This is post 5 of 10 in a series discussing the essential steps for launching a successful, sustainable solopreneur business. If you missed the disclaimer post, it is helpful if you take a minute to read it before going forward. Here’s the link to the post.


So far I’ve covered the following sequential steps:


1. Define Your UVP and Prime Prospects


2. Perform Your Market Research


3. Create Your Business Plan


4. Square Away Your Finances


Today, we’re going to get into what licenses and permits, certifications and legal structure you may need and how to go about applying for them. The type of business you are developing, your industry focus and where you set up shop will dictate your legal requirements and help you determine what certifications (if any) and legal structure will benefit you most.


BizFilings.com
I believe in saving time, so I’ll start with giving you a shortcut. I recommend you go to BizFilings.com. For a nominal fee, they will create a report that includes the necessary forms and government agencies to apply for the licenses, permits and if you choose, legal structure, specific to your business.


I used their service for setting up The Solopreneur’s Guide. I received my report within three business days. For $99, It gave me everything I needed for licenses and permits (and $115 for incorporation, which I didn’t select), and freed up my time to focus on other start-up activities. There were some additional fees required by government agencies, but not much.


DIY
If you prefer the more hands on approach, you can consult with an attorney, a CPA and the government agencies direct.


When taking this route, here is a list of things to know and consider:


1. Be prepared.
To minimize wasting time and money, when meeting with an attorney, CPA or government agency, be prepared. This is part of the reason why I created this series in a specific, sequential order. As I mentioned above, your business structure, industry and location will affect the licenses and permits you need and the legal structure with the most advantages. Since you already created your business plan by this point, you should have all the answers necessary.


2. Select your legal structure first.
Since this post focuses on the needs of solopreneurs, the two legal structures that apply are sole proprietorship and Single Member Limited Liability Company (SMLLC).


Which one is right for you? The three main criteria that will affect your decision are:

a)      Ease of set up (time and money)

b)      Tax benefits

c)       Liability coverage

The sole proprietorship is inexpensive, easy to set up and simplifies the tax process since the IRS only taxes you once on your personal income tax returns.


The potential down side to this structure is it doesn’t offer any liability protection (for debts and damages) and it is difficult to raise capital. You can get around some of this, however. For example, you could purchase business liability insurance and / or improve the language in your business contracts and proposals with disclaimers and indemnification clauses.


A SMLLC offers pass though taxation like a sole proprietorship, but offers some liability protection. It is more complex and expensive to set up, acting like a hybrid between a sole proprietorship and a corporation.


I prefer to keep things simple. However, if you are tempted to structure your business as a SMLLC, I recommend you seek out professional help to make sure you fully understand all the pros and cons.


3. You may need to connect with more than one agency.
Depending on your business structure, industry and location, you may need to apply for licenses and permits with local, county, state and federal agencies. How can you find out which agencies? Since the laws vary by location, you will need to do your research. You can either do a search on Google or stop by city hall or your local chamber of commerce and see if they can point you ion the right direction.


4. Zoning.
Before you launch a home-based business, you had better check your local zoning laws. If you are purely running an internet based business, you should be fine. However, if you plan on manufacturing or having walk-up traffic at your home, there is the possibility that you may be in violation of your city or county zoning laws.


The zoning laws are mainly a way to protect your neighbors from undo noise, traffic and other interruptions that a business may cause. If you’re in doubt, check with the local or county agency that manages your zoning laws.


5. SSN vs EIN
Do I need an Employer Identification Number or can I just use my Social Security Number. The quick answer to this question is to read a chart created by the IRS with some quick, simple questions. Here’s the link: IRS EIN Chart


6. Do I need to be “certified”?
Depending on your business, certification may or may not be necessary. For example, business coaches aren’t required by law to pass certification. Some choose to take courses and test with schools or industry associations as a way to differentiate their services.


In some cases, being “certified” creates a benefit for winning business or securing funding. For example, certification as an 8 (a) by the Small Business Administration (SBA) can provide socially and economically disadvantaged people with management and financial help, plus elevate their ability to compete for government contracts.


When in doubt, check with your local chamber of commerce or industry association.


7. Don’t skip this step.
While in many cases, it may seem easy to fly under the radar in hopes of minimizing costs, the government usually will catch up with you. And when they do, you may have to alter your business, change location, pay hefty fines or shut down. If your business is relatively basic, check out BizFilings.com. If you think you have liabilities and tax ramifications that may benefit from a more thorough review, get with an attorney and CPA.


The worst thing you can do is to become frustrated, choosing to take care of these requirements later when the IRS or other government officials catch up with you.


Disclaimer - I am not a CPA or a lawyer. My information and insight comes from my own research and personal experience as a multiple business owner and small business consultant. Although I have some experience with business licenses, permits, certifications and legal structures, there are variables that can alter your requirements including changes to current laws.


Next up in the series is, “Develop Your Products”.


All the Best,


Doug Dolan
The Solopreneur’s Guide

As I mentioned in my last post, most of what I blog about here at The Solopreneur’s Guide comes from real world experiences. Just recently, I’ve had a few colleagues confess that they provide services without drawing up and signing formal contracts. They thought it wasn’t necessary or they were afraid of losing the business if they took customers through the extra steps instead of simply getting down to work. And they’ve been bitten.


I’m just the opposite; I won’t start a project without one, whether it’s for consulting, copywriting or ghostwriting. Why?


Professionalism

Prospects want to know they are working with a pro. It’s hard to convince a new customer that they should sign the deal with you instead of a competitor if you can’t draft a convincing proposal. The one time I truncated a proposal (because I assumed the prospect and I had discussed enough details in numerous, previous conversations), it cost me. The prospect was concerned that the detail of work I was going to provide was equivalent to the condensed contract. Shame on me.


Protection

The lack of face-to-face interaction created when capturing customers on the Internet, gives the less scrupulous and cash-strapped customers an excuse to forget their obligation. While they can still stall on payment even with a contract, they are less likely to. Plus, a signed agreement gives you some ammunition if you need to go after them. Without an agreement, try convincing a legal entity to hold the negligent party accountable in a he-said / she-said argument.


Clarification of Expectations

Unrealized expectations lead to disappoint … which in turn can lead to a loss of payment and future business. While you may believe you discussed all pertinent points in conversation, put it in writing – especially for lengthy projects. After I’ve submitted my deliverables in writing, I’ve had prospects responded with new questions … and this is after an in-depth interview. Make sure the scope of work is clear and agreed to before getting started.


Here’s the top 10 quick list of items I include in my template agreements:

1. Names of the principals involved with current contact information
2. Identification of all decision makers
3. Definition of the scope of work
4. List of the major milestones
5. Description of the deliverables due from all parties involved
6. Pricing (with discounts and payment schedules, if applicable)
7. Method(s) of payment
8. Cancellation clause
9. Lines for signatures and dates
10. Page numbers at the bottom

Depending on the complexity of the SOW (scope of work), you may need to include additional criteria, but don’t get overly complicated. Keep it to the basics above whenever possible.


It would be nice if we could go back to sealing deals with a friendly handshake. However, with the virtual disconnect created by the Internet, customers have an opportunity to take advantage of you … if you let them.


Show you’re a professional while protecting yourself at the same time. Put your agreement in writing.


All the Best,


Doug Dolan
The Solopreneur’s Guide

I’ve had an increasing number of business beginners question what is the proper legal structure for them. The quickest answer is to contact an accountant and a lawyer and figure it out. However, the beauty of the Internet is you have the capability to improve your knowledge capacity of a particular subject before making a decision.


Today we will get into some of the basics of business structures and what you need to consider when choosing the entity for your enterprise. I will include some helpful inks to online resources since I am not a lawyer or an accountant. That, coupled with the fact that a professional would need to take time to interview you to get an understanding of your goals and review your business plan with financial projections.


Let’s first get into the common legal structures:

1. Sole Proprietorship
2. General Partnership
3. Limited Partnership
4. Limited Liability Partnership (LLP)
5. Limited Liability Company (LLC)
6. Corporation (S-Corp, C-Corp)
7. Professional Association
8. Business Trust

Since this is The Solopreneur’s Guide, I will stick to those that apply for solopreneurs. This narrows our review down to three basic types: Sole Proprietorship, a sub-set of the LLC known as the Single Member Limited Liability Company (or SMLLC), and, yes, even a Corporation. Partnership and employee based business structures are obviously out.


When considering the proper legal structure, you have to take an assessment of the following aspects of your business:

• Taxation
• Liability
• Risk and Control
• Continuity of Existence
• Transferability
• Expense and Formality

The three primary differences between setting up a Sole Proprietorship versus a SMLLC or Corporation are taxation, liability and cost of set-up.


When it comes to paying taxes, in a Sole Proprietorship and SMLLC, profits / losses pass through to you to pay (or get paid) on your personal tax return. The IRS, on the other hand, taxes a corporation as a separate entity and only taxes you if the corporation pays you dividends.


When operating as a Sole Proprietorship there is no separation of liability. In essence, you are your business. Whereas with a SMLLC and Corporation, there is some liability protection should a disgruntled customer or company seek reparations if they feel you wronged them. However, before you jump into establishing a SMLLC or Corporation for fear of being responsible for reparations, there are other methods for controlling the consequences of liability. For example, you can purchase certain forms of business insurance or improve the conditions set forth in your contracts.


The third primary difference, as I mentioned, is cost. It is less costly to set up a Sole Proprietorship versus a SMLLC or Corporation.


I know, you’re still wondering which structure is best for you. And as I mentioned above, it depends. I chose to set up my copywriting, ghostwriting and small business consulting services as a Sole Proprietorship under The Solopreneur’s Guide. I believe in keeping it simply, while keeping costs down. I’m not pushing prescription painkillers or other life-threatening substances, plus I am anal about the contracts I create and sign.


Where can you go to get the answer for you?


CPAs and Lawyers

Less knowledgeable about the ins and outs of liability – tax or otherwise? Ask a colleague for referrals to a competent CPA and lawyer or do a Google search in your local area. This, typically, will give you the greatest resource to ask questions and established a structure based upon your specific needs. However, this will also be the most costly.


BizFilings.com

BizFilings.com is an excellent online resource for reviewing information. They offer a matrix to compare business types. Additionally, they provide a service to set up the legal structure of your choosing and another service for applying for the necessary licenses based upon your business type and location. They are quick, efficient and relatively inexpensive.


IRS.gov

Your biggest business liability, most likely, will be paying the taxman. You can do a search on other sites, but why not go to THE site – IRS.gov.


Hopefully, this post will give you good insight where to start. If after reading this and reviewing the links herein, you still feel cloudy about the appropriate choice, contact a CPA and a lawyer.


All the Best,


Doug Dolan
The Solopreneur’s Guide

Let’s see what Michael has to say about some of the obvious (and latent) hazards solopreneurs face in today’s business environment and what we can do about them.

TSG:     Under your “About” page, it states, “… Michael Ferreira has been a trusted advisor to some of the world’s largest organizations …”. How do you translate this experience to assist solopreneurs?

MFRS:     Risk is faced by organizations of all sizes. The only difference between a solopreneur and a global company is size. My focus is helping the solopreneur identify risk, assess and quantify it and develop a risk management program to address business risk.

TSG:     Do you operate MFRisk Solutions as a solopreneur?

MFRS:     Yes, and I walk my talk. 

TSG:     How long has MFRisk Solutions been in business?

MFRS:     MFRisk Solutions began in January 2009.

TSG:     Do you provide services to the full spectrum of solopreneurs or do you focus on specific industries?

MFRS:     I provide my service to solopreneurs in all business categories across all industries.

TSG:     Are there certain high-risk industries as a whole for solopreneurs?

MFRS:     Organizations face various risks. The four quadrants are Financial, Strategic, Operational and Hazard. Risk factors in one quadrant may be “high” but considered “low” in another quadrant. In every industry, there is a degree of risk. The assessment of that risk and measurement of its potential rewards and consequences should be part of a solopreneurs business plan.

TSG:     Can you give an example of Financial, Strategic, Operational and Hazard risks for solopreneurs that you help identify and find coverage for?

MFRS:     Financial – credit risk. If you have cash receipts and the person making the deposit is robbed and the cash stolen, coverage is afforded under a Crime policy (provided the solopreneur purchased one).

Strategic – Competition. Understand who your competitors are, their strengths and weaknesses and the threats and opportunities they present for you. Sorry, no insurance coverage for this.

Operational – critical customer information is stored on a server. What is the back-up in the event primary server goes off-line? May or may not be coverage subject to the reason the primary server does not operate.

Hazard – fire occurs at the manufacturing plant delaying fulfillment of orders placed by customers. Existing orders are canceled and new orders drop off as customers move their purchases to competitors. Negotiation of proper property coverage can afford coverage to the solopreneur for lost business income.

TSG:     When you provide your free 30-minute consultation, do you often find that solopreneurs are surprised to find the risks that you identify or are they aware that they are at risk, but don’t know how to cost-effectively protect their businesses?

MFRS:     Most solopreneurs are “subject-matter experts”. They have a particular skill, expertise or trade that may have been cultivated while in the employ of a large organization. Establishing your own business requires a departure from your comfort zone to respond to issues (risk) that were addressed by others in the organization (i.e., legal, finance, human resources, etc,).

TSG:     So if I understand what you are saying, you are addressing the issue of being responsible for all aspects of your business whereas in a company different professionals will cover those disciplines. I am a believer in outsourcing as a way to mitigate (not alleviate) some of that risk. Do you agree?

MFRS:     I agree that outsourcing activities to third-parties is appropriate when you do not have the expertise, manpower or capacity to perform that function. However, relying on third parties has inherent risk to the solopreneur.  What happens if the third-party suffers a failure? What is their capacity to respond in this event? Those risk should be assessed and informed decisions made as a result.

TSG:     What are common risks that you see across the board for solopreneurs?

MFRS:     The two most common are:  liability and property.

Liability-the tort system is alive and well in the United States but not understood by most business people. Liability can be created from giving advice to customers to delivering a product or service.

Property – most solopreneuers understand simple examples of loss of property such as a fire. However, certain property insurance coverage also reimburses a policyholder for extra expenses incurred and/or business income as a result of a covered loss. Solopreneurs need to become knowledgeable procurement people on their own behalf.

TSG:     One of the services that you list is suggestions regarding risk-transfer versus risk-assumption. Can you give an example?

MFRS:     A solopreneur establishes a business offering advice to customers on how to begin a home-based business. While the solopreneur does not guarantee success if you follow his formula, he does provide numerous examples of how the formula worked for him and has testimonials from other customers testifying to their success.

The risk is the potential liability if a customer (or group of customers) alleges that the solopreneur erroneously provided them with information and/or omitted information and as a result, they suffered damages (monetary loss) and are claiming compensation.

The solopreneur can assume this risk or he can transfer this risk by purchasing an errors & omission liability policy. This is a simple example for illustration purposes.

TSG:     Do customers normally contact you prior to opening for business or after they have an incident wishing they had met with you?

MFRS:     Both. For those customers beginning a business, the discussion is much more thought provoking and we develop an action item list. Many times I will help them craft their insurance purchases.

For the after-the-incident customers, we discuss mitigation strategies. While risk-transfer “after-the-fact” is typically not available, there may be a strategy to address the issue at hand and expedite it.

The troubling part is that most solopreneurs do not understand the potential drain on capital (usually their own) that such a loss can have.

TSG:     You list your rate of $125/hr on your site, which I believe most people appreciate and respect. How much time on average does it take for you to assist a solopreneur with risk assessment?

MFRS:     The more complex the business, the greater the investment of time. My services run the spectrum from assessment to quantification and identifying options to address risk. A number of my clients want me by their side while they are negotiating their insurance procurement or signing leases or other contracts. My goal is to educate the solopreneur to have the confidence to identify and address risks as the leader of an organization.

Thank you, Michael, for taking your time and educating us about some of the risks at hand.

Does this interview have you thinking about your risk exposure, my solo entrepreneur friend? Why not take advantage of Michael’s 30-minute free consultation? You can reach him at:

MFRisk Solutions
Michael Ferreira
W: www.mfrisksolutions.com
P: (917) 767-9123
E: Michael.ferreira@mfrisksolutions.com

Additionally, go to his web site where you can sign up for his mailing list to receive automatic updates on news, special offers and helpful tips, too.

All The Best,

Doug Dolan
The Solopreneur’s Guide

Before I go further, let me say that I am neither a lawyer nor a CPA. And if you aren’t either, then you should seek professional help to protect your business – and ultimately you.

Chances are that as a solopreneur, you will operate your business as a sole proprietor as I do. This is the quickest and least expensive method for opening your doors. However, did you know that you have the option of operating as a Single Member Limited Liability Company? Do you know what are the pros and cons of this structure as compared to a sole proprietorship?

And once you decide on the appropriate legal structure, you still have additional paperwork to submit to the local, county and state government offices. The necessary paperwork will vary based upon the type of business and the location.

For example, in my case, I operate under the name The Solopreneur’s Guide providing consulting and copywriting services and in the near future selling information products online. Based upon this type of business and the fact that I am located in the city of Prescott, county of Yavapai and state of Arizona, I am required to submit an Application for Registration of Trade Name (as a DBA) to the state, submit a local newspaper article introducing my fictitious business (DBA), send a copy of compliance to the state, and submit a Home Occupation Form to the city to verify that it is acceptable to operate my business out of my home.

Do you know what is required for your business?

I could have contacted the city, county and state offices (and in some cases federal agencies), been passed around from extension to extension until I found the right people that could answer my questions and hopefully cover my bases. Instead, I decided to go with BizFilings.com.

With BizFilings.com all I had to do was take about 10 minutes to fill out information about my business online. For $99, I turned the work over to them to research what forms were necessary. Within 2-3 days, they sent me the applicable forms in an interactive PDF document via email. For me, the piece of mind and the time savings were well worth the money.

BizFilings.com offers additional products and services, including articles of incorporation (if you decided to operate as an LLC), a Business Type Comparison Table to compare the pros and cons of these legal structures, a Business Startup Checklist, and Business Plan Software.

Why risk fines and a possible interruption of your business? Take the time to establish the appropriate business structure and file the necessary paperwork.

All The Best,

Doug Dolan
The Solopreneur’s Guide