May 3, 2010

Michael Morse: Doing Business in Rhode Island

Engaged Citizen

Nobody said starting a business would be easy. I didn't expect it to be. Nobody told me I would get rich. I probably won't. A lot of folks said it would be impossible. Opening a business is not cheap. I needed every penny of equity from my home to make it happen. I've lived a simple life. I have no credit card debt. I drive a 1992 Toyota. My idea of an extravagant vacation is a weekend in New Hampshire. I've established good credit. I know how to work long hours with little sleep.

Along with my quest for independence comes a stubborn need to find things out for myself. An opportunity presented itself. I did some homework. I took an inventory of my current obligations. I ignored the incessant barrage of negativity that pervades the stream of consciousness of Rhode Island. I decided to act. My wife and I bought a tanning salon.

"Are you crazy?" was the reaction we encountered most. There are too many regulations! The economy is terrible! The government will tax you out of business!

Friends and family were amused by our latest idea. Though encouraging, I think some secretly hope we'll fail, if for no other reason than to prove to themselves that it can't be done, at least not in Rhode Island.

The closing was in late October. We incorporated in November. Filled out the state sales tax form, applied for a building permit and certificate of occupancy and went to work.

We planned on opening December 1st. We applied for a permit from the Department of Health. The Health Department paperwork took about a half hour to complete and cost two-hundred and thirty dollars. The people there were efficient and helpful. The only trouble we had was with our own unrealistic expectations. December 1st came and went, our place was a disaster. We worked through the holidays.

We finished construction of our store on January 12th. The people at Warwick City Hall helped us navigate the inspection process. In one day, the fire alarm, mechanical, plumbing, electrical and building inspections were done. We received the certificate of occupancy in the mail a week later. The entire process cost $50 and about three hours of our time. Somehow, the fact that we still needed a license to operate from the City of Warwick slipped our minds. We applied, and I had it the next day. We needed another license to do business on Sundays. A day later it hung on the wall of our new business, next to the Health Department license, the permit to make sales at retail and the CO.

We paid the State of Rhode Island a total of $740: $500 to incorporate, $230 for a license to operate from the department of health, and ten bucks for a permit to make retail sales. The City of Warwick got us for $150. This March we have to pay another $500 to the state to stay incorporated, the yearly fee of $230 to the Department of Health for our license, another $10 to keep our retail sales permit, about $1,000 to the City of Warwick for inventory taxes and the $100 for our sales licenses.

Insurance is costly, about $2,000 a year. Workers compensation another $400. I have to pay weekly payroll taxes of about $50.

Expensive, yes, but hardly onerous. Not quite the roadblock I had expected. It wasn't cheap or easy, but if it were, everybody would do it. The cost of doing business in Rhode Island is not a reason to not do business in Rhode Island. I needed to spend some money to make some money.

Now, I hope people come to my place and spend some of theirs!

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I wrote this after reading a Projo editorial that basically stated that opening a business in Rhode Island was an impossible task due to incompetent government employees and a mountain of red tape. I found the exact opposite to be true and wanted to pass the information on. The tone of the editorial was kind of an "everybody knows the business climate in Rhode Island is terrible," and in my experience that simply isn't the case.

It is expensive, and the yearly $500 dollar incorporation fee is absurd but it is definitely doable. My wish is that anybody tempted to start a business give it a try, and find out for themselves it isn't as dreary as some would like you to believe.

Waiting for the economy to turn around is futile. We, those of us who live here and plan on staying, have to fire this place up and get things moving.

Posted by: michael at May 3, 2010 8:39 AM

Good for you, M!

There are too many people in RI with negativity problems! I assume it would have cost you a similar amount to open that business just about anywhere...well, anywhere except central Florida, where you don't need a tanning salon anyway.

While I have never visited a tanning salon and probably never will, I assume you have done your basic homework to assure yourself of a decent market.

But, heck, if that doesn't work out, try something else! I'm somewhat partial to specialty retail myself, but that also takes a LOT of work and a long time to build up to something. In general, most small businesses take about 5 years to find their footing, about 10 to really start to make a buck and about 15-20 to become a career!

Good Luck....

Posted by: Stuart at May 3, 2010 9:08 AM

I've always heard that the taxes (property, sales, corporate, income, etc.) and corruption were the biggest deterrents to business in RI, not the start-up costs, although I'm sure those are somewhat above average for the region as well.

Unfortunate business choice in light of the new Health Care bill.

Posted by: Dan at May 3, 2010 10:12 AM

From my experience the biggest deterrent was capitol. The regulations weren't that difficult and there was no corruption whatsoever, but my business is extremely small and there isn't much to squeeze.

Obamacare is more a problem of perception than logistics. People will go to tanning salons. More will go if they are not afraid of the sun, or booths. I wrote an op/ed about the situation that was linked here last week.

Posted by: michael at May 3, 2010 12:09 PM

"but my business is extremely small and there isn't much to squeeze."

You have hit the nail on the head. Try starting a towing business and getting a police contract. Or anything else which is lucrative in the extreme (a AAA tow pays $28, a "police tow" is $100) and requires government cooperation.

Posted by: Warrington Faust at May 3, 2010 12:20 PM

Well, Faust, everyone can't get police tows!

Back in my former mid-sized town in PA, I knew the local-yokel who had an auto body place and did all the cop cars, etc.

He has a mansion...and I mean a Mansion, out by the most valuable lake in the area, and he also traveled regularly to the Grand Caymans, where it was supposed he hid vast amounts of cash.....

Ah, the American Haliburton, et. al. - take government largess, and then move to another country so you don't have to pay taxes to your own country!

Actually, my BIL is in the towing and repo biz in the Mid-Atlantic. He's doing very well, thank you!

Mike, as to capital, that's always the hard part. I was lucky enough to be able to take out a 10K note within my family - but my dad made me sign a note and the interest was about 12% (this was 1978).

Next thing you know, I was sitting on 1/2 million worth of inventory which had no loans against it, and had a 250K line of credit at prime plus 1 from the local bank.

It all takes time. But you will make it, one way or the other......just keep your eye on the ball and be flexible. If the market tells you to change - then change.

Posted by: Stuart at May 3, 2010 1:27 PM

Stuart and Michael,
Are you paying your employees a "living wage?"
How about health insurance benefits and pensions? Sick time, personal time, bereavement time, vacation time... that they get to accumulate and take with them.
Are you encouraging them to unionize?

Posted by: Mike Cappelli at May 3, 2010 3:02 PM

I'm paying my two part time employees $11.00 hr. It's a nice job for some extra income, definitely not a career move.

Posted by: michael at May 3, 2010 4:06 PM

Michael, if you don't stop exploiting your workers by paying them so low, "Two Gun" Crowley is going to organize a picket line of your business over on RIFuture.

Posted by: Dan at May 3, 2010 4:55 PM

Stuart writes:

"Mike, as to capital, that's always the hard part. I was lucky enough to be able to take out a 10K note within my family"

Ah yes, capital and family. Warren Buffet started in 1955 with $500,000 from his family. You seldom hear about that.

Posted by: Warrington Faust at May 3, 2010 6:26 PM

And Michael, if you have a pass-through entity like an LLC you'll really start to enjoy RI's progressive income tax (on top of the federal counterpart).

And if the business is successful, and you sell, you'll also enjoy the recently raised RI capital gains tax (and recently raised federal counterpart).

However, I do wish you success. Good luck!

Posted by: Ragin' Rhode Islander at May 3, 2010 6:46 PM

Thank you, Michael, for bringing some sense to this blog. I do not even include the common in this. Incorporating in RI brings some costs but also some advantages. I incorporated in RI a few years ago and I have realized a net gain.

Posted by: David S at May 3, 2010 7:56 PM

"Expensive, yes, but hardly onerous. Not quite the roadblock I had expected."

Michael. This post has not conformed to the party line. Starting a business in Rhode Island is impossibly complicated and exorbitantly expensive.

You must be re-educated. Please immediately turn yourself in to the Karl Rove Center for Truth, Campaign Strategery and Hurricane Generation.

Posted by: Monique at May 3, 2010 9:05 PM

Ragin writes:
"And if the business is successful, and you sell, you'll also enjoy the recently raised RI capital gains tax (and recently raised federal counterpart)."

In Massachusetts the first bit of legal advice to a business seller is "establish a residence in New Hampshire". Not sure this works in RI. Don't know why not.

Posted by: Warrington Faust at May 3, 2010 9:10 PM

Stuart writes:

"Actually, my BIL is in the towing and repo biz in the Mid-Atlantic. He's doing very well, thank you!"

Getting "police work" is a perk everywhere I know of. In small towns it is sometimes just free repairs for cops, or "something for the kids" at Christmas.

Did you notice, during the Cianci trial, the hundreds of thousands donated to him by the tow operators. That wasn't because they liked him. They wanted the police business. As I said, AAA pays $28.00. If the police order your tow, and call their friend, you have to pay $100.00, just for the tow. If it is a break down, rather than no insurance or invalid registration, if they are not impounding the car ask the cops to let you call AAA. Sometimes they will, I don't think the "fix is in" with the Staties. Who gets "the tow" is by town.

I have known several tow opperators in the Boston area, all had extensive criminal records. I once saw one whack an employee in the mouth with a tire iron. I understand he later went to prison, where he contracted AIDS and died. In those days, Massachusetts prison guards ran a "dead pool" on new Hispanic inmates over who would get AIDS. In RI, look into the number of women who get pregnant every year in the "high security" section of the prison.

Posted by: Warrington Faust at May 3, 2010 9:24 PM

>>>Are you paying your employees a "living wage?"

Very much so! But my business was a bit different than a tanning salon. My business was specialty retail with a type of building supplies...say, for discussion sake, high end windows.

In 1995 I paid my manager:
70K per year.
Profit Sharing
Health Care (cost much less back then)
Life Insurance
3 Weeks paid vacation
Company truck

I paid my top installed, who did most work on subcontract (I told him to set up his own corp) over 110K per year...for about 60% of his time. The rest of the time, he did outside projects.

I kept employees for 15-20 years! One of them is still there ( I sold the business).....that is about 32 years!

My dad used to say that when he died, he wanted to come back as either a dog or my employee!

And, no, there is no union movement among mom and pop showrooms. I never had to deal with anything like that, and I am glad.

But I digress. Mike, most people don't work for money. They work for recognition and to be part of something. You should pay what the job is worth, but treat them as human beings.....and you will be A-OK.

Posted by: Stuart at May 3, 2010 9:25 PM


Good luck with this venture. I hope all your customers get to be as brown as nuts so that they would not be able to walk down a street in Arizona without being stopped by law enforcement and asked for papers.

Posted by: Phil at May 4, 2010 7:17 AM

"They wanted the police business. As I said, AAA pays $28.00. If the police order your tow, and call their friend, you have to pay $100.00, just for the tow."

Come to think of it, that has some resemblance to the 15 month Central Falls board up "emergency".

Posted by: Monique at May 4, 2010 8:16 AM

Thanks Monique, I nearly choked on my english muffin while laughing and reading your comment!

My post mat have sounded a bit naive and arrogant, but this is a new, small business for me that will not reap great rewards. I do hope to make some money. With bigger profits come bigget risks, and expenses. I just wanted to convey my experience getting started.

You can't start at the top. The place I started may or may not be just the beginning, I don't know. I do know that it wasn't as complicated or expensive as I was led to believe by the media.

Phil, I'm just trying to fit in in Providence, figured I'd buy the tanning salon rather than spend all the money one tan at at time.

Posted by: michael at May 4, 2010 9:38 AM


I was just joking of course. I see the benefit for those who struggle to get the nessecary amount of light here in the Northeast. People who haved moved to RI may feel the need for increased exposure to the rays you provide. I do not suffer from that malady as I spent at least 330 days a year under the sun and clouds rain snow sleet ice fog wind mist freezing rain and all the rest.

Posted by: Phil at May 4, 2010 9:17 PM