Entrepreneurship

28

May'17

The Difference between a Corporation and a LLC

Both a LLC and a Corporation are entities established by registering with the particular state you are located in. The differences are profound. A Corporation is governed by corporate law, most states conform to the Uniform Commercial Code ( a prototype) of corporate law. Corporations are characterized by having a charter, bylaws, a governing board of directors, shareholders, and officers. In most states, a corporation must have at least three named officers ( one person can hold more than one office.) Corporations are governed by their board of directors, who are expected to meet on a regular basis and pass resolutions, which validate various actions of the officers, establish policies, enable borrowing and opening of bank accounts, etc. Corporations evidence their ownership by the issuance of capital stock, or shares of stock. Most states require annual reporting of one form or another. LLC’s are a hybrid entity, and were not prevalent until the 1980’s. They are much less formal in organization than corporations. They are governed by an operating agreement, managed by the owners, who are called “members.” No shares of stock are issued: ownership is evidenced by a percentage, similar to how it’s done in a partnership. In many …

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31

Mar'17

What’s the Biggest Challenge for Small Businesses regarding Financials?

The biggest challenge most small businesses  have is just getting accurate financials. When you own and operate a small business, 110% of your effort is devoted to marketing and execution. The backroom tasks – including bookkeeping and accounting tend to get second fiddle, at best. As a result, back office systems in most small businesses are not given enough attention, until, that is, the company runs out of cash. Then there is a fire engine approach that takes over, as the business owner attempts to put out this fire and that. Not particularly conducive to developing sound information reporting systems. Most small business owners are not systems or detail oriented. They are big picture people, by necessity. As a result, keeping history, making things neat and developing internal reporting systems falls by the wayside. I have seen dozens of small businesses which ran by dashboard metrics alone. No financials. At year end, the outside accountants would struggle to make sense of the mess and sometimes the financials actually corresponded with the dashboard results… sometimes. Most of the time, the financials come as a rude shock. This is a symptom of being an entrepreneur. It’s a rare one who understands the …

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06

Mar'17

Should I get a Business Partner?

Perhaps, but be very careful. Most business partnerships do not survive, and the breakups can be painful and extremely expensive. Things usually look rosy when you begin, but can degenerate into some pretty ugly stuff. My suggestion is that you not form a partnership. I would suggest a LLC or a corporation. You should talk to a business attorney about this. Secondly, you need to be very careful in the selection of any co-owner. What are they bringing to the table? What will they contribute? Are you really willing to give up ownership and some control to somebody else? You better have a really good reason to want a co-owner. You better research the candidates extensively and exhaustively. Thirdly, you need to think about everything that can go wrong. How will you deal with major disagreements? How will you deal with getting out of the arrangement? What happens if your co-owner doesn’t do their part, or worse yet, takes from the business? Think about every possible bad thing, and address it in writing. Finally, think about how this is going to work on an on-going basis. Right now you are the man in charge. What happens when you have to …

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06

Mar'17

Why is it that people who are immoral are so often more successful?

Question:  If a business owner works hard and lives a moral life, are they usually not as successful as an immoral business man?  Answer:  Where did you get that crazy idea? I am sure you can point to some examples where it appears to be true, but the premise of your question is contrary to the fundamental laws of the universe. Evil does not succeed. Not all moral people will succeed. But to be truly successful, you must be moral. Immoral people may appear to succeed. They may have a lot of money, they may appear from the outside to have all the evidences of success. But inside, in their hearts, there is a rot that destroys their soul. For what have you gained if you have material success but have lost your soul? Answer: not much. The outward appearances of success are deceiving. What truly matters is what is not shown: what is inside you, in your heart. For you can have all the money in the world, but if you have no joy, where are you? You cannot have joy if you have no moral compass. If you follow your moral compass, you will be successful. Maybe not in …

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25

Feb'17

Will a LLC give me Liability Protection?

Response:  business advisors often suggest that a business form a LLC to protect the owner from liability… after all, it is called a “limited liability company.”  They may infer that the liability protection is absolute, and many a business owner with a LLC thinks this.   Nothing could be further from the truth.  What follows is business advice:  you should always consult with a qualified business attorney when dealing with legal issues. The title should give you a clue:  “Limited Liability.”  It didn’t say “absolute liability protection,” and for good reason.  There are many loopholes and “gotchas” in the law, and limiting liability for a business owner is fraught with problems. The first problem with liability protection is the most problematic:  separating the business from the individual owner.  Many LLC owners act as though the business and their personal affairs are one in the same.  They pay personal expenses from their LLC bank accounts, co-mingle assets, and operate the business in a manner that is indistinguishable from a sole proprietorship; in other words, the LLC is just an owner’s  “alter ego.” That leaves a wide open door to a lawsuit alleging that there is no difference between the company and …

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25

Feb'17

How Can you Benefit from a Bear Market or Recession

Question: what is it like to live through a Bear Market or Recession?  How can you benefit from it? Response:  For many people, a “bear market” will have little if any impact upon their daily lives. I’ve lived through many, and quite frankly, was oblivious to most of them. Yes, things may slow down if there is a recession mixed in, and you know the definition: it’s a recession if your neighbor loses his job, it’s a depression if you lose yours. A market crash is a rare event, and may not be associated with a recession. Clue: the 1987 market crash and recovery. (it was over and done with in less than a week) So, recession and bear market are not empirically linked. Your question is how to benefit from a bear market, and how to benefit from a recession. Two different things. In a bear market, stock prices are trending downward, but in spurts. Then there are a lot of up days. Volatility is up. You can make money by active, intelligent trading. This is not for amateurs, however. You have to be a good player of the technicals, and have a gut sense of what’s happening. Remember that …

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25

Feb'17

Is a S-Corp the Best Choice for a Real Estate Company?

Question:  I have a real estate development company.  I was told to form a S-Corp. Is this right? Response: Who told you a S-Corp was better for anything? I would suggest exactly the opposite. You NEVER want to have real estate in ANY corporation. EVER. NEVER. PERIOD. A LLC gives you the option to select the method of taxation that is best for your particular situation. OK, so let’s say you decide that for some quirk of fate that S Corp taxation is better than any other method. You can elect to be taxed under S-Corp rules. LLC’s are typically taxed as partnerships if there is more than one owner, and a disregarded entity if only one owner. Many tax preparers and attorneys love S-Corps. They think that they can pull a fast one on the IRS. Let’s say the company earns net income of $ 150,000. If you are a sole proprietor (not incorporated), the entire amount is subject to self employment tax, as well as income tax. But what if you were a S-Corp, and you took a salary of $ 50,000. How would that be taxed? Only the salary would be subject to self employment tax. (the entire …

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27

Jan'17

Will a LLC Protect Me From Liability?

Here’s the long and the short of it: a LLC will protect you from some liabilities, but not all liabilities. Here is a non-lawyer’s  business person’s response ( always consult a lawyer for specifics.) If you are doing business as a LLC, you are still participating in the LLC and you are personally liable for any tort liability that you cause or are responsible for allowing to be caused. If I am to simplify this further, let’s just say that there is an “illusion” of protection, which may help you in limited circumstances. If you get into a battle, the attorney on the other side will sue your company, you, and your dog. Will they be able to pierce the LLC protection? It all depends, and it could be a function of how good your attorney is, the attitude of the judge on that particular day, and what the phase of the moon is. Do not, repeat, do not ever assume that an LLC will completely shield you from responsibility. We live in a litigious society. You have to protect yourself, and here are the best ways: Vet your customers. Don’t do business with jerks. Know your customers. Never, ever …

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26

Jan'17

What are the Psychological Implications of Starting a Business?

Question: I am working on a startup. I want to know how to be psychologically ready for the challenge. Response:  There are a variety of things that hit you: There’s a rush, excitement when you start out. Watch out, the bubble will burst, and you can’t predict when. Then there’s the overwhelming impact of the zillion things that have to be accomplished simultaneously now. Getting used to it is difficult for those who have been linear thinkers in a corporate environment. There’s the anxiety associated with every decision, the wait time, the gestation period from inception to survival, and finally, what comes next. There’s a strong chance that you may experience bipolar like euphoria and depression, sometimes almost simultaneously There’s the constant worry about cash flow, metrics, sales, cash flow, personnel, production, cash flow, marketing, cash flow There’s an exhaustion that sets in somewhere between 6 months and a year when you realize that you really are on a treadmill, and that you better run faster and better than all the other fools out there who are competing with you. Then there is the family. The spouse has been reading Inc Magazine and /or Entrepreneur, or has a friend who …

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26

Jan'17

What Company Should I Use to Form a LLC?

Question:  I see lots of companies offering to form a LLC or corporation on line. Which is best? Answer: So, we’ve decided we need a LLC, and we want to know who to have it done. My suggestion is that you stop and consider that you could do it all yourself, painlessly on the  Secretary of State website. That would be easy. Would it be best? Maybe not. There’s a lot more to a LLC than just getting a charter from the state. Most of the services you will see on line do little more than what you could do at the Sec of State website. Before you set up a legal entity, doesn’t it make sense to get some legal advice? Of course it does! LLC’s can be formed for many different purposes, and it if you don’t have the right legal paperwork such as an operating agreement, you could be wasting your time. Getting a charter from the state is the last step, not the first step in forming a LLC.  Even though you want to do it yourself, it makes a lot of sense to consult with a lawyer, and at least have them help you with …

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