QUESTION: Tara and her husband have a lot of debt. One of the debts is a loan on Mary Kay inventory for $4,000. Tara enjoys selling Mary Kay products and wants to keep her inventory stocked, but that means she’s operating out of debt. Should she keep doing this or deplete her inventory and pay off the loan?
ANSWER: You should deplete your inventory and pay off the loan. By the time you get to the end of the inventory you should be able to pay off this debt.
There’s a type of inventory process that big companies use called Just In Time. These companies let the distributors house their products and they only order when they need the products – they order more just in time to get the products to the customer. This is how you need to operate your business.
The major down side to what you’re involved in is that some of the higher-up managers expect their sales reps to go into debt to keep an inventory of products, which is what you’ve done. Let Mary Kay carry the cost of the inventory.
QUESTION: Jason is starting a business of putting Christmas lights up for people during the Christmas season. Does he need to get a business license?
ANSWER: In most municipalities you won’t need a business license. As long as this is a seasonal thing where you pull up in your pick-up truck and work for a couple hours putting lights on someone’s house, you don’t need a business license.
If you start doing something year round and employ people, you need to look at getting a business license.
You should get a separate checking account so that you can keep track of income and expenses associated with the business.
QUESTION: Labiba makes gifts for women in the hospital, new mothers, babies and the homeless. She wants to become a not-for-profit ministry, but doesn’t know what to do.
ANSWER: If you want people to be able to make a tax-deductible donation to your ministry, also known as a not-for-profit donation, you need to set up a 501 C3 corporation. That will cost about $500.
The IRS also has several guidelines that you have to follow, such as setting up a board of directors for your ministry and filing tax returns for the ministry. In your situation, it may be more trouble than it is worth and you won’t have as much time to actually focus on the ministry.
You may be able to make an arrangement with your church where people can give to your ministry through the church. That way it’s still tax deductible. That could be the best way for you to fund your ministry instead of going through setting up a non-profit organization.
Non-profits by definition do not make a profit. If your donations exceed your expenses, just put the money toward future supplies or pay yourself some sort of a fee and that’s how you continue to be a non-profit organization.