“I like it when a flower or a little tuft of grass grows through a crack in the concrete. It's so fuckin' heroic.”
George Carlin
Welcome to The Golden Sense! Business makes the world go round. Business owners are the real heroes of society because they have taken personal risk, created jobs and sold products that advanced society and made themselves and others around them wealthy. Think about it, entrepreneurs are the reason you are sitting in that comfy chair right now.
Everyday businesses are started while some are shut down. It is tough running a business because there are so many variables to deal with along with competition coming from all directions. For example, it is especially difficult to do business here in my home state of California. This state has high real estate prices, expensive rent, burdensome taxes, heavy regulation, and high employments costs. All these aspects make running a business much more challenging. Despite these headwinds entrepreneurs still take the risk to make their dream come true.
Building a business is one thing, building a successful business is a much more difficult task. In order for a business to survive and thrive in a difficult environment the owner has to streamline the way his or her business operates. Success not only depends upon the product or service you provide but on how the business is organized.
It is said that to start a business all you need to do is "dream up a need and fill it". To fill that need it often helps to have three types of characters. Richard Russell of Dow Theory Letters says "you need (1) a dreamer, (2) a businessman, and (3) a S.O.B." With these in place it comes down to the actual formation of the business. The structure of the business is critically important because it provides the framework for incentive.
"The problem with many traditional business structures is that it leads to restrictions, bad feelings, and conflict of interest between employers, employees, and partners" (Brown). Every individual within the business has their own motives, qualities, talents, ideas and attitudes about how to do things. This naturally leads to conflict amongst the owners and amongst the managers of a business.
It is important to structure the relationships within the business so that each person has his own area of responsibility in which he has complete control. This means the ideal business should have no employees and no partners with unspecified obligations within the business. Each individual should be paid for the service they provide.
Try hard to avoid paying salaries and hourly wages. Everybody conducts work at their own pace. You do not want to pay for someone to drink coffee, surf the Internet, or flirt with the secretary. Every part of the business should be independently contracted based on the service they provide. This is the most effective way to get what you want and avoid conflict. Plus if you don't like the service they provide then you can check the market place and see if you can contract with another person who will provide a higher quality service.
The idea behind setting up your business structure in this manner is that you are paying only for results. "You get three important benefits: (1) You have an accurate understanding of what each thing costs you (and you can compare with alternatives); (2) you no longer have to supervise the individuals time- all you have to do is check their results; (3) each supplier has the same incentive you do with regard to his service- he'll profit most by doing what is most valuable to you" (Brown).
The business should try to avoid any situation in which it obligates you or anyone else to perform services in which it is not in yours or his self interest.
By having a business in which all aspects are independently contracted you become cost effective and much more profitable.
There are many types of business structures you can form. Run the above business strategy under the business entity of an S corporation. S corporations are merely corporations that elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes. The S corporation will also shield the shareholders from personal liability. It is very important to structure your business so that it minimizes your tax burden and personal exposure. S corporations may take a little money to form and some yearly maintenance but they are one of the better options for small business owners.
Use the S corporation as your overall entity and contract for services within that structure. By doing this your business will be leaner, more profitable, and it will incentive all involved.
As with many things in life and definitely in business:
"The first step is hardest" - Marie De Vichy-Chamrond
It's time to get started.
Sincerely,
T. Norman
References:
Brown (1974) How I found freedom in an unfree world. Avon Books. New York, New York.
www.dowtheoryletters.com
