Tax Considerations
The structure chooses for his or her business has a significant effect on taxes. For example, those who set themselves up in sole proprietorships or partnerships avoid all corporate taxes. If you need or want to have a corporation, forming a Sub Chapter S corporation will save you some of the tax that regular corporations are subject to. The essential difference here is that regular corporations are taxed at both the corporate and the personal level, while Sub Chapter S corporations are legally exempt from federal corporate tax and oftentimes state tax as well.
While you should rely on your accountant and lawyer for tax advice, here are a few general illustrations of the impact of taxation on the cost of doing business. Every business carries a tax cost that is usually over 50 percent of net revenues when you add up the costs of federal, state, local, income, sales, and property taxes. Consider, however, that while 50 percent of every profit dollar is paid out in taxes, every expenditure reduces those taxes by 50 percent. Therefore, you must be careful not to rationalize expenditures because of that 50 percent tax benefit, since it does not make sense to orient one's business deals solely to save taxes. Should always accept the best business deal available and worry about the taxes afterward, since you keep fifty cents for every dollar generated in revenue.
Because tax laws are not necessarily based on economic logic but rather on social policy and the need to raise revenues, you should always keep in mind that the form of a transaction, rather than the substance, can determine the tax effect. Time spent on tax planning can therefore be very valuable. For example, you should never lease employees in the state of Connecticut, because you end up paying a 6 percent "sales tax" on the total payroll. If you use a payroll processing service instead, there is no tax.
Setting up an Office
As the opening day of your business draws near, the question of where to set up your office must be addressed. Some portable executives like Anne Hyde find that they can comfortably operate out of home based offices. Hyde's trick, though, is to stay in her home office all day. Once there, says Hyde, "I'm in there and I never feel tempted to go downstairs-no matter what.
Hyde, who is an early riser, starts her day by going out for breakfast and then heading back to her home office. Other portable executives feel more comfortable working away from their homes, and so they rent outside office space. It is relatively easy today to find inexpensive office space for your business that includes basic secretarial services and the shared use of fax and copying machines.
Aside from the psychological factors involved in deciding whether to work from home or outside of it, working from a home based office offers the obvious advantage of keeping overhead expenses low. But knowing what equipment to buy and how to go about setting up an office can take time.
Technology has brought whole worlds of knowledge to our fingertips, and the central fixture in any portable executive's office is a personal computer. The majority of executives interviewed for this book have either taught themselves how to operate computers or have enrolled in classes to learn the basics of using word processing packages, spreadsheet software, and databases. Many portable executives also add a modem; enabling them to literally send work back and forth to clients they may never have met. Modems also allow an individual to tap into computer user networks, small business forums, and bulletin boards, where you can talk to experts in any number of areas anywhere in the world. It's also important to join a computer network, which allows you to be contacted via E mail (electronic mail) on your personal computer.
In addition to a personal computer (with basic word processing, spreadsheet, accounting, and database software, and perhaps a modem), you will probably find a fax machine and a small copier helpful. Portable executive Bud Titsworth is able to share use of a copier and a fax machine with other tenants in his current office space, but if he couldn't, he says, "I'd go out and buy a fax in a minute. You can't do business today without one." The cellular phone is also fast becoming indispensable for portable executives. It represents a tremendous tool to maximize what would normally be dead time while commuting or traveling. Newer cellular phones allow the executive to send faxes and modem transmissions as well, boosting productivity even more.
Even if you're capable of handling your own correspondence, basic accounting, and other administrative tasks, it is, as we mentioned before, far more cost effective to buy administrative ser vices from others, thus freeing you to spend the majority of your productive time applying your core skills. It is possible to hire administrative help as needed-to send a major marketing mailing for example. Understanding how to use administrative services is important. The time will inevitably come when you have to move rapidly to service a client, so knowing how to recruit help quickly and where to find it at a moment's notice is essential.
Other items you will want to consider in setting up your business include the installation of sufficient phone lines and the availability of basic overnight and courier services such as Federal Express, Airborne Express, DHL, and UPS. Setting up business accounts with those that are appropriate and establishing relationships with vendors for office supplies, stationery, and printing needs, as well as anything else your business will require on a regular basis, is also wise. However, you should pay particular attention to setting up favorable terms with your vendors and suppliers, as will be discussed in the next chapter, "Pricing and Cost Control."
Though setting up a business requires hard work and careful planning, few portable executives would give up the freedom and control they gain in deciding how best to employ their core skills and which clients they choose to service. While there are a multitude of decisions to make at the outset-and adjustments to be made as time and circumstances change the needs of your business-becoming a personal service business entity allows you to become far better able to respond to the ever changing needs of our global, technologically driven business community.
