Protecting Your Business Structure As a Separate Entity

When an entrepreneur starts a new business, one of the first decisions he or she is confronted with is the choice of business structure. This decision can be ongoing. As your business grows and changes, you may struggle with what is the best business structure at each stage.

There are a wide variety of business entities to choose from and they vary from state to state. Which type of entity you choose will have a significant impact on your exposure to liability, your responsibilities as the business owner, and the taxes you and the business will be responsible for paying. Each type of structure has advantages and disadvantages, and should be chosen with care after consulting a business or legal professional.

Regardless of business structure, one of the most common mistakes business owners make is to believe that the entity they choose will provide unlimited legal protection. Yes, many of the business structures offer legal protection in the abstract, a sort of legal shield, so to speak. However, reality can be quite different. Your legal protection is dependent on whether you honor the structure. Simply filing the requisite documents establishing the business is insufficient to truly protect the business owner. The business owner also must operate the business as a distinct entity from him- or herself.

To start with, a basic rule of business ownership is the rule against the co-mingling of personal and business funds. It is vitally important for the business owner to keep his or her personal funds separate from the business accounts. This sounds so simple and, yet, many entrepreneurs co-mingle funds, rendering legal protection meaningless in the extreme. There is a legal doctrine called “piercing the corporate veil,” which allows a litigant to actually pierce the business structure of the entity being sued, and make a claim against the individual owner and his or her personal assets. This doctrine is only applied in the extreme, but it is an important doctrine to use as a litmus test when operating a business. One of the biggest factors a court will consider when deciding whether to “pierce the veil” is whether or not the business owner has co-mingled his or her personal and business funds. Rule of thumb: Keep them separate!

Another common mistake made by business owners is the failure to adhere to the legal formalities required of whatever type of business entity they chose. If you do not treat the business as a separate entity, then a court may not do so either. Alas, the protection you thought you had been entitled to may no longer exist! One of the easiest ways to treat the business as separate is to maintain great business records. If you are required to keep minutes or show proof of an annual meeting for your corporation, do so. If you are required to maintain proof of business expenses, make sure you have those documents and can find them (a good professional organizer can work wonders here!). In other words, create the paper trail required by law. That paper trail serves as strong evidence that the business is, indeed, a real business.

Choosing a business entity that offers valuable tax advantages and protection from personal liability is important. However, make sure you go beyond that and treat your business as the distinct entity it is in order to maintain the privilege of protection from liability that the law offers. As they say, it is better to be safe than sorry, or worse, personally liable.

Starting Your Design Business, Or Designers’ Stress-Free Start-Up

Want to know how to get your design business up and running? Here are 15 tips to get you started without stress.

1. How many of these statements can you answer yes to?

You know what your design business will look like in 20 years’ time and in 6 months’ time.
You understand how all aspects of a design business run, not just how the design work.
You know how to set pricing and why.
You understand the legal & protective aspects of working for yourself.
You’ve silenced that inner voice that says “You can’t”
You know what it’ll cost to set-up.
You know the difference between running a business & giving yourself a full-time job.
You have a few people who are ready to provide the support you want.
You already have all the skills and qualities needed to run a design business.
You know how to be a successful freelancer and still have a life.

If it’s less than 10, read on…

2. Your ideal business

Let’s harness your imagination here.

In 20 years’ time, what income do you have, after taxes, businesses expenses, etc?

What type of clients are you working with?

Where are you?

Are you still working, or is someone else managing things for you?

How many staff and/or freelancers do you have?

How about in 10 years’ time? And in one year’s time? What about in three months from today?

Get a pen and paper and note down your answers.

3. Protecting you and your business

You’ll need the right insurances for your business and you’ll need to protect your ideas, clarify things in advance with clients (maybe through the use of contracts), know which laws apply to you and your business, have the right legal business structure for you, and be regularly saving money to pay your taxes and other deductions.

See my article Protecting Your Design Business to learn about protecting you and your business.

4. How your thinking can help, or hamper, your success

Many design business owners and creative freelancers start-out:

thinking they don’t know enough;
concerned they’ll get caught-out by “real” business-people;
thinking they don’t have enough money/time/contacts to make a go of things;
feeling nervous about marketing/networking/being a salesperson;
thinking they’re too (insert a word of your choice here!) to succeed;
and many more!

If there’s a critical voice in your head, learn how to silence it with my Stop Criticising Yourself article.

5. Stand out from the designer crowd

Knowing what makes you tick design-wise & client-wise helps you stand-out and run a successful business that you enjoy.

List the types of design/creative jobs you enjoy doing
Now list the type of clients you want to work with (industry, type of person, whatever’s important to you).
List the problems you solve for clients.
List the things you do better than other creative freelancers or design companies.
Note down what sort of relationship you want with your clients.

Your answers show what’s different about your business, which is known as your Unique Selling Point. Being clear on who you are and what you do, who your ideal clients are and how you solve their problems, will put you streets ahead when it comes to marketing and charging.

6. What resources you need to get started

List the cost of what you’ll need. Here are some typical items:

equipment including computers,
phone & internet services,
supplies like toner or stationery,
any initial marketing needs including business cards or a website
insurances and other items from section 3
studio premises (including any taxes or government charges like rates).

If need be, look at creative ways to manage costs, for instance swapping skills or free-sourcing.

7. What you’ll need further down the road

How will your business needs change in say, six months’ time?

Some typical additional or changing costs include:

an accountant;
a virtual assistant;
studio premises;
joining a networking organisation;
professional organisation fees;
studio cleaner, IT support;
fees to other freelancers;
credit repayments.

If need be, look at creative ways to manage costs.

8. Your mind-shift from employee to entrepreneur

An entrepreneur is someone who has an idea for a business and tries it out, with actions in the real world. That’s it! You don’t have to have an MBA, or love spreadsheets, or be a suit.

Think of working for yourself as meaning something better than just replacing an employee-type job with a self-employed job (possibly one with longer hours and without perks like a regular salary, or socialising after work)!

Don’t fall into the trap of thinking that all you need to succeed in a design business is to be good at design. You will also need to get practised at core business skills, including thinking ahead in your business, marketing and sales, working-out how to increase profits without working ever-longer hours, and more.

Alternatively if you don’t like the sound of that you might want to find one or more people to work with, who can provide the skills and qualities you don’t want to use.

9. Your physical shift from employee to entrepreneur

Some people start the freelance process by doing their own clients’ work at the weekends/during evenings. Others reduce hours at their current job. Sometimes there’s financial support available from public bodies, grant-making charities, a partner, family members, etc. Would any of these work for you?

10. Best use of your time and skills

A successful freelancer might spend 30% of their working time finding clients, 20% on business development, tax paperwork, admin, Mac maintenance, etc, leaving just 50% for actually doing design work!

In terms of running a design business, list what you really enjoy doing, or think you will enjoy. Then, list what you’re best at. Next, list tasks you don’t enjoy, and those you don’t know about or don’t want to know about! Finally, list ways to get other people doing the things you don’t want to. As in section 7, be creative about ways round any potential lack of money.

11. Your fans and cheerleaders

Successful people have a support team around them, just think of those “I’d like to thank my…” speeches at the Oscars! You are talented, hard-working and determined, and of course you have what it takes to succeed on your own. But does it sound good to succeed faster, with more ease and with less stress? If so then create a network for yourself.

This can be informal (friends, family, etc) or more formal (a business network, business coach, business contacts, etc).

Think about what support you want, pick a good moment, and ask the relevant person.

12. Get some R’n'R

Successful people take time-off for activities they enjoy and that keep them healthy. Put 10 time slots in your diary right now, when you’re going to have fun and re-charge. And remember, some of your best business/design ideas will come while you’re doing something else.

13. The No.1 charging mistake

Many people’s first instinct is to find out what other designers in their location charge, and charge the same, or under-cut the prices. This may not be the best way, because you have no information on:

whether they’re making any money;
if they’re doing the same quality of work that you do;
whether they know what to charge;
what their costs are;
whether their clients are happy with their work or their charges.

Your pricing should reflect the difference you can make to clients, the quality of service you offer, the amount of net income needed for your lifestyle, and so on.

14. Increasing your income over time while still having a life

Yes, you could work longer hours, but you could also increase your prices, switch to higher-paying sectors, spend less time on each job or sub-contract to other designers. Brain-storm with some fellow designers & see what you all come up.

15. One last tip to increase your design business success

Do you know the phrase “Ink it, don’t think it”? It’s backed-up by research, which found that goals written down and shared with others are much more likely to happen. Writing down the goals for your business is also known as a business plan!

Reasons To Stop Using Free Email Services For Your Business

You are at a trade show or networking event, you meet a prospective client. They are very impressed with your product and service offering and ask to get your business card. You are happy to oblige and excited for the opportunity. Unfortunately, you lose credibility when your prospect sees your email address is a free one provided by the likes of Yahoo and Gmail or an Internet service provider such as Comcast or AOL.

How can a potential customer or prospect really take you serious when your email account does not really reflect your real company?

An email address of yourcompany @ gmail or yourcompany @ comcast looks unprofessional and prospects will perceive your products and service as second-rate.

Any business organization that relies on free email services for business correspondence will find it difficult to convince its target market that its products and services are not inferior. Perception is crucial in the business world and remains one of the key elements that influence a person’s decision to do business with you, or not.

Using free email services may be a major deterrent to potential clients. You do not want to lose a big business deal because of the wrong perception clients have of you. You can overcome this hurdle by simply getting your domain name registered so that you can use business emails for your correspondence and open your company to significant business opportunities.

Not making the small investment in registering a company domain gives the appearance that you are cheap and not a serious business organization.

Since registering a domain name comes at a minimal cost, it is expected that a financially stable organization would be able to secure its own identity. Your lack of effort and small investment in acquiring a domain name leaves your prospects with the impression you are not a viable company and perhaps, weak financially.

When you are perceived cheap, your products and services will be labeled mediocre in the minds of your existing and prospective customers. This could negatively affect your sales, hamper the growth of your organization, and threaten your survival in the market space in the midst of your competition.

Using a free email service for business implies lack of credibility and prospects may wonder if your company is stable and you are here to stay.

Credibility is a major component in achieving business success and this cannot be over-emphasized. Your clients need to know they can trust you with their money and information before they will do business with you. Small businesses need to prove to their prospective clients that they are trust-worthy and able to handle big projects and keep their personal information safe.

Potential clients need to be absolutely sure that you are here to stay. A stable business relationship is required of all prospective clients. Your clients need to be assured that you will stand the test of time. Having your own business email sends the signal that you are stable, dependable, and here for the long run.

Your company may be subjected to hijacking and leave your customers vulnerable to fraud.

With the abundance of information now being communicated through email, the security level of your electronic communications must be sufficient enough to handle the delicate nature of business correspondence. Strict regulations require a high level of privacy and security with regard to the exchange of information, which cannot be guaranteed by free email services.

Not only do free email services tend to come with lots of adverts and linked to spam mails, these types are subject to hijacking by fraudsters to defraud your clients. Several cases have been reported where unsuspecting businesses have had their professional bank accounts compromised by scammers who specialize in intercepting the emails of companies that use free email services. Trying to save a few bucks by using a free email service is not worth the agony the financial loss will cause to both you and your clients.

A business email coming from yourcompany @ yahoo or yourcompany @ aol will be presumed unsafe or spam.

Along with the many security issues that come with a free email service is the fact that many emails from free providers are flagged as SPAM or Junk, just by the email domain itself. Your correspondence will likely become stuck in spam filters or assumed as unsafe or junk and will likely be rejected, not delivered, or immediately deleted and never opened.

You get what you pay for.

While the option to send online messages at no cost may seem alluring to a small business owner with a small budget, the drawbacks are not so visible on the surface. You are left with many limitations when using a free service such as Gmail. Trying to get support and help through a free email provider is almost impossible. Because the service is free, these companies have very limited support resources for its users.

If you are using an email account provided by your Internet services provider, what happens should you need to switch providers? What if the provider becomes acquired and you are forced to change your email address? Suddenly, your current and prospective clients are unable to reach you. In addition, you have the high cost of reprinting business cards, letterhead, and other literature. Then there is the daunting task of changing your information anywhere your company appears online such as directories and social media sites — and don’t forget all those user accounts you’ll need to update so you don’t miss a crucial notification.