Set up your partnership in six and a half (relatively) easy steps

Photo: Ambro

Twice in the last month or so, OAA has assisted Wisconsin partnership startups with what they need to do to form a limited liability corporation, or LLC. OAA is an LLC, which combines pass-through taxation (like a sole-proprietorship) with limited liability (like a corporation). We don’t provide tax or legal advice, but when a client asks, here's what I recommend: 

1.  GET AN ATTORNEY: Organize the LLC by creating an operating agreement with an attorney - this is essential so that you all have the same understanding from the beginning.  You never need a contract when things go well, but it's when they don't go so well, it keeps the playing field level and gives a "way" to dissolve, if needed. Saving hundreds by cutting corners on this step now can cost everything later.

2.  FILE LLC WITH DEPT. OF FINANCIAL INSTITUTIONS (DFI) & ELECT A REGISTERED AGENT: Most likely the attorney will do the initial creation of your LLC with the DFI.  But this is something you can do yourself.  If you know how the LLC needs to be organized, the attorney will determine this when creating the operating agreement, as a member-managed or manager-managed LLC, you can save attorney time by filing the LLC with the DFI yourselves.  It is a pretty straightforward online form.  The DFI charges $135 to create the company.  It's not a bad idea to have the attorney do the initial filing. However, he or she does NOT have to be your registered agent - for ongoing mail and correspondence.  When an attorney creates the LLC often they will name themselves as registered agent.  Be sure you are your own registered agent.  This way YOU will get the notices for your annual report and can file it or contract it out, as you wish.  DFI charges $25, at this time, for annual reports.  When you file with the DFI you will get "Articles of Incorporation.”

2B. FILE FOR SALES TAX NUMBER: This is the half-step. Skip it if you’re selling a service. If you’re selling goods rather than services, you will most likely need to file for a Sales Tax number with the State of Wisconsin because you will have to charge and then pay the sales tax on the product you sell direct to a customer. You won’t need to charge tax on items you sell to a wholesaler or retailer, but they’ll want your Sales Tax ID.

3.  SET UP A BANK ACCOUNT:  After you receive your Articles of Incorporation, use this information to obtain a bank account. Keep the income and expenses separate from your personal banking!!

4.  SET UP YOUR BOOKKEEPING/ACCOUNTING:  You will need to determine who will do your bookkeeping and select a CPA. If you want to do it "in house" I can help you set up the books, help you find a bookkeeper, or consult.  It's important to set this up correctly from the get-go to avoid future problems.  Employing someone? Anyone to whom you pay more than $599/year as a contract worker will get a 1099 from you at year end. Keep clear records and get a W-9 from anyone to whom you pay money before they get their first payment, if you can. 

5.  GET AN INSURANCE POLICY:  I have yet to meet a business or business owner that doesn’t need a BOP (Business Owners Policy - a general business liability insurance policy).  It’s a litigious world, we’re just doing business in it. 

6.  UNDERSTAND WHAT YOU DO WELL AND FIND THE RIGHT PERSON TO HELP WITH THE THINGS YOU DON'T.  In my experience with small business, owners have a "trade" a "skill" or an "idea" but that doesn't mean they are a good business owners and they get into trouble by not "knowing" they were supposed to do something.  Find people you trust, but don't give any one person all the keys to your business.  Checks and balances and frequent reporting are important. 



Outsource: You can't always roll up your sleeves to get a job done

Nearly half of all new businesses don't make it past year five, according to the U.S. Small Business Administration. That makes it crucial for all of us to get basic strategies right from the first day of our new business venture.
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There's little room for error. Even though economists tell us the recession is history, banks remain as stingy with business loans as ever.  So it's important that small-business owners recognize the pitfalls that await them and learn how to avoid them.

There are five common mistakes CNBC says stand out as potentially crippling problems for small businesses, but for my money, there's one that'll doom any business before year one closes, let alone the fifth anniversary:
 

Trying to Do It All
In a small business, everyone pitches in and does tasks that fall outside the lines of their job descriptions. But no matter how eager you and your employees are to do it all yourselves, know when you're in over your head.

Don't be afraid to outsource tasks that your team can't or shouldn't handle. That's, in one sentence, why I started OAA. You and your team are experts at your trade. You're not expected to be office administration pros. We are.  And we deliver.

We know the challenges of a small business because we are one. You're very experienced at your work and suddenly find yourself in a swamp of payroll, hiring, insurance, billing & collections, and marketing. We drain that swamp for you and you'll be able to focus on what got you to start your business: Your ability.

Using OAA and our resources lets you focus on your core business while delegating mundane time-eating processes. I hate to admit it, but our clients do view what we do as the mundane time-eating processes. But that's our knowledge base and you can tap into our capabilities for surprisingly little cost compared to the business you lose by trying to do the mundane and time-eating on your own. Even the largest, world-class corporations outsource to gain access to resources not available internally. It even allows them to wash their hands off functions that are difficult to manage and control. Bookkeeping for example. Payroll for example. Both of these can have tax consequences you don't want to bump into accidentally when draining the swamp yourself.