Monthly Archives: March 2017

Administrative , , , , Leave a comment

Business Structure Face Off: S Corp vs. LLC

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Whether you are preparing to launching a new venture or you’ve been operating as a Sole Proprietor (Sole Trader in the U.K.) for a few years, you may decide to establish a business legal entity for the enterprise. The benefits of creating a business legal entity, whether you operate as a Solopreneur or participate in a partnership that consists of independent professionals who occasionally collaborate (like dentists or physicians) or co-owners who run a business together, are:

1.) protection of business assets from (certain) financial liabilities

2.) reduced tax liability

Entrepreneurs and Solopreneurs who have no worries about legal actions that might arise from bankruptcy or other business debts (or client litigation) may comfortably operate as Sole Proprietors.  Business owners of any kind, plus the self-employed, may at some point decide to organize their venture as a corporation (either the original C Corporation or subchapter S Corporation) or a Limited Liability Company (LLC).

FYI in the U.S., corporations are tax structures that are overseen by the IRS (a federal entity) and LLCs are created and governed at the state level.  Application to form either entity is made at your state’s Secretary of State office or in Washington, D.C. at the D.C. Corporations Division.  In the U.K., business legal structures are obtained through and governed by your regional Companies House.

Regarding protection from financial liabilities derived from a business legal entity, actions that can be construed as negligence are considered to “pierce the corporate veil” and neither a C or S Corporation, nor an LLC, will shield negligent business owners.  But if the business goes into bankruptcy or serious debt, only business assets can be applied to cover those debts and if that amount is insufficient, the owner(s) will not be forced to use personal assets to pay what is owed.  Furthermore, the entity will not be liable for debts that exceed the value of the owner’s investment in that entity.  In other words, if an owner’s investment was $20K, that’s all the owner will be liable for, even if $30K is owed.

Now for a look at potential tax savings.  Unlike the older U.S. corporate structure, the C Corporation, there is no simultaneous tax of business and personal income in the S Corporation (i.e., no double taxation) and all the usual business deductions that you’ll find on IRS Schedule C  may be taken.  The S Corp allows owner(s) to pay themselves and all employees with W2 salaries, meaning that owners avoid the self-employment tax if it’s decided that you work for the corporation (instead of yourself).

A portion of what can be reasonably considered excess net profits can be paid to the owner(s) as a dividend distribution, in addition to the W2 salary, and the distribution is taxed at a much lower rate (from zero- 15%, depending on circumstances) than the W2 earnings.  This is one way that the rich get richer, Baby!

The owner’s salary must be considered reasonable for the industry, because the IRS will be looking.  Contact a savvy tax accountant so you’ll refrain from paying yourself $20K annually when $80K would be closer to the minimum for your industry and business Income Statement.  Shenanigans like that can cause the business to lose the S Corp status and land you in double-taxation-ville.

If business income is not so flush, your accountant may recommend that like a Sole Proprietor, S Corp owner(s) should choose the “pass through” tax format, where all income and expenses appear on the personal tax form(s) of the owner(s).  Be advised that partnership S Corps are taxed like a partnership and S Corps that elect the pass-through tax option will pay the quarterly self-employment tax on reported income.  Corporate taxes are filed no later than March 15, earlier than the rest of us.

In both the C and S Corp structure, the owner(s) is a stockholder, and multiple owners are assigned shares of company stock and receive a portion of business profits and losses according to their percentage of ownership. The S Corp allows only one class of stock.

On the downside, the rules for maintaining a corporate entity of either form are somewhat strict. S Corp owners must be citizens or residents of the U.S. and their number is capped at 100.  Every corporation is required to have a board of directors or officers (the owner and a Recording Secretary to take the annual meeting minutes, at least) and even solo corporation owners must hold an annual stockholder’s meeting.  Financial documents must be in good order. Minutes must be taken and kept on file.

Because there is only one class of stock allowed, those who plan to seek venture capital or take their company public must form a C  Corporation, so that the preferred stock that investors demand will be available.  Finally, the legal and accounting fees, as well as special state taxes where they apply, make the choice of either a C or S Corporation a four-figure annual commitment, so consider your choice of this option prudently.

Next week, we can resume the discussion with a look at the Limited Liability Company structure.

Thanks for reading,

Kim

 

Administrative , , , Leave a comment

When Freelancers and Employees Collaborate

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External agile talent provided by Freelance consultants has a presence in a growing number of organizations in the country, from huge multinationals that hire dozens of external experts to solo consultancies, who may hire a Freelancer colleague to obtain  help with SEO, website design, or project subcontracting work.

Freelancers are brought in to ensure that a high-priority project will be successfully completed, on time and within budget. While it is the responsibility of the hiring manager to onboard the Freelancer and create the conditions for smart collaboration  and productivity, in fact, a good deal of that responsibility will be transferred to the Freelancer because s/he is temporary, an outsider, and is positioned to take the blame should things go wrong.

Therefore, it is highly recommended that Freelancers take the lead and do what is possible to establish a working relationship with in-house collaborators that is productive, pleasant and lays the groundwork for repeat business and referrals.

  1. Ask the hiring manager to onboard you, so that you will be able to “hit the ground running” and quickly get to work on producing the project deliverables.
  • Request an overview that explains why the project is important to the organization.
  • Have a contract for the project, signed by you and the hiring manager, that specifies your duties, in-house support that will be provided, the budget, project milestones, the deliverables and the deadline, your hourly rate or project fee and what you’ll charge for client requested change orders and additional services requested.
  • Request the names and titles of any in-house project collaborators.
  • Specify the details of the lines of reporting and authority, so that you and everyone else knows who you answer to, since the hiring manager may not be the internal project lead.
  • Determine where your work will be done—off-site, at the organization, or a combination. How many hours must you spend at the company office? Where will  your work space be located? Must you bring your own computer and phone?
  • Request an introduction and meeting with your in-house collaborator(s), so that you can understand the organization culture (“how things get done around here”) and understand what you can do, or request from the company, to make the experience pleasant and productive for all parties.

2. Anticipate employee anxiety around the presence of an external consultant and work to quell the discomfort. Show respect for your collaborator’s deep knowledge of the organization and the project. Solicit their opinions on how to efficiently get the work done and political situations that can help or hurt you. Copy your collaborator(s) on important emails. Uncomfortable subjects might include:

  • Why was a Freelance consultant hired to do the interesting, mission-critical project and not long-term, loyal employees?
  • How much money is s/he being paid—is it more than me?
  • Will the consultant’s expertise and opinion be more highly valued than mine?
  • Is a company lay-off on the horizon?

3. Communicate frequently with your in-house collaborator(s), to promote transparency, build trust and ensure maximum productivity.

  • Make use of email and write reports that keep collaborators and the hiring manager updated on your work.
  • If you hit a stumbling block, ask for help, in writing.
  • Suggest a weekly or bi-weekly conference call or meeting at the client’s office, to compare notes and confirm that milestones and expectations are being met.

Thanks for reading,

Kim

Business Strategy , , , Leave a comment

Rethinking Your Services

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Like lovers, clients can be fickle. Both will tell you that they love you and everything about you and everything you do, that is until they don’t, and they leave you for someone else.  I take this to mean that in business as in love, one should never get too comfortable.  Continuing to do the same things in the same way can become very predictable and therefore boring.  You could eventually be considered to be outdated or out of touch.

Clients and lovers want to be understood.  They crave a partner who is aware of their shifting needs and priorities, without being told.  Talking to clients and lovers to find out how they feel about the relationship is a useful exercise, but the conversation will not always elicit the truth.  It could be that our perceived lapses and failings do not become apparent until a competitor comes along and persuades them that they can do better.

To sustain healthy and satisfying business and intimate relationships, we must hone our intuition and be prepared to never rest on our laurels.  Continually affirming one’s value is key, in both short and long-term scenarios.  I suspect that the 24 hour news cycle and 140 character messages have contributed to the brief attention spans, impatience and need for instant gratification that seem to have overtaken us.

In defense, I suggest that periodically, a brand refresh that includes an update in how services are described and packaged will do some good.  Think of Lady Gaga as you engineer a little shake-up every three years or so.  Staying abreast with what is happening in the industries in which your clients operate will be helpful, so that you can learn about the challenges and priorities that your clients see and you may be able to see opportunities for you new or expanded services.  If nothing else, you’ll can become fluent in the jargon and terms that your clients use to describe themselves and that will add to your credibility when you echo that in your content marketing and client meetings. When you speak their language they will know that you “get it” and that you can be trusted to deliver the outcomes they need.

As a caveat, I also suggest that you beware the temptation of giving your clients precisely what they say they want in every instance and in particular, avoid being swayed by a vocal minority.  Keep client preferences in mind (especially if a clear majority raises the same issues), but understand that clients (and lovers) are not always able to articulate what will make them happy enough to stay with you.

This may be apocryphal, but it’s been said that when the late founder of Ford Motor Company, the legendary inventor and entrepreneur Henry Ford, was asked if he spoke with potential customers to learn what improvements they wanted to see in the transportation field, replied, “If I had asked people what they wanted, they would have said ‘faster horses.’ ”

Hockey legend Wayne Gretzky advised that when playing, you have to skate to where the puck is going, not to where it’s been. CEOs from Warren Buffet to the late Steve Jobs have quoted that line because keeping that advice in mind is how one builds a successful company.  Where the puck is going will be impacted by recent innovations, the economic climate and even social and political developments.  Always, we must stay on top of developments because that is the only way that one who is in business can project what clients might want us to do for them, either next month or next year.

So what does a Freelance consultant do to find out what’s going on? The short answer is to keep your eyes and ears open and fully engage in your business and your life.  Read blogs, newsletters and business magazines. Occasionally listen to a webinar, attend a seminar and go to a business or professional association meeting. Talk to your clients and colleagues, friends and family.

There is a tidal wave of information to soak up, but it isn’t necessary to drink from the firehose and become overwhelmed.  Just be consistent.  Be open to how new information can benefit your clients and you can ask their opinions about some of what you’ve heard or read.  Invite your clients to interpret some things for you, since they are best positioned to do so.  You will then understand the  big picture and when you do, you’ll see where the puck is going to be.

Thanks for reading,

KIm

 

Marketing , Leave a comment

A Press Kit That Tells Your Brand Story

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It is true that social media and content marketing have forever transformed marketing strategies and advertising campaigns.  How brands reach out and engage with current and potential customers to communicate marketing messages, reinforce the brand and provide product information has become highly targeted and granular, often interactive and as a result, rather personal and designed to build relationships and a community.

The various social media platforms can be wonderful additions to your marketing and advertising plans, but they’ve not yet vanquished the trusty throwback that is the press kit. The press kit remains viable and is a must-have promotional tool for every organization—for-profit or not-for-profit, large, small, solopreneur, or start-up. Also known as a media kit, the press kit can be considered a resume for your business and with it you can create a narrative for your organization, in electronic format or as hard copy enclosed in a folder that you personally hand out.

Your press kit can contain any number of resources that inform recipients about your company and it can be customized to promote objectives you’d like to achieve. Business editors and journalists targeted to receive a press release, prospective clients that you plan to court, potential investors and business partners are among those who are press kit candidates.  Below is a list of ingredients that will help you tell your brand story:

1. Company Fact Sheet (known as the one sheet)

  • When and where the company was founded and its current location
  • Is the company privately or publicly held (date of initial public offering, if applicable)?
  • Company mission statement
  • Two or three of the most prominent clients if B2B, or largest target customer groups if B2C
  • Primary products or services
  • Number of employees
  • Company legal structure (corporation or limited liability company)
  • Website address and social media links

2. Photos

  • Professionally done headshots of the founder(s) and the leadership team (as high resolution images suitable for print or online publications)
  • A photo of the building where your office is located and/or a photo of the office entryway or reception area

3. Press releases

  • Selected press releases that have been sent to media outlets
  • Links to (selected) articles that have been written about the organization
  • Links to (selected) industry related articles written by the founder(s) or other company leaders

4. Videos

  • A three-minute clip of the founder(s) giving an overview of the company story, or announcing a new product or strategic partnership (if production budget is available)
  • If the founder(s) has been interviewed on television or radio to speak about the company or the industry, include a three-minute clip.

Business editors and journalists will be more willing to feature or include your company in an article if you can quickly email a press kit that gives them some background information.  If you plan to contact media outlets to announce a new product or service, for example, or let the public know that you will participate in a noteworthy charity event in your metro area,  put together an online media kit before you send the press release.

Before you hit the send button, call the publication and confirm who should receive the information.  A day or two after sending, call to confirm that it was received and ask if additional information would be appreciated.  Offer to send your press kit. Invite the reporter to your office for a casual chat or a formal interview (you can hand out the hard copy press kit if you’ve not yet sent the online version).

If attracting prestige clients to join your roster is the goal, your press kit can be an effective marketing tool that helps to convince those prospects that you are capable, trustworthy and have a good track record.  Prospects will learn the basics about you, your leadership team, the history of your company. They’ll see that you’ve worked with other good clients and that media outlets have written about, or quoted you (if you include press clippings).

Financial and business performance information, such as year-end balance sheets, growth and earnings statistics and other key performance indicators will please potential investors and partners and allow them to quickly understand the financial position of the company. Your press kit can potentially help to persuade certain of them to enter discussions that could result in an infusion of cash that would propel your venture to the next level.

Thanks for reading,

Kim