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MYOB: Starting a Small Business

This post is a part of our weekly series of articles and interviews focusing on current issues in today's design industry. Be sure to check back often so you can read the latest from our chapter.

Today, we continue the discussion begun during August's Mind Your Own Business: Starting a Studio event. Shawn Polowniak, event panelist and Brand Director/Partner at Blacktop Creative, speaks more in depth about some of the business and tax aspects surrounding the process to starting your own small business.

 

Shawn's career has taken him from sales to account services to management. Along the way, he's become adept at identifying innovative, yet on-strategy marketing plans for all types of clients. Shawn leads Blacktop's brand navigator team and provides guidance and input on strategy, tactics, creative direction, budgets and timelines. Prior to founding Blacktop Creative with his partners Mike Miller and Dave Swearingen, Shawn worked in sales, account management and new business development for Hormel, Muller + Company and C3.

Shawn, thank you for sharing your knowledge with our readers today.

I want to qualify my answers with the statement that these are my opinions based on my experiences. I can reference resources and my interpretations, but in the end, the best advise is to consult with specialists regarding areas of specific discipline (accounting, legal, banking, insurance and benefits planning).

At what point should an individual transitioning into starting their own studio establish themselves officially as a small business?

The only government stipulation regarding establishing yourself as a small business is around hiring employees. Most of the benefits of establishing yourself as a small business are realized in things like risk (liability), taxes and credibility.

 

Risk - there are several ways to form a small business each has a different risk associated with it. A good accountant can give council on the best option for each respective business. In the end, they range from quite simple to implement to very complex and tend to parallel the size and structure of the company. Most new businesses begin as either a Sole Proprietorship or an LLC.

 

Taxes - establishing yourself as a small business can provide you with several additional deductions that are not available to you as an independent.

 

Credibility - some would argue that they personally have gained significant credibility as an independent. As a general rule, this is not the case. As clients evaluate whom they will hire for their work, a company is usually considered less of a risk than an independent freelancer.  

Why did Blacktop Creative ultimately decide to form as an LLC? What were the other options?

There are 4 primary options. These are not the only options, just the most common:

• Sole Proprietorship
• LLC
• S Corp
• C Corp

 

Each option has benefits unique to its form. While I am not intimately familiar with each option, the primary differences are based on personal liability and tax structure. Go to irs.gov and you can find descriptions of each business type.

 

Blacktop Creative chose to organize as an LLC for several reasons:

1. Risk - in starting a small business, one of the first questions you need to ask is one of risk. How much personal risk are you willing to assume? While this appears to be a negative position, it is not. Risk can realize itself in many ways. It can range from a lawsuit to a bad printing job, from a disgruntled employee to a bank loan. There are many forms that risk can take when owning a small business. An LLC provides personal risk protection. This is especially important if you live in Missouri. Missouri is an " at fault" state. This basically means that as a small business owner you are personally liable for the actions of your business. An LLC provides insulation between you as an individual and your company. Kansas is a "no fault" state. This status is designated to provide diminished risk.
2. Simple to organize - An LLC is one of the easiest ways to organize your business. This is important in the beginning when hiring accounts and attorneys to facilitate your company organization is an expensive proposition.
3. An LLC can grow with your company - Blacktop Creative currently has 20 associates and for our organization, an LLC is still the most beneficial way for us to organize. In the end, consulting with your accountant is the best way to determine this as your company grows.
4. Tax benefits - While it is best to leave this commentary to the professionals, there have been many tax benefits to an LLC that we have been able to realize over the years.

Again, each form of organizational structure has its own unique benefits and I highly recommend consulting with your accountant on which is the best for your specific company.
 

What resources does the Small Business Association provide? Are there any other government agencies or area resources that designers should be aware of?

I cannot say enough good things about the SBA. The SBA exists specifically to assist in the establishment of small businesses. It is a fantastic resource. A brief list of the information you can find on sba.gov includes:

• Loan programs
• Grants
• Business plan outlines
• How to - marketing materials
• Free online training
• Business license applications
• How to get an EIN (tax identification number)
• Establishing yourself as a woman- or minority-owned business

 

Other sources: irs.gov, business.gov, The Kauffman Foundation, and Bloch School of Business. There are many more, but these are some of the top.
 

You recommended hiring someone to do your books for you. If that isn't an option, what resources are out there for designers who need to learn the accounting aspects to owning their own business?

Daily accounting can easily be handled by a good business manager. It does require a lot of detail and organization. Quickbooks can be purchased at any office supply store and the software is relatively intuitive. In the end, I would highly recommend that an accountant review all bookkeeping on a quarterly basis. End of the year reporting should be handled by an accountant. In the end, the costs associated with doing it incorrectly far outweigh the cost of having a professional review your work.

 

Any other helpful pieces of advice that you wish you had known when starting out yourself?

1. As I said during the panel, it is essential to start a business with great partnerships. Among them are a great accountant, banker and attorney.
2. Take the time to draft a business plan. It might not be a fun exercise, but you gain incredible insight into potential challenges as well as opportunities.
3. Stand for something. There are many choices. Why would a client want to work with you?
4. Unless pure survival is your primary motivation, do not lower your prices. A client will never value you more than you value yourself and once you set a standard they will never see you differently.

>Lorraine Reinsch, Social Networking Chair

Posted by Kansas in Event Recap, Interview Series, Local Talent  |  September 11, 2009