Monthly Archives: October 2012

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Campaign for President

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I am rather a political junkie and pride myself on keeping up with important local,  national and sometimes international elections.  On Tuesday November 6,  those of us in the US will cast our votes for President in the culmination of a contentious and mind-bogglingly expensive race for the White House.  There are also a few important Senate races to resolve as well.

Dorie Clark  (no relation),  corporate strategy consultant and adviser to the gubernatorial campaign of MA Governor Deval Patrick and the presidential campaign of Howard Dean,  says that business owners and executives should pluck a few lessons from electoral politics to better position themselves for business and career success.

Clark urges those of us in leadership positions  (and every Freelancer is a leader)  to  observe and follow the behavior of the best politicians,  from Lyndon Johnson to Ronald Reagan: set clear and reasonable goals;  identify and cultivate supporters;  build and exercise influence;  and execute relentlessly to achieve your ambitions.  You may not be running for public office,  but it’s a smart idea nonetheless to manage your career as if you were campaigning for president.

First,  choose a professional goal.  If you find it advisable to alter your goal down the road,  that’s OK;  you just need to propel yourself forward and start your campaign.  Those in business most likely want  to earn more money and that may mean acquiring more clients who dole out lucrative contracts.   So maybe your prime objective will be to sign three Fortune 100 clients,  to support the goal of accessing higher paying and more prestigious projects that enhance your brand and your bottom line.

However,  you may eventually decide that your organization is not ready to pursue Fortune 100 clients.  Instead,  you shift your sights to Fortune 1000 clients,  because that is more realistic for you.  The point is,  you’ll position yourself to sign clients who can offer bigger budget projects and maintain your goal of enhancing both your reputation and your revenues.

Next,  set important milestones for your campaign.  A presidential candidate is advised to win the Iowa caucus and New Hampshire primary because performance there impacts future campaign success.  Candidates who succeed in those races vastly improve their chance of reaching the White House.  What interim projects can you pursue and win,  projects that when on your CV will persuade bigger clients to  trust your expertise and feel comfortable enough to hire you?

While you work on getting yourself into some stepping stone projects,  take a look at your skill set,  your personal and professional network and your marketing materials.  Identify and resolve any gaps and need for upgrades.  Observe those who have arrived at the place you want to be and check out their skills,  education level,  marketing materials,  relationships,  professional organizations,  etc.  Fill in as many missing elements as possible.

Make an action plan and hold yourself accountable by attaching dates.  Maybe you should become a better public speaker or obtain a certain professional credential? Maybe there are books, blogs or magazines you should read to stay current in your business (or that of your target clients)?  Find out when and where the course will be offered and its cost.  Enter registration dates into your calendar.  Budget the money.  Visit the library or book store.

Next week,  we’ll take a look at what may be the most important component of your presidential campaign.

Thanks for reading,

Kim

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Corporation Subchapter S–Should Your Business Be an S Corp?

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You may operate your business as a Sole Proprietor,  like 70%  of US businesses do,  or maybe as an LLC.  However,  if business should become fabulous and you begin to rake in some serious cash,  then it could make sense to incorporate,  as a method to lower your taxes and protect profits.

You may be implementing a growth strategy that requires you to take on additional investors,  or maybe implementing your exit strategy,  with a plan to sell your business,  perhaps to employees through an Employee Stock Option Plan  (ESOP).  Either scenario may prompt your accountant or business attorney to recommend that you establish a separate legal entity for your venture and the preferred strategy could be to incorporate.

What does that mean in practical terms?  For a Freelance consultant or small business owner,  incorporating usually means setting up an S Corporation.  Last week’s post discussed Limited Liability Companies  (LLCs)  and there are similarities between the S Corporation and LLC.

The first similarity is that both LLC and S Corporation provide owners with a degree of protection from lawsuits and creditors.  However if negligence is involved,  the  “corporate veil”  will be pierced and the owner(s) will be liable for any damages.

Second,  there are certain similarities in how taxes are handled.  As with the LLC,  S Corporations  (unlike the more common C Corps)  allow a  “pass through”  of business profits or losses to the owner’s  (i.e., S Corp shareholders)  personal tax form 1040 in accordance with the share of business ownership.  There is no separate  (double)  taxation,  as occurs with C  Corporationss.  Both S Corp and LLC owners can deduct pre-tax business expenses such as advertising,  professional services,  travel, etc.  S Corporation owners will file form 1040 schedule E and form 1120S in addition to your usual tax forms.

Yet,  there are a couple of differences that impact the treatment of taxes.  Unlike the LLC and like the C Corporation,  S Corporation owners pay themselves a salary  (that must be deemed reasonable based on industry standards and business revenue)  and they receive dividends  (distributions)  from any additional profits earned.  Dividends are taxed at a lower rate than the salary pay-out and that is one reason that S Corporation tax rates may be lower.

Another difference involves self-employment taxes.  Says Diane Kennedy,  Phoenix, AZ based CPA and author of  “Loopholes of the Rich: How the Rich Legally Make More Money and Pay Less Tax”  (2001),  “If you have a Subchapter S Corporation and you put yourself on the payroll as a W-2 employee,  withholding taxes from each paycheck as you take money out of the corporation,  you can often save a significant amount of money in self-employment taxes”.  Sole proprietors and LLC owners must pay self-employment taxes.

Owners may sell,  transfer,  or gift their shares,  something that cannot be done by LLC owners.  There cannot be more than 100 S Corp shareholder/owners,  but family members who own shares are treated as one shareholder when counting.  Corporations,  regardless of the form,  continue on in perpetuity unless formally dissolved.  Death does not automatically dissolve a corporation,  while LLCs terminate if one owner retires,  resigns,  dies or goes bankrupt, but can be reformed if desired.

On the downside,  S Corporations have more stringent guidelines than do LLCs.  Owners must be US citizens or reside in the US.  There can be only one class of stock and depending on the state in which you’ve incorporated,  there may be additional state taxes.  Businesses that receive 25%  or more gross income from passive income  (think rental income)  and those that receive 95%  or more gross income from exports are prevented from forming an S Corporation.

S Corporation owners must also hold annual board of directors and shareholder meetings and take minutes.  Further,  the owners must strictly separate their personal and corporate bank accounts.  Failure to adhere to all requirements may result in forfeiture of S Corp status and the IRS is looking.

So which business organization strategy is best for your business?  Like I said in the beginning,  it depends on the circumstances.  Throughout the life of you and your consultancy,  it is wise to assess where you are presently and your plans for the future in terms of income,  growth,  exit strategy and taxes and institute the legal structure that will enhance your position.

Thanks for reading,

Kim

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Limited Liability Company — Should Your Business Be an LLC?

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Going into business invariably entails lots of decision-making,  one of which will be to choose the legal structure of the business entity.  As you know there are three choices: Sole Proprietorship,  Limited Liability Company and Corporation,  typically S Corporation for Freelance consultants and small business owners.  Most Freelancers begin as Sole Proprietors and many remain there.  If business-related liability is not an issue,  then that is a perfectly acceptable choice.  About 70% of  US businesses are Sole Proprietorships.  However at some point in the life of your business,  perhaps as revenue and reputation grow,  it may be preferable to move beyond Sole Proprietor status.

At any time,  you may decide to operate your Freelance consultancy through an entity that limits your personal liability as the owner  (alone or in partnership),  decide that it’s worth the  $500.00 or so filing fee  (payable each year on renewal),  plus maybe three hours of attorney or accountant fees to make sure everything is done the right way.  Or maybe it’s not liability you’re worried about.  Maybe you feel that you’ll appear to clients and prospects more  “real”  and the legal structure is more marketing tool than liability protection.  Whatever your motive,  the matter of selecting your consultancy’s legal entity will present itself.  Should you structure your business as a corporation, or as an LLC? The answer to the question is— it depends.

Most Freelancers and small business owners are directed by their accountants and attorneys to the LLC.  It’s flexible and easy to set up and file.  Your state’s Secretary of State’s office will have a form online for you to inspect.  There may be one or several owners of the LLC,  but there must be a registered agent  (to receive mailings associated with the LLC entity)  who resides within the state.

A big advantage of organizing your business as an LLC is that you will receive protection from creditors of the business.  If the business owes money,  those to whom it owes money will not be able to come after personal property and other assets.   Moreover,  limited liability means that business owner(s) may not be held liable for debts that exceed their investment in the business.  For example,  if your investment in your Freelance operation is $5000.00 and you manage to incur business debts of $8000.00,  you are potentially liable for only the $5000.00.

Furthermore,  there is no separate business tax on the LLC.  All business income and expenses  “pass through”  to the owner(s) of the business,  who pay personal taxes only on the net profit,  based on the share of business ownership.  The owner of a single-entity LLC does not have to file a separate tax return for the business—all financial information is reported on form 1040.  Schedule C Profit and Loss for a Business must also be filed  ( you file schedule C also as a Sole Proprietor),  where one may deduct all of the allowable pre-tax business expenses,  i.e. advertising expenses,  travel and entertainment,  office supplies, etc.  You must also pay self-employment tax,  as do Sole Proprietors.

I was surprised to learn that an LLC can own property.  In fact,  if the property owned increases in value  (and it probably will),  your LLC will avoid the capital gains double taxation that regular corporations  (C Corporations)  would incur should the property be sold or the business entity liquidated.  Like business expenses and profit,  the capital gains would  “pass through”  to the owner(s).

One must be careful when doing business as a separate legal entity,  though.  Your LLC cannot become entwined with personal finances.  Keep your grocery store charges,  shopping sprees and personal vacations out of your business affairs.  Failing to do so will cause LLC status to be forfeited.  Moreover,   an LLC terminates if one of the owners retires,  resigns, dies or goes bankrupt  (remaining owners can form a new LLC).

The LLC works best in relatively straightforward businesses,  single- or multi-owner.  If your goal is to raise money to vastly expand your business,  then the business is advised to incorporate,  so that investors will have the security of holding stock certificates as proof of ownership stake in the business.  Ditto if you plan to take your company public.  I’ll be back next week with a look at incorporating your Freelance consultancy.

Thanks for reading,

Kim

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C-Suite Presentations

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Your diarist will present the workshop  “Become Your Own Boss:  Effective Business Plan Writing”  on Wednesdays October 10, 17 & 24 5:30 PM – 7:30 PM at Boston Center for Adult Education.  Perhaps you’d like to become a part-time entrepreneur,  maybe cater parties on the weekend while you keep your day job?  Find out how to launch your mini-business  http://bit.ly/RnyIBP .

The one thing you have to remember about the C-suite is that those who abide there are under pressure.  They must produce results,  hit a home run every time they come up to bat.  In order to produce results they must delegate responsibility,  delegate to those who have talent and can be trusted. They like people who meet deadlines.  People who don’t make major errors.

Therefore,  if you happen to meet a C-level executive,  you must appear both talented and trustworthy,  as he/she defines it.  In general,  you must demonstrate that you know your stuff.  Demonstrate that you are able to produce results.  To do anything less is to disappoint,  to waste the exec’s precious time.  One must make a very good impression.

If you’re lucky enough to be invited to make a sales presentation to a C-level executive,  whether he/she is alone or with a team,  take the time to do things right.  Arrive early.  If you are there to demonstrate a product,  do a few test runs at home and do one also at the office.  In advance of your appointment,  ask the  executive assistant if there is a room you can duck into to do one more dry run product demo.

If you will present your service and will use Power Point,  do several rehearsals.  Again,  ask the assistant for early access to the conference room in advance of the meeting, so that you can set up the equipment and make sure it works and make sure that you can run it smoothly.  You do not want any A/V glitches and arrive one hour early if A/V equipment will be used.

When you do start talking,  cut to the chase.  It is politic to ask the C-level what he/she would like to hear first.  Plan to go off-script,  so know your material very well.  Expect lots of questions.  Anticipate what those questions might be and role-play answers.

C-level execs have many plates in the air,  opportunities to identify and evaluate,  stubborn problems to resolve and fires to put out.  They are thinking about seeds to plant today that will bear fruit three years down the road.  Make your presentation about how your product or service can beat the competition,  how to hang on to current customers,  how to win new ones and how to increase net profit.  In your presentation,  do address the problems they will have achieving those objectives and how your product or service will help them reach the goal faster,  more easily,  less expensively.

Bruce Gabrielle,  teacher of Power Point and presentation techniques and author of  “Speaking PowerPoint: The New Language of Business”,  says you should focus on painting a vision of a better future.  Once your exec is nodding at the your description of the vision—and ONLY after—should you address product or service details.  Cost will be less of a concern at this point,  he claims.

Gabrielle also notes that while most execs like Big Data and like the idea of making data-driven decisions,  they trust their gut and experience more than they trust numbers.  They like customer success stories. They gain confidence in you if their colleagues have used your product or service.  Have two or three  success stories that make you  shine ready to roll.  Introduce the stories first and then follow it up with any quantitative data that you have.

Be advised that your C-level exec will judge you by the quality of your presentation.  Consider it a test.  He/she will see whether you are authoritative and know your business;  will know how you handle pressure by your response to tough and unexpected questions being thrown at you;  will gauge whether you are trustworthy and credible.  In short,  your C-level will quickly figure out whether you are someone to do business with,  whether you are worthy of his/her time and money.  if you pass the test,  you will win his/her confidence and will be able to count on the exec’s full support.

Thanks for reading,

Kim

Business Strategy , , 1 Comment

Choose a Strategy to Make Your Strategy

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“Become Your Own Boss:  Effective Business Plan Writing”  will be presented by your loyal diarist on Wednesdays October 10, 17 & 24 5:30 PM – 7:30 PM at Boston Center for Adult Education.  Do you have a hobby that you’d like to turn into a profit-making business? Click and register to learn how  http://bit.ly/RnyIBP

 Responses from a recent Boston Consulting Group survey of 120 companies from around the world indicate that executives are well aware of the need to match their strategy making process to the specific demands of their competitive environments,  according to survey authors Claire Love,  Martin Reeves and Philipp Tillmanns of BCG.

But in practice,  many companies relied instead on approaches that are better suited to predictable and stable business conditions,  even when business conditions are known to be highly volatile.  Technological innovation,  social media and global uncertainty have conspired to make the business climate for nearly all industries less stable and predictable than in the past.  Business planning must reflect that reality and build strategies in response.

Love,  Reeves and Tillmanns identified four strategic styles:  Shaping,  Visionary,  Classic and Adaptive.  The first two styles are appropriate for major corporations that have the power to influence buying demands and habits on a massive scale.  Small business owners and Freelance consultants would choose between the latter two,  depending on the local business environment and practices in their industry.

Some industries are based on fast-moving,  changing market dynamics and furthermore,  uncertain economic times demand a more fluid and experimental approach.  In such environments,  long-term plans are essentially useless.  The Adaptive strategic style  is most appropriate under these conditions,  since it gives the business owner a roadmap to follow as goals and tactics are continually refined in response to shifting conditions.

Planning cycles may last only one year.  Initiatives are short-term,  quarter by quarter,  because making money is about what’s hot now.   Trendy hair stylists,  the hottest nightclubs and bars,  fashion forward retailers and entertainers from Lady GaGa to Nicki Minaj base their business planning on the Adaptive style of strategy setting.

Big data will not tell Adaptive style strategic planners what will be hot in six months.  On-the-ground brand representatives,  party promoters,  recognized style leaders and bloggers known to have credibility with the target customers give feedback on trends that might have significance,  that are ripe for a mini-marketing campaign that might bear fruit.  The Adaptive style planners then evaluate the trends and use the feedback to make informed decisions.

The Adaptive style encourages  companies to set up their organizations to test and roll out a variety of products and services as quickly and efficiently as possible,  constantly adapting in the light of sales figures and social media feedback.   Some strategies are bound to fail,  but numerous cost-conscious experiments made in quarterly or twice-yearly campaigns increase the likelihood of success and minimize losses when a trend is over-estimated.   Success is defined by carving out the best position in a volatile marketplace.

Setting strategy begins with an accurate assessment of your industry and local business environment.  Depending on the business conditions,  the Freelance consultant or small business owner would choose either the Classic or Adaptive strategy style when a planning session is in order.  From there,  it will be possible to find a path that will allow you to apply your unique expertise and resources to making the most of available money-making opportunities.

Thanks for reading,

Kim