-shirt design, add it to the print-on-demand company's garment design software, and connect it to your ecommerce platforms to start selling it. Shopify has a great blog about the top print-on-demand companies.
My favorite is Printful because the graphic tees design software is easy to use, fast for delivery in the U.S., and easily integrates with Shopify, WooCommerce, Facebook, and Amazon. You might want to consider Amazon Merch to sell your t-shirt business designs because they have fast shipping and a huge number of customers.
If you run another type of t-shirt design business, you could hire a developer to drive more revenue by providing printing and shipping services to your client's customers.
Wholesale is focused on selling t-shirts in bulk orders. To do this, you will typically need to offer retailers t-shirts at 50% of MSRP. You might want to implement this strategy once you develop a reputation for your own online t-shirt store. eCommerce solutions have made it easier because you can combine this strategy with print-on-demand services for selling t-shirts.
Here's a great list of apps that will make wholesaling easier for your t-shirt brand.
You can't start a t-shirt business without learning the necessary skills. There are five basic skills you need to sell t-shirts online successfully:
There are a ton of great resources on how to design clothes. Here are some useful ones:
Relevant marketing will help you reach your target audience and let them know about your t-shirt printing. Without it, finding customers can be a real challenge. Marketing can be done both online and through other channels.
The largest marketing companies expect digital marketing to make up over half of all ad spending for the foreseeable future. To read more of their insights, check out this blog.
You'll need to be familiar with the three largest ad markets for your t-shirts:
Make sure to familiarize yourself with them; otherwise, you'll be operating in the dark and wasting a lot of money.
It's important to have social media accounts connected to your online t-shirt business to build an online presence that will help sell t-shirts online and in person.
Big Frog collects 1.5% of revenue and uses it for marketing franchises. Sanford told us:
[su_quote]One of the big differences between a franchise and an independent t-shirt print shop is that Big Frog has well-defined marketing processes in place that, if you follow them, make it easier to succeed.[/su_quote]
Watch the full interview here to see what else Sanford has to say about marketing.
Built-in marketing costs make custom t-shirt printing easier than without a franchise.
You'll want to know screen printing and heat transfer techniques, which means purchasing your own machines or finding someone to teach you hands-on. If you are running a franchise or printing shop, you'll need to learn which ways work best for t-shirt businesses.
Big Frog Custom T-Shirts, Inc is the full name of Big Frog. The name clearly states what it does: create custom T-shirts. In addition, it's memorable. There are not many companies with similar names.
Try out our business name generator. Next, register your business name with the government.
Each location has different licenses, permits, and tax forms required. Use the SBA License and Permits page to identify what your custom tees company needs. Keep reading for information on different legal structures.
You might need a physical t-shirt business location. Connecting with local business owners is easier if you are near your target market. If you have enough products, you'll need a business location or fulfillment center. Otherwise, you may want to choose the location based on the wealth distribution of the area, the price of space, or choose a central location that is convenient for more people.
When deciding to rent a space for a clothing line, consider:
A new t-shirt store needs inventory unless you are starting an online t-shirt business with print-on-demand. You'll need the t-shirts you'll be selling, product display stands, registers, computers to design t-shirts, and the machines for adding designs for shirts. You may need several machines based on the many different types of t-shirts. These can range from heat presses to DTG printers to embroidery stations.
Sanford uses the DTG printers for most of his work. He told us,
[su_quote]I even work with other print shops on a referral basis to let them earn revenue on small print runs that they'd normally lose the revenue because they can’t afford the setup.[/su_quote]
I have found that kit.co is a good starting point to see what others suggest.
Startingaclothingline.com offers a list of manufacturers by location and type of clothing. It's a great place to start when looking for manufacturers.
Sanford emphasized the importance of hiring people who are better at their assigned roles than you are:
[su_quote]I've got three employees: two designers, and one focused on printing.
Make sure they have Photoshop and Illustrator experience and good customer service. They'll be interacting with lots of customers, need to be highly responsive, and set customer expectations.[/su_quote]
You'll need employees. Big Frog wants its owners to build the business rather than work in the business. Keep reading for more information.
Hiring people requires posting “now hiring” signs and posting on prominent job boards. Some places you can start posting job requirements are:
Employees are typically a company's biggest expense. There are three common pay structures in business. Each fits a different scenario. Let's take a closer look:
A successful t-shirt business manages the financial aspects. Sanford emphasized the benefits of managing margins:
[su_quote]Your margin is crucial. If you don't manage it, no matter how much you sell, you'll lose money. I typically aim for 65%.[/su_quote]
He also discussed the importance of following up with your clients:
[su_quote]During the slow months, January, February, and into March, I'll reach out to my routine customers and make sure they don't need anything. Following up makes a huge difference in how much you make.[/su_quote]
You may need some extra funds to start your clothing brand. To find banks that work with small businesses, use this resource.
Let's look at some tricks you can use to help your clothing line become profitable.
Starting a t-shirt company doesn't cost a fortune. While it cost Sanford “$180–$200K for the franchise fee, equipment, and building with remodeling,” other shirt entrepreneurs have started a t-shirt printing business for less than $1,000.
In our interview with Marcus from Portland Gear, Marcus suggests beginners use the following to start a t-shirt business:
Now you're ready to sell shirts. You have the location, equipment, inventory, and employees—but no clients!
How are you going to let people know about your online t-shirt business?
Marketing is crucial for a custom shirt business. Franchises have an advantage here because they already have built-in clients and a marketing budget. They've also figured out what works.
Sanford told us:
[su_quote]I started with print media, radio commercials, a TV commercial, and tons of direct mailers, but that got expensive. Then I started cold calling, following up with previous customers, then digital marketing has really made a difference.[/su_quote]
Want to know what styles and designs are trending? Follow suppliers, competitors, and influencers to see where communities are heading. Some of the top influencers to follow are:
- Which Business Model Is Easiest
- Skills You Need to Create Your Own T-shirt Designs and Sell Online
- What Makes a Great Business Name
- Elements of a Good Business Plan for an Online T-shirt Business
- Where to Go to Establish Your Business Structure
- Steps to Take Before You Start Selling T-shirts Online
- Choosing a Location to Sell Your T-shirts
- What You Need to Know About Equipment
- Resources for Team Building
- How to Manage Your Small Business Finances
- Paying Taxes
- Marketing Your Business
Step 1. What's the Best Way to Start a T-Shirt Business?
The first step is to decide what t-shirt business model is right for you. Your t-shirt business should stimulate your creativity, but it should also appeal to your customers' needs and wants.
Some t-shirt business ideas include:
- Focusing on a specific target market, such as small business t-shirts.
- Performing graphic tee design work and printing them yourself.
- Starting an ecommerce store using Print-on-Demand companies.
How to Start a T-Shirts Franchise
A t-shirt franchise like Big Frog gives you a head start on your small business journey. The application process is similar to the interview process for a job.How to Start a T-shirt Printing Business with Big Frog
Follow these steps to apply for a Big Frog Franchise:
- Request information.
- Get to know the franchisor on a business call.
- Attend a webinar that goes into more detail about the responsibilities of an owner.
- Fill out disclosure documents to prove you have the resources necessary to start a t-shirt business franchise.
- Meet other franchise business owners.
- Go to the headquarters and:
- Get to know the corporate team.
- Learn to press T-shirts.
- Learn about their customer support.
- Start the franchise.
- No less than $50K liquid assets
- At least $40K working capital
- $300K net worth (varies based on regional construction costs)
- $39,500 initial franchise fee
- Initial investment of $188,344 to $247,944
- A 6% royalty paid monthly on revenue
- 1.5% of revenue for marketing costs
How to Start a Brick and Mortar T-Shirt Business
We've all been to a brick-and-mortar store. Their business model is selling t-shirts in a building where people can come to the store, try them on, and buy what they like. These stores may sell a single clothing line, multiple clothing brands, or custom t-shirts. With the rise of ecommerce, this part of the industry is hurting. Closures of retail stores have been increasing for at least the last three years, according to Moneywise. Despite this, Digital Commerce says retail sales have increased around 3% per year since 2007, meaning the stores that stay open are making more money. This business model works with franchises and stores that run a tight ship. They tend to need sales of $40K per month to be safe. Otherwise, you'll probably want to start a different way.Sell Custom T-Shirts
T-shirt companies that run this way focus on a specific brand. This type of business can be a physical retail clothing store, fashion design, e-commerce, print-on-demand service, manufacturing, or a combination of these. A business plan using this model typically focuses on a niche market to satisfy their needs and may expand into other markets later while keeping the brand image. As a franchise owner, you may want to try to find clients like this to provide printing services. They can become steady clients.Sell T-Shirts Online
An online t-shirt business focuses on ecommerce through an online store. According to IBIS World, there are 278 business owners selling $582.4 million in t-shirts online for a combined $18.1 million in profit margins. This doesn't include businesses that don't classify themselves as an online t-shirt business. Check out their full list of specialized reports. You can sell t-shirts through lots of websites. Here are the top places to list your t-shirts online:- Amazon is the largest online marketplace on the planet. You have to be listed there.
- Facebook and Instagram Marketplaces are also massive. Some functions can be done through one platform and then work on both, but others have to be done separately.
- eBay is another great place to sell t-shirts online. Learn about selling on eBay.
- Shopify offers an easy experience to set up your own clothing store and connects with most of the bigger marketplaces directly from your shop.
- WordPress and WooCommerce work great together for super fast ecommerce stores.
- Etsy is another great marketplace for an online t-shirt business. Check out our guide on creating an Etsy shop.
How to Sell Shirts Online with Print on Demand
You may wish to consider starting a Print-on-Demand (POD) t-shirt business because you don't need inventory to start selling t-shirts. POD is perfect if you're wondering how to start a t-shirt business at home.
You simply create a t-shirt design, add it to the print-on-demand company's garment design software, and connect it to your ecommerce platforms to start selling it. Shopify has a great blog about the top print-on-demand companies.
My favorite is Printful because the graphic tees design software is easy to use, fast for delivery in the U.S., and easily integrates with Shopify, WooCommerce, Facebook, and Amazon. You might want to consider Amazon Merch to sell your t-shirt business designs because they have fast shipping and a huge number of customers.
If you run another type of t-shirt design business, you could hire a developer to drive more revenue by providing printing and shipping services to your client's customers.
Fashion Designers
Fashion designers focus on designing new clothing that is both stylish and unique. They are primarily focused on the art of their products. When a t-shirt design business reaches this level, the brand is typically at the top of the fashion industry. They are typically artistic people who make designs and accessories that stand out. They can be self-trained or go to fashion design schools. If you are interested in fashion design education, here are the top 50 schools.Wholesale
Wholesale is focused on selling t-shirts in bulk orders. To do this, you will typically need to offer retailers t-shirts at 50% of MSRP. You might want to implement this strategy once you develop a reputation for your own online t-shirt store. eCommerce solutions have made it easier because you can combine this strategy with print-on-demand services for selling t-shirts.
Here's a great list of apps that will make wholesaling easier for your t-shirt brand.
Manufacturing
Manufacturing t-shirts is focused on creating t-shirts from field to thread to final garment. This is the most cost-intensive portion of the t-shirt industry because you'll need a warehouse, fabrics, employees, and machines. That can add up to hundreds of thousands of dollars. I'd only recommend this strategy at the point in which you are a solidly profitable company, when the only way to increase gains is to buy the machines to produce the garments yourself. Make sure to reach out to a financial expert who specializes in t-shirt manufacturing before doing so. In case you didn't gather it from the list of t-shirt business ideas, an online t-shirt business is the most likely way to reach success. After your ecommerce business sees success, you can start expanding and adding other business models to your operations.Step 2. Learning the Skills
You can't start a t-shirt business without learning the necessary skills. There are five basic skills you need to sell t-shirts online successfully:
- Design
- Technology
- Marketing
- Production and printing
- Business skills
Design Skills
Before you can sell tees, you need t-shirt designs. T-shirt designs are typically created by someone with graphic design skills. This person takes t-shirt business ideas and makes them a reality. T-shirt designs will typically include several steps in the design process. The steps to design your own t-shirts include:- Draw t-shirt designs using digital software, like Photoshop, Canva, or Illustrator.
- Have a pattern maker cut the patterns for the design.
- Build a prototype.
- Make alterations.
- Create a tech pack. A tech pack is just the design specifications you give to a clothing manufacturer.
- Source the materials and begin manufacturing.
- Embroidery machines
- Heat press
- Sublimation
- Screen printing
Resources
There are a ton of great resources on how to design clothes. Here are some useful ones:
- Best Fashion Design Schools
- Best Free Online Classes
- Best Fashion Design Software
- Best Print-on-Demand Companies
Technology
Another crucial step is learning the technology you'll use. Paying a developer to create a website selling t-shirts online can be expensive. I've seen people spend $25K to not get what they want. It’s possible to get good work without understanding how to use the following tech, but you should probably learn about them first.- An ecommerce platform (Find Investopedia's review of the best ones here.)
- Payment processors
- Editing software
- Marketing software
Marketing
Relevant marketing will help you reach your target audience and let them know about your t-shirt printing. Without it, finding customers can be a real challenge. Marketing can be done both online and through other channels.
The largest marketing companies expect digital marketing to make up over half of all ad spending for the foreseeable future. To read more of their insights, check out this blog.
You'll need to be familiar with the three largest ad markets for your t-shirts:
Make sure to familiarize yourself with them; otherwise, you'll be operating in the dark and wasting a lot of money.
It's important to have social media accounts connected to your online t-shirt business to build an online presence that will help sell t-shirts online and in person.
Big Frog collects 1.5% of revenue and uses it for marketing franchises. Sanford told us:
[su_quote]One of the big differences between a franchise and an independent t-shirt print shop is that Big Frog has well-defined marketing processes in place that, if you follow them, make it easier to succeed.[/su_quote]
Watch the full interview here to see what else Sanford has to say about marketing.
Built-in marketing costs make custom t-shirt printing easier than without a franchise.
Production and Printing Skills
Your t-shirt business will need to produce t-shirts, which can be done through a manufacturer, or you can print your own t-shirts and other apparel products. If you are going to print t-shirts, you'll need to learn how to make a shirt with different types of machines. Some of the typical techniques you'll need to learn include: Sanford walks you through the direct-to-garment printing process at the 6:28 mark of the interview. [su_youtube url="https://youtu.be/BmYCYMAsQ8Y?t=385"] Printsome offers a good infographic on deciding what kind of technique you want to use.
You'll want to know screen printing and heat transfer techniques, which means purchasing your own machines or finding someone to teach you hands-on. If you are running a franchise or printing shop, you'll need to learn which ways work best for t-shirt businesses.
Business Skills
Business skills cover a wide range including accounting, pricing, shipping, and managing inventory. We've provided a list of useful resources by business topic:- Accounting: Udemy, edX
- Pricing: Coursera, Udemy
- Shipping: Shopify, BigCommerce
- Inventory Management: Quickbooks, Unleashed
Step 3. T-Shirt Business Name
You'll want to choose a name for your own online store t-shirt company. The name shows your personality and voice. Your t-shirt business should take into account the following considerations about brand presence:- Will the name indicate your business sells shirts?
- Is it easy to spell?
- Will you focus on local sales? If you do, consider including the name of the location.
- Is the .com domain available?
- Is the business name unique?
- Does your name fit your branding? Check out Big Frog's logo:
Big Frog Custom T-Shirts, Inc is the full name of Big Frog. The name clearly states what it does: create custom T-shirts. In addition, it's memorable. There are not many companies with similar names.
Try out our business name generator. Next, register your business name with the government.
Step 4. Write a T-Shirt Business Plan
You need a t-shirt business plan to define and guide your vision for the t-shirt company. Your plan will drive your t-shirt business by:- Guiding decisions
- Securing financing
- Developing partnerships with other businesses
- Suppliers
- Location selection and lease negotiation
- Design and layout of the store
- Training
- Marketing
- Recruitment
Resources
We've gathered templates to help you develop your business plan. Here are some of the best: [su_note note_color="#dbeafc"]- One-page business plan
- U.S. Small Business Administration (SBA) business guide
- State-specific templates
- Business plan template for a startup business
- How to Write a Business Plan
- SCORE's free plans and startup assistance resources
- The Complete Business Plan Course (includes 50 templates)
Step 5. Establish a Legal Structure
Starting a t-shirt business requires getting a business license, tax permits, and choosing how to classify your business:- Sole Proprietorship: Most franchises will not allow you to run a sole proprietorship because there is no liability protection, but it's the least expensive way to start a business. Fill out a Schedule C to get started. Consider joining the American Independent Business Alliance.
- Limited Liability Corporation (LLC): Each state has different requirements. Check your state's requirements. You might choose to register in a different state than where you live to reduce the cost of doing business. Check out the top 10 states to get an LLC.
- Corporation: If you intend to sell stock or raise funds by selling equity, you might want to become a corporation. Otherwise, stick to an LLC.
- Partnership: Normally, legal firms operate as partnerships. Unless there is a specific reason you need a partnership, it is better to do a multi-person LLC. Investopedia has good information about partnerships and corporations here.
- Franchise: Buying the right to use a company's processes and intellectual property to run one of its locations. Franchising.com has two franchise opportunities to start a t-shirt business in the United States. Big Frog is the only Direct to Garment (DTG) t-shirt franchise.
Get an Employer Identification Number (EIN)
You'll need to apply for an EIN from the Internal Revenue Service. It's free, but you must go online during normal business hours. An EIN is necessary if you want employees or financing for your online t-shirt business.Licenses, Permits, and Tax Forms
Each location has different licenses, permits, and tax forms required. Use the SBA License and Permits page to identify what your custom tees company needs. Keep reading for information on different legal structures.
Step 6. Getting Ready for Customers
Your t-shirt business is now an entity, but there's more. The order you complete the rest of the steps, you'll depend on your resources, skill sets, and the type of t-shirt company you start. There are six areas of business you'll need to make decisions about:- Location: Where will you be working?
- Inventory: What will you sell, and how will you pay for it?
- Employees: Will you have employees, and how will you make sure it is a safe environment?
- Finances: How will you keep track of transactions and financial records?
- Insurance: How can you protect what you are building?
- Marketing: How will you find customers?
Step 7. T-Shirt Business Location
You might need a physical t-shirt business location. Connecting with local business owners is easier if you are near your target market. If you have enough products, you'll need a business location or fulfillment center. Otherwise, you may want to choose the location based on the wealth distribution of the area, the price of space, or choose a central location that is convenient for more people.
When deciding to rent a space for a clothing line, consider:
- Do you need space for screen printing equipment and inventory?
- Are you running an online t-shirt business? If so, you can run it from home.
- Will customers be coming to your small business?
- Does your t-shirt store have inventory?
- How will you display your t-shirt designs?
- How much space is needed to store your t-shirt designs?
- Will you host a traveling pop-up t-shirt store?
How to Start a T-shirt Business From Home
Each city and state has different requirements for where a business is allowed to be located. Local ordinances and franchises might not allow a t-shirt business to be home-based. How am I supposed to start my t-shirt brand with so many rules for a small t-shirt business? Just search the Municode Library to find your city regulations.Finding a Good Spot
When looking for a space to rent, consider your ideal client and what stores they might frequent. For instance, a t-shirt printer might do well in a high-traffic mall or a space with a high density of local businesses. Finding the right place will take some research, which will be much easier after considering your marketing efforts.Step 8. Inventory, Screen Printing Machines, and Product Displays
A new t-shirt store needs inventory unless you are starting an online t-shirt business with print-on-demand. You'll need the t-shirts you'll be selling, product display stands, registers, computers to design t-shirts, and the machines for adding designs for shirts. You may need several machines based on the many different types of t-shirts. These can range from heat presses to DTG printers to embroidery stations.
Sanford uses the DTG printers for most of his work. He told us,
[su_quote]I even work with other print shops on a referral basis to let them earn revenue on small print runs that they'd normally lose the revenue because they can’t afford the setup.[/su_quote]
I have found that kit.co is a good starting point to see what others suggest.
Startingaclothingline.com offers a list of manufacturers by location and type of clothing. It's a great place to start when looking for manufacturers.
Used Printing Machines and Product Displays
Printing machines and product displays can often be found at huge discounts if you buy them used. You can find printers and product displays through online markets, pawnshops, going-out-of-business sales, and other places. When buying a franchise, they may specify the exact machines you should use. For instance, Big Frog uses Brother DTG Printers. Considering buying an existing business? The equipment and inventory should be included in the purchase price. Learn more about valuing an existing business in our guide about buying businesses. Then check our business listings for available print shops.Step 9. Employees
Sanford emphasized the importance of hiring people who are better at their assigned roles than you are:
[su_quote]I've got three employees: two designers, and one focused on printing.
Make sure they have Photoshop and Illustrator experience and good customer service. They'll be interacting with lots of customers, need to be highly responsive, and set customer expectations.[/su_quote]
You'll need employees. Big Frog wants its owners to build the business rather than work in the business. Keep reading for more information.
Tax Filing and Withholding
Federal and state tax filing requirements apply to new employers. You must keep records of employment taxes for a specific duration, including special forms and accounting for state taxes. (Please remember: I’m not licensed to give legal advice on the duration, and the IRS has been known to change things.) Don't worry! We've got you covered! Check out the IRS guide for employers.Federal Employment and Labor Law Posters
All employers must display Workplace Posters, which you can download from the website. Other requirements include:- Employment Eligibility Verification (Form I-9)
- State's New Hire Program
- Worker's Compensation Insurance
- Disability Insurance (varies by state)
- Occupational Safety and Health Administration (OSHA)
Job Posting
Hiring people requires posting “now hiring” signs and posting on prominent job boards. Some places you can start posting job requirements are:
- Indeed
- Zip Recruiter
- Craigslist
Interviews
Prepare a list of questions for interviews and simplify your hiring process. Indeed offers a resource guide to help you make better hiring decisions. Sanford suggests including your employees in the interviews. He told us: [su_quote]It helps give them ownership, and it's important they like who they work with.[/su_quote]Compensation
Employees are typically a company's biggest expense. There are three common pay structures in business. Each fits a different scenario. Let's take a closer look:
- Salary: You might want to assign yourself a flat weekly or monthly rate for budgeting purposes.
- Hourly: This pay structure tracks the hours an employee works and pays them a set hourly rate, but it doesn't reward performance.
- Commission: If you only want to reward performance and not time, a percentage of revenue is the way to go.
- Hybrid Models: Hybrid models combine two pay structures. Combining hourly and commission encourages employees to help drive sales.
Step 10. Financial Management
A successful t-shirt business manages the financial aspects. Sanford emphasized the benefits of managing margins:
[su_quote]Your margin is crucial. If you don't manage it, no matter how much you sell, you'll lose money. I typically aim for 65%.[/su_quote]
He also discussed the importance of following up with your clients:
[su_quote]During the slow months, January, February, and into March, I'll reach out to my routine customers and make sure they don't need anything. Following up makes a huge difference in how much you make.[/su_quote]
You may need some extra funds to start your clothing brand. To find banks that work with small businesses, use this resource.
Let's look at some tricks you can use to help your clothing line become profitable.
Budget! Budget! Budget!
A budget is the most important tool you can use in business. Without it, your high-quality t-shirts might not make enough money during the first few years. Sanford told us: [su_quote]I need to make $25K a month just to break even, so that's a lot of t-shirts.[/su_quote] However, be careful using spreadsheets. According to Ray Panko, professor of IT management at the University of Hawaii, “1% or more of all formula cells” contain errors. Try using accounting automation to save money over hiring a full-time accountant to deal with paperwork. Some of the best free budgeting software include:- dsBudget: This open-source software requires some development experience.
- QuickBooks: This popular resource is used by millions to make their accounting easy by setting up rules, connecting with their bank(s) directly, and more.
- Xero: I was introduced to them through an Australian client, and people love them. In my experience, it allows you to automate most of your processes but is meant to be set up by an accountant and software developer so that the platform works specifically based on your location(s) tax needs.
How to Start a T-shirt Business with No Money
Starting a t-shirt company doesn't cost a fortune. While it cost Sanford “$180–$200K for the franchise fee, equipment, and building with remodeling,” other shirt entrepreneurs have started a t-shirt printing business for less than $1,000.
In our interview with Marcus from Portland Gear, Marcus suggests beginners use the following to start a t-shirt business:
- Shopify: Get a free 30-day trial of Shopify with our affiliate link.
- A print-on-demand company: I prefer Printful.
- Social media marketing: This might be less than $500 per month and is typically more economical than other options.
Common Funding Paths
eCommerce entrepreneurs often fund their t-shirt online store with personal funds, but you can also consider taking on:- Loans from family or friends
- Business partners
- Government programs
Alternative Sources of Funding
You might also want to consider the following ways of getting into the t-shirt printing industry.- Crowdfunding
- Credit cards
- Home equity loan
- Rollover for business startups (ROBS)
Develop a Pricing Structure
How you price your clothing brand will impact how people view it. If your prices are too high, customers will go elsewhere. Too low, you'll lose money. Based on the rules of thumb presented by Marcus in his interview: [su_quote]Direct-to-garment typically charges 60-70% margins or around 45-50% for screen printing, but it fluctuates monthly based on how many non-profits I'm working with.[/su_quote] You can use this online calculator to estimate your price points: [forminator_form id="32022"]Increase Prices Every Year
Inflation occurs every year. You might need to raise your prices by 5% per year to keep up. In this high-inflation environment, you may want to increase your prices quarterly or monthly. It gives you room to increase wages and make some extra money for your online t-shirt business. It's easier to raise prices when your customers expect it. One way to help prepare customers is to follow this process:- Send an email in November letting your customers know that prices will be going up at the beginning of the year.
- Book enough online t-shirt business to keep you busy through the slow months (January to March).
- Raise prices on January 1st.
Step 11: Sales Tax and Insurance
Sales Taxes
All but five states, and some cities (or counties), require sales tax. You can find a guide on applying for sales tax on TaxJar. After you register to pay sales taxes, you will need to keep track of the sales to pay them according to state laws. I would highly recommend speaking with an accountant that specializes in taxes to help you comply with your business's unique needs.Insurance
Get the insurance you need based on the type of business. You'll need unemployment insurance and workers’ compensation if you have employees. You may also want general liability and cybersecurity insurance to protect against unforeseen events that could cause your clothing line business substantial losses.Step 12: Marketing
Now you're ready to sell shirts. You have the location, equipment, inventory, and employees—but no clients!
How are you going to let people know about your online t-shirt business?
Marketing is crucial for a custom shirt business. Franchises have an advantage here because they already have built-in clients and a marketing budget. They've also figured out what works.
Sanford told us:
[su_quote]I started with print media, radio commercials, a TV commercial, and tons of direct mailers, but that got expensive. Then I started cold calling, following up with previous customers, then digital marketing has really made a difference.[/su_quote]
More Marketing Tips for T-Shirt Businesses
He also suggests:- Building relationships. Networking is what makes a business pay off.
- Continually focusing on SEO for your ecommerce business. Start by familiarizing yourself with Google requirements.
- Checking customers' previous print jobs to give you ideas on how to sell more shirts.
- Following up! It makes a difference.
- Using analytics.
Influencers
Want to know what styles and designs are trending? Follow suppliers, competitors, and influencers to see where communities are heading. Some of the top influencers to follow are:
- Elon Musk: Let's face it, both Sanford and I think he's a rockstar. He mixes jokes, insight, and enthusiasm to spread his message. He's the founder of six companies and the CEO of Tesla and SpaceX. We can all learn from him.
- Screen Printing Blogs: Want a list of 40 blogs focused on t-shirt printing? Check out this one.
- SEO Influencers: Rand Fishkin, Danny Sullivan,and Neil Patel
Go Forth and Start Your Own T-Shirt Business!
Whether you're selling online or have a storefront, ask yourself the following questions:- Do I know how to start an ecommerce store?
- Is it worth it for me to sell online?
- Will I be comfortable speaking to clients?
- Am I starting a clothing line this year?
- Why am I starting a clothing business?
- Do I need employees or advice to get started?
- What will I need to feel successful?
Are you considering starting a corporation?
If you want to sell company stock, you’ll have to start a corporation. Most people think about C-Corporations when they think about stocks, but you can also sell stock as an S-Corporation. So, when should you choose an S-Corp vs a C-Corp?
An S-Corp is actually the 2nd most common type of business behind a Limited Liability Company. There’s a good reason for it too! We’ll share why S-Corps are so popular as we discuss the similarities and differences between an S-Corp and C-Corp.
By the time you are done reading this, you’ll know whether you want to start an S-Corp or a C-Corp. The decision comes down to three main considerations:
An S-Corp and C-Corp are similar in five primary ways.
There are four main differences between an S-Corp and a C-Corp:
Good news! LLCs with S-Corp status don’t have to file the 1120W like S-Corporations. Nor do S-Corporations pay 21% corporate taxes like C-Corporations.
S-Corporations still have to file an annual corporate tax return using Form 1120S to make sure owners aren’t cheating on taxes. The business owners receive up to three types of income, which they’ll need to claim on the personal tax returns:
[su_note note_color="#dbeafc"]
Now, let’s look at some frequently asked questions.
- Tax consequences
- Type of shareholder
- Your goals
What is a corporation?
A corporation is a legal entity that protects the owners from personal liability. The owners are shareholders and are able to sell stock. Corporations have a legal obligation to increase the economic value for their shareholders and are required to file articles of incorporation. Let’s look at the different kinds of corporations, starting with the C-Corp.C-Corporation Definition
The C-Corp is the corporation that most of us think about because they are the ones on the stock market. A C-Corp has these defining characteristics: [su_note note_color="#dbeafc"]- Created by filing articles of incorporation.
- Double taxation (taxes charged on both corporate and personal income).
- Limited liability.
- Unlimited shareholders.
- Personal liability protection.
- Must abide by state and federal laws.
- Files under Internal Revenue Code Subchapter C.
- Best if you intend to have an Initial Public Offering (IPO).
S-Corporation Definition
An S-Corporation is similar to a C-Corp but has some substantial differences. The following bullet points list the defining characteristics of an S-Corp:- Requires the business to be an LLC or a corporation.
- Created by filing a Form 2553 with the IRS to opt to be treated as an S-Corp.
- Limited liability.
- Maximum of 100 shareholders.
- Shareholders must be U.S residents or select business entities.
- Must abide by state and federal laws.
- Must pay owners that are actively involved in the business a reasonable salary.
- Profits are paid as dividends.
- Losses are pass-through income.
- Files under Internal Revenue Code Subchapter S.
- Best if you have less than 100 owners and more than $100,000 net income.
Other Types of Corporations
Non-profit organizations and Benefit Corporations are also considered corporations. You can learn more about them in our blog about types of business structures.S-Corp vs C-Corp Similarities
An S-Corp and C-Corp are similar in five primary ways.
- Both are considered separate legal entities.
- Both have the same incorporation documents (unless the S-Corp is filed as an LLC).
- Both an S-Corporation and C-Corporation follow the same state laws.
- Both have a board of directors, shareholders, and a management team.
- Both provide limited liability protection.
- Both pay payroll taxes.
C-Corporation vs S-Corporation: Legal Entity Status
S-Corporations and C-Corporations are considered legal business entities. This means that the business is a separate entity from the owner(s). This protects the owners if the C-Corp or S-Corp breaks the law, as long as the owner was not directly involved in the law-breaking. The separate entity status also protects the C-or-S-Corporation from liability if one of the business owners breaks the law when they are not involved in corporate activities. This is the basis for the next section, legal liability protection.C vs S-Corporation: Limited Liability Protection
Either an S-Corp or C-Corp will separate the business and personal liability in the case of lawsuits or criminal activity. This works in two ways. [su_note note_color="#dbeafc"]- If the business breaks the law and the individual was not involved, there is no personal liability, meaning an employee or customer can’t file a lawsuit against you for something the company did.
- If a business owner is in a lawsuit, the corporation cannot be held liable unless the business owner was actively using company assets to break the law.
C-Corp vs S-Corp: What Filing Documents Do I Need?
To become a C-Corporation, you will need to file with the Secretary of State where you wish to be incorporated. To find the appropriate secretary of State Office, go to USA.gov. You’ll need to have the following documents prepared:- Certificate of Incorporation or Articles of Incorporation
- Organizational Minutes and bylaws
- Shareholder Agreement
- Share Certificate for each shareholder
- IRS Form SS4 – Application for Employer Identification Number
S-Corporation vs C-Corporation: Both Follow State Laws
Because an S-Corporation is a tax classification, both C-Corporations and S-Corporations will be governed by the same state laws. The company is obligated to follow the laws in all states where it has a substantial presence. Cornell Law School provides links to the laws of each state regarding corporations. If the S-Corp is an LLC, it will need to observe the laws governing LLCs, which can vary from state to state. View laws on LLCs for each state.Governing Structures are the Same for Both
Both an S-Corp and C-Corp need to have the same governing structures. Most operate with three tiers:- Stockholders: The number of people who hold shares in the company. They get to vote on important changes like dividends increases, dividend decreases, board of directors, and new executives.
- Board of Directors: Typically shareholders or experts in their field that advise the executive team. The person in charge of leading the meetings is called the Chairman (or Chairperson) of the Board. The Chairman is often the CEO or independent from the management team.
- The Executive Team: Made up of the people in charge of actively running the company. The executive team will typically include the CEO, COO, CFO, CIO, and an attorney.
- Fixed Board Sizes: May be specified or follow the defaults based on the number of shareholders:
- 1 Shareholder: 1 Director minimum
- 2 Shareholders: 2 Directors minimum
- 3+ Shareholders: 3 Directors minimum
- Flexible Board Sizes: Must follow the rule 2X – 1, where X = minimum based on fixed board sizes.
Cautionary Tale: Don’t Make Employees the Chairperson of the Board
I know a person who was the CEO of a company. One of the people who reported to him as an employee was also the Chairperson of the Board, which created a lot of internal conflict in the upper levels of the company. Long story short, it effectively made it where the two had to agree or nothing got accomplished. Don’t put your company in a position where one opposing view can overrule the CEO's authority. It becomes a power grab.C-Corps and S-Corps both pay payroll taxes
Unlike other business structures, S-Corps and C-Corps will have to pay payroll taxes even if the business owners are the only employees. Any corporation will pay tax on 7.65% of employee wages. S-Corps and C-Corps will also have to collect another 7.65% from the employees’ wages to send to the IRS. These taxes are for Social Security and Medicaid. The business is also responsible for withdrawing the personal income taxes from all employees’ wages and sending the money to the IRS.What is the Difference Between C-Corp and S-Corp?
There are four main differences between an S-Corp and a C-Corp:
- Taxation
- Ownership limitations
- Number of shareholders
- The goals of the organization
What is the Taxation Difference Between S-Corp and C-Corp?
The most notable difference between an S-Corp and C-Corp is the tax treatment. Both must file corporate tax returns and pay payroll taxes, but C-Corps have to pay a corporate tax. There are both corporate income tax implications and personal income tax considerations that should be discussed. This is why running a C-Corporation is considered double taxation.C-Corporations Have Corporate Income Tax
The federal government taxes C-Corporations for both their employees' personal income tax and corporate profits. That means business owners have to file both corporate tax returns and personal income tax returns. This is known as double taxation because the corporate income taxes are 21% of the profits of the company. Then if the profits are paid to the owners as dividends, they will be paying another 15-20% on the dividends. Double taxation makes it where the federal income tax on the profits can be as high as 41% combined with the dividend payments. This is why publicly held companies either perform buybacks or amass huge piles of cash. A corporate tax return is filed with the Form 1120 for a C-Corporation or 1120S if they have S-Corporation status. In addition, C-Corporations and corporations electing S-Corp Status have to file quarterly Form 1120W estimates of taxable income for federal tax purposes. That seems undesirable. Want to know how to avoid that and not pay taxes twice?S-Corp Status Uses Personal Income Tax Returns
Good news! LLCs with S-Corp status don’t have to file the 1120W like S-Corporations. Nor do S-Corporations pay 21% corporate taxes like C-Corporations.
S-Corporations still have to file an annual corporate tax return using Form 1120S to make sure owners aren’t cheating on taxes. The business owners receive up to three types of income, which they’ll need to claim on the personal tax returns:
[su_note note_color="#dbeafc"]
- Employee Income: If business owners are actively involved in a company that receives S-Corp status, the business owners must receive a reasonable salary and pay taxes at the personal income tax rates. The salary should be comparable to the median wage for the position.
- Dividend Taxes: All profits will be paid as dividends to the business owners and taxed based on the dividend tax rates which are 0%, 15%, and 20%. The limits for the brackets are far above the tax brackets for the standard personal income tax rate.
- Pass-Though Income: Losses are pass-through income. If after paying reasonable salaries, the business loses money you can use the Qualified Business Income Deduction to claim 20% of your expenses as losses from your personal income tax.
So who wins between S-Corp vs C-Corp tax advantages?
S-Corps are far superior to C-Corps based on the pass-through taxation rules as long as the small business corporation does not have more than 100 members.S-Corps Have Limitations on Shareholders
An S-Corp has a lot of restrictions on who can be a small business owner that C-Corps do not. The S-Corps shareholder restrictions include:- No foreign entities or people.
- Only U.S residents, certain trusts, and estates can own shares.
- No partnerships or corporations can own shares.
- Cannot have multiple classes of shares, for instance, voting and non-voting shares.
- Financial institutions, insurance companies, and domestic international sales corporations cannot be shareholders of S-Corps shares.
How many shareholders can an S-Corporation have?
An S-Corp can have no more than 100 shareholders. They must all meet the restrictions in the previous section and there can be no more than one class of stock. This could be a major downside if you are trying to build a billion-dollar company and sell stock through an IPO, but for most business owners, the S-Corp distribution tax rate is way better than paying both corporate-level taxes and personal taxes. I’d personally aim for the S-Corp tax rate because the maximum of 20% dividend taxes is far less than the maximum personal tax rate of 37%. It’s also less than the 21% corporate-level taxes that were created by the 2017 Tax Cuts and Jobs Act.S-Corp vs C-Corp Pros/Cons: Why would you choose an S-Corporation?
If you don’t want to pay both a corporate tax rate and a personal tax rate on the business income, you’ll want to choose an S-Corp––assuming your company ownership structure meets the requirements. While you’ll still have to file both business and personal tax returns, you don’t have to pay the 21% corporate income tax.
Now, let’s look at some frequently asked questions.
Can a C-Corp Own an S-Corp?
A C-Corp is not allowed to own an S-Corp, but a C-Corp can elect to file as an S-Corp by filing Form 2553 as long as it has less than 100 members who are all U.S. residents or legal entities permitted by the subchapter S of the tax code.How do you know if a corporation is S or C?
There are a few answers to the question, “How to tell if a company is an S-Corp or C-Corp?” Most of them will require having access to tax documents, though. You can establish what tax status a company has by: [su_note note_color="#dbeafc"]- Checking to see if it filed a Form 2553. If it did not, it is a C-Corporation.
- Review the tax returns. A C-Corp files 1120 vs 1120s for an S-Corp.
- Call the IRS at 1-800-829-4933.
- Ask the business owner.
- Check to see if it is a publicly held company. Only C-Corporations can be publicly held.
- Search Dun & Bradstreet’s business lookup.
- Verify the company is not a Sole Proprietorship or Partnership. These small businesses can’t be corporations.
Can an S-Corp own a C-Corp?
An S-Corporation can be a shareholder in a C-Corporation, but it can only hold up to 80% of shares.Choose an S-Corporation unless you have to be a C-Corporation
I really can’t see any reason why small businesses would choose to be C-Corps, unless they cannot be S-Corps. There are plenty of other pass-through entities to choose from if you don’t want to deal with:- Two separate tax returns
- State requirements
- Internal Revenue Service requirements
Comments
lucia@
2022-08-10 14:58:49
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Lenore@
2022-07-25 05:30:06
Great article. But “bussiness plan?”
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