Photo by Janice E. Roberg
I was driving home the other day and it was hot and I was thirsty. As I turned into my subdivision I found my favorite lemonade stand. I’m probably their best customer, I always stop. For one thing, I figure I owe for all the neighbors who have bought lemonade or Girl Scout cookies or whatever from my kids. And the other reason is they make pretty good lemonade.
I do all sorts of blog posts about small business taxes and rules and regulations. The beauty of a lemonade stand is kids don’t think like that. They don’t let things like a business license or taxes get in the way. (And shame on any city official who closes down a kid’s lemonade stand: http://www.forbes.com/sites/erikkain/2011/08/03/the-inexplicable-war-on-lemonade-stands/) Kids decide they want to open a business and (to borrow the tag line from Nike) they just do it!
What’s really cool about a lemonade stand is what it teaches kids about business.
1. Location, location, location: you won’t sell any lemonade if your stand isn’t where people can get to it–if the street is too busy the cars won’t stop, too quiet and you have no customers. This lemonade stand is just off the busy street near the sub-division entrance.
2. Quality: no one will buy your lemonade if it tastes nasty. Like I said earlier, they make good lemonade.
3. Price: if it’s too expensive no one will buy it. If it’s too cheap, you won’t cover your costs. (Okay, with most lemonade stands, Mom paid for the lemonade already. My Mom used to charge me for the Kool-aid I used. I did not appreciate the lesson she was trying to teach at the time but now I understand.) My favorite stand charges 50 cents.
4. Advertising: A good sign and word of mouth are pretty much the standard in the lemonade stand industry. No one will buy your product if they don’t know you have something to sell though. I’m not sure the photo does the sign justice, but you know it’s a lemonade stand when you drive by.
As adults, we have quite a bit more to focus on to get our businesses off the ground. But without those top four lemonade stand basics: location, quality, price and advertising; our grown-up businesses won’t succeed either.
If you’re looking to start a business in Missouri, a really good resource is the Missouri Small Business & Technology Development Centers, it’s a University of Missouri Extension Partner. They have wonderful resources for business start ups; reading materials, templates for business plans and financial worksheets, seminars, counseling, and all sorts of programs. Here’s a link to their booklet about starting a business in Missouri: http://www.missouribusiness.net/sbtdc/docs/starting_new_business_missouri.pdf Even if you’re not in Missouri they have a lot of good information for start ups.
One piece of advice that you’ll find in the booklet is to talk with an accountant. I know a small tax company that has a nice location at Westport Plaza, provides quality service, is priced fairly and if you’re reading this, their advertising is working. Give us a call and we’ll be happy to talk to you. Helping small business start ups is the fun part of our day.
Hi Finance Guy,
sounds like your hot dog stand was about the same time I held my MD Carnival (that was the back yard kids’ fundraiser for Muscular Dystrophy.) Sounds like my profit margin was about the same as yours too–except no Nolan Ryan baseball card for me, it was for charity.
I agree with you that getting my EA designation was a good investment though. 🙂
Yes, we do have a lot to focus on when starting a business. Unfortunately, tax considerations are often neglected for too long by entrepreneurs. You are correct, however, that the basics remain the same as those involving the simplest of operations.
I learned everything I need to know about accounting when I operated a hot dog stand with two partners on a Saturday in California during the summer of… (well, let’s just skip the year). First, we had a thing called “cost of goods sold”, which comprised all the product inputs. (We paid for them, not our parents.) Then, we had some “overhead expense”, consisting of the paper for printing flyers from this movable type contraption I owned (since this was an era before PCs with word processing software and attached printers). Because we liquidated the business after a single day, I discovered accounting for partnership dissolutions. My share of the profit consisted of $1.05 of ordinary income. Not enough for any income tax consequences.
I spent the income from my afternoon of work on a candy bar, a Coke, and six packs of baseball cards. Included in this purchase was a Nolan Ryan rookie card (oops… that gives away the year), which I sold in 1993 for $1,200. After that, I started learning more about taxes, eventually culminating in the Enrolled Agent exam course at http://fastforwardacademy.com/enrolled-agent-exam-prep.htm, which cost less than the sales proceeds from selling the baseball card and launched a lucrative career. That’s quite a return on investment from my first business venture.