Saturday, October 26, 2013

SOPs - Four Volume Book Set - Indiegogo Campaign

Please Support My Indiegogo Campaign . . .
And Receive a 4-volume Set of Books on Standard Operating Procedures for I.T. Consultants!


Who needs Standard Operating Procedures (SOPs)? Everyone!

My Indiegogo campaign is here: http://www.indiegogo.com/projects/sops-for-the-successful-consultant.

Every computer consultant, every managed service provider, every technical consulting company - every successful business - needs SOPs! One of the greatest books an entrepreneur can read is The Emyth Revisited by Michael Gerber. The conclusion of that book is very powerful: Document your processes.

When you document your processes and procedures, you design a way for your company to have repeatable success. And as you fine-tune those processes and procedures, you become more successful, more efficient, and more profitable.

Please support my project to write a four-volume set of books on Standard Operating Procedures for Technology Consultants. Topics in the 4-book set include:


  • Getting Started
  • Finances
  • Sales
  • Marketing
  • Client Management
  • Employees and H.R.
  • Company-wide Policies
  • Technical Support Policies and Procedures
  • Practical Examples
    (Monthly Maintenance, Backup and Disaster Recovery, and more)

Almost every consultant I talk to or coach has the same issues: They need better procedures. They need better processes. They are too busy to create this stuff from scratch. Key pieces of knowledge are in one person's head (often the owner). That ties the owner to the company and limits growth. It also makes the owner the choke-point for everything in the organization.

This four-book set will be over 600 pages and cover everything you need to set up, run, and fine-tune a great consulting business. 

Don't Start From Scratch! You may not implement everything exactly as I lay it out, but I discuss the issues and why you might create one policy or another. Then I propose some policies you can take and mold to fit your company.

Can you do all this yourself? Absolutely!

How's that working so far? 

These books will save you hundreds - and more likely thousands - of dollars in just a few weeks. Time and time again I've helped businesses create small changes that resulted in huge instant increases in profit.

At full price this set will sell for $99.95. But you don't have to pay that. Contribute now to this campaign and you'll receive a full set of books for any donation of $60 or more.

If fully funded, I expect to publish this set by the end of Summer 2014. Maybe much sooner if we raise more money.

Get these books out of my head and into your hands as quickly as possible!


Not Completely a "Donation"

If you just want to donate money, I would be very grateful for that. But this campaign is designed to give you something for your money. These books will sell for $29.95 each or $99.95 for the complete set. That's a good deal. But you get an even better deal if you contribute to the creation of the book!

In addition to books, I have lots of other services and goodies we offer. So I've put together some offerings that include all kinds of options. If you think of something obvious that I missed, please let me know!

My other services include:
Everyone who contributes will be acknowledged in the books. (If you do not want to be listed in the book, please let us know.)


Please Read the Details on This Campaign 

Thank You for your support.

Please check out my Indiegogo Campaign for SOPs.

:-)

Friday, October 25, 2013

SOP Friday: Financial Goals - The Basics

Finances are fundamental to running a successful business. No matter whether you love finances or hate them, you have to take care of them. Not taking care of your finances can only result in one outcome: Losing money!

When most people think of financial goals they think of revenue projections. I made $335,000 this year and plan to make $400,000 next year. But there are lots of other "basic" finances you need to set goals for. Here are a few thoughts.


Revenue

Okay. You need to have revenue projections. They need to be realistic. And you need to look at them often enough to KNOW them so you can reach them. After all, if you don't your goal for the month or the year, how could you possibly reach it except by accident?


Profit

Now we're talking money! Revenue is good, but profit is better. If you make $500,000 in revenue and only $100,000 in profit, that's worse that earning $350,000 and making $100,000 profit. The reason is simple: It takes a lot more work to earn that $500,000.

You should have profit goals for each month and for the year.


Profit Margin

Your profit margin is literally the connection between Revenue and Profit. You should have specific goals for each broad category of what you sell: Products, labor, services, etc.

Everyone has different recommendations for these goals. You need to set these goals yourself, but consider the following as a starting point. In my opinion, hardware and software should have a profit margin of 20%. Labor should be more like 40%. With managed services, you might push labor to 50%.

Services can be all over the map. For cloud services, we start with a 100% markup, which gives us a minimum of 50% profit margin. If you are providing a backup service, you can combine the service with your labor and maintenance for one price. If you do that, be sure to track the cost of service and related labor under "cost of goods sold" so that you calculate the profit margin.


EBITDA and EBITDA Percentage


EBITDA is "Earnings before interest, taxes, dividends, and amortization." For most small businesses, this is almost identical to net operating profit. Work with your accountant to verify the items you need to back out of your calculations (such as tax payments made) to calculate EBITDA from profit.

But here's the bottom line, so to speak. Your EBITDA Percentage should be a minimum of 8-10%. That is absolute minimum. It could easily get to 15% or even 20% or more. If you can't sustain eight percent, take your money out of your business and put it into the stock market. That will give you an average return around 8%.


Monthly and Annually


All of those numbers should be tracked monthly, in your PSA, QuickBooks, or both. I like to put all of that into a single Excel workbook so that I can track the "Year to Date" information. Sometimes you'll invoice a client in one month and then end up ordering the equipment (incurring the expense) in the next month. As a result, the first month will look more profitable than it should and the next month will look less profitable than it should. But the year to date stats will be correct after the 2nd month.

Anyway, you should have monthly targets for revenue and profit, primarily. Everything else flows from that. I recommend looking at your finance AT LEAST once a month. Ideally, you should do it every week on the same day. That gives you a good sense of how money flows in and out of your company.

As the year moves along, you should have two sets of numbers: The real numbers for months past and the projected numbers for the months ahead. And of course you'll have a final tally for the end of the year. As the year progresses, each month will move from "projected" to "actual" and your projection for the whole year will become clearer and clearer.

I know this sounds like a lot for the basics, but once you begin looking at these numbers all the time, it will be very easy to understand at a glance and won't take more time.

One of my favorite maxims of success is that you get better at whatever you put your attention on. If you put your attention on your finances, you will make more money. It just is true. And once you have goals for each month and the year as a whole, you can reach them as well.

In a couple of weeks we'll talk about realistic revenue projections. For now, work on making sure you have a grasp of the basics.


Comments welcome.

- - - - -



About this Series

SOP Friday - or Standard Operating System Friday - is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.

Find out more about the series, and view the complete "table of contents" for SOP Friday at SmallBizThoughts.com.

- - - - -

Next week's topic: Signing Service Agreements

:-)

Check Out the #1 ranked Managed Services book on Amazon:

Managed Services in A Month
by Karl W. Palachuk

2nd Edition - Newly Revised and Updated with NINE new chapters


Only $24.95. The best deal in managed services today!

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Friday, October 18, 2013

SOP Friday: Rules for Working at Home

There are two primary times when an MSP will work from home. The first is when you have no other office. This might be because you're just starting out, you have no employees, or your employees/contractors also work at home. The second is when you get larger and choose to work at home in order to increase productivity or work on special projects. Or you might be an employee working from home for the same reasons.

In either case, here are some tips for working at home in order to be as productive as possible.


Have a Good Home Work Environment


The first thing you need to do if you're working at home is to set up an actual office - a place to work. When I first started my business, I was worried about taking the home office deduction. My accountant looked at my office and said I had nothing to worry about. The reason was simple: That room was filled with work things - a long table for building PCs, a desk, shelves full of computer books, and a file cabinet.

It was obviously an office and not a bedroom.

(Side note: Talk to your tax adviser. I am not one. But I believe you cannot take a home office deduction if you have someplace else to work, such as an office space.)


Tax considerations aside, your home office should be designed and organized to be as productive as possible. That means you need a good desk, a good chair, a good PC, a good phone, etc. You need all the office basics so that you don't spend your home office time running to Staples or Kinkos. Good furniture will also allow you to be comfortable, which will improve productivity.

Your home office should also have clear boundaries. Even if you have to set up shop in the family room or kitchen (not recommended), you need to have a place that is "yours" and off limits to the rest of the family. this also helps you set the interruption boundaries discussed below.

Even if you're the "messy desk" type, your home office desk should have a nice clear area to get work done. Again, the goal is to create a productive environment.


Have Good Home Work Habits


There are two sets of work habits related to working at home successfully. The first has to do with the "home" part of the equation. The second are rules you should follow at the office and keep following when you work from home.

Perhaps the most important habit for working at home is to pretend you're at the office. That means you dress for work. Even though we joke about working in your pajamas, don't do it. Put on your uniform - a nice pair of pants and a business casual shirt.

Dressing for work puts you in the right mind set. That's huge for developing the self discipline you need to work from home.

It is also important to set work hours and take them seriously. The flexibility of working from home means that you might start a little later or earlier than normal. But whatever hours you set, stick to them! Pretend you are clocking in and clocking out. In between is work.

When you work, work. No visits to the kitchen. No TV. No chores. No "home" paperwork. These can be big temptations, especially if that desk is the same place you work on home finances.

You need your family to support your home work limits. That means they can't interrupt you at your home office any more than they interrupt you at your other office. You might accomplish this by closing the door, setting out orange cones, or putting up a sign. Whatever works for you is fine.

This can be very difficult, but you need to be diligent enforcing this. It will take time for the family to get used to this, but they will.

Then there are rules you should follow at any office, so don't lose these good habits just because you're working at home:

- No interruptions during working hours! Do not be interrupt-driven. Focus on what you're doing. Do it well, then move to the next task.

- Take breaks. You simply cannot work eight hours straight without a break. If you do, you will find that you are less productive. Take a break or two in the morning and at least two in the afternoon. And of course you should stop for lunch. This is the only time you can violate the "no kitchen" rule.

Be sure to keep the breaks to 5-10 minutes and lunch to an hour. Don't get side tracked with a television show, video game, etc. For my breaks, I stand up and listen to one or two songs on the stereo. That's at least five minutes. It gets my circulation going, and then I return to work refreshed.

- Check out at 5PM and stop working!

- Track your time completely and accurately. That means you need to track what you're doing from 8AM to 5PM (or whatever your hours are). If you have a PSA, use it from home. There's no excuse to stop using your PSA to enter time just because you are at home.


Effectively Working with Employees or Contractors from Home


One final note. If you do have employees or contractors you need to work with, you need to make time to actually meet with them. Totally virtual businesses are hard to maintain. Some human contact is needed.

When I started having employees, I had them come to my house. But that quickly became inconvenient for everyone. So I scheduled meetings at local coffee shops or restaurants. That worked much better. And, of course, when that didn't work anymore it was because we really did need to get an office.


When employees work from home they need to understand that this is a privilege that is granted with the understanding that they will be as productive at home as they are at work. Having a PSA makes this much easier to manage. But no matter how your company is organized, home workers need to produce the same results as they would in the office.

For many companies, allowing employees to work from home builds a stronger team. It shows you trust them, it reduced their commute, and it shows that the company is flexible. It also allows employees to take care of sick kids or other family matters while still getting their work done. That kind work/life balance is good for everyone.

I cannot explain why Yahoo stopped letting employees work from home. Done right it is one of the best things you can do for your company.


Comments welcome.

- - - - -



About this Series

SOP Friday - or Standard Operating System Friday - is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.

Find out more about the series, and view the complete "table of contents" for SOP Friday at SmallBizThoughts.com.

- - - - -

Next week's topic: Financial Goals - The Basics

:-)

Now Available: 

Five Killer White Papers - One Great Price
Manuel Palachuk's MSP Success Bundle


Manuel Palachuk is the co-author of The Network Migration Workbook - now in its Second Edition. After leaving us he went off to run another successful MSP business. Now he is a full-time coach. You can visit his web site at http://www.manuelpalachuk.com/.


Five White Papers

Now Manuel has released a series of white papers that you can get separately or as a bundle.

Three of the white papers address core elements of building a successful I.T. consulting business. The fourth covers a common task (email cleanup). In addition to providing great advice, the email cleanup white paper serves as a great of example of how to create an excellent process.

The newest paper is How to Document Any Process.

The white papers are:

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- The Core Competency Matrix - $29.95
- Cleaning Up Your Email - $9.95
- How to Document any Process - $29.95

Special Bundle: All four white papers for only $69.95

(Note: The Price goes up November 1st)

Thursday, October 17, 2013

How to Document Any Process - Now Included in The White Paper Bundle

My brother and co-conspirator in creating an amazing and award-winning managed service business has written another white paper:

How To Document any Process - only $29.95


If there's one thing Manuel does well, it's process improvement. The first thing you need to do with any process improvement is to document where you are. Then you can document the process you want to create.

Sometimes the hardest thing to accomplish is the documentation for the thing you’re building. From a light bulb to an electron microscope, knowing how to build one of these can change a nation overnight. But who has time for that?

Imagine if you had the most commonly performed processes, no matter how simple, documented in one place. Like the onsite service call process or maybe the new user onboarding checklist and how to use it. Let’s say we store these in a Standards and Procedures guide or Standard Operating Procedure manual.

In this white paper, you’ll learn how to document any process step by step, and you will learn to master the critical elements that make up a complete process document. Along the way, you will pick up some of the best tricks to collaborating online. With your team focusing on continuous incremental improvement through collaboration, you can build and document the most important processes without having to spend a lot of time in meetings.

Properly Documented Process Components Covered In This White Paper:
• Complete Flow Chart
• Quality Narrative for each cell of the Flow Chart
• Forms for Input
• Reports for Output
• Email Templates for Communications
• Checklists for Progress Measurement

This product is delivered electronically as a pdf.

Find out more. Or just order now.

- - - - -

This white paper is now included in the big bundle of Manuel's white papers:


Now Five Great White Papers by Manuel Palachuk - only $69.95 !

(Note: The price of this bundle will go up November 1st)

To be successful you must have good people and good processes. This bundle of five white papers provides some great "Best Practices" to organize and run you MSP business successfully. Written by a proven successful consultant and coach with more than twenty years of experience designing and implementing process improvements in dozens of businesses.

Includes the following white papers:


Separately, these papers cost $129.75. In the bundle you get all four for only $69.95!

Find out more about the bundle. Or just order the bundle now.

Saturday, October 12, 2013

Online Seminar: Core Standard Operating Procedures for Small IT Providers - Register Now

Core Standard Operating Procedures for Small IT Providers

A New Course from Small Biz Thoughts

Five Mondays - Nov. 18 - Dec. 16, 2013 

Register Now

Seminar Series Kick-Off Price only $149



I am proud to announce a new year-long program for Managed Service Providers who want concrete, realistic action steps to take their business to the next level. Each Great Little Seminar is a focused class that last five weeks.

That timing allows you to absorb the material, design an action plan, begin implementing changes to your business, and get feedback from the Instructor during the whole process.

These are practical courses. If you apply what you learn, you save or make the price of the class before the five weeks are up. And after that, your business will make - and save - a lot more money going forward. As always, your satisfaction is guaranteed.

The Great Little Seminars web site is www.greatlittleseminar.com. (Clever, eh?)



The first course is Core Standard Operating Procedures for Small IT Providers.

Is starts November 18th.

This course will cover the most important procedures you need to have in place to run an efficient and highly profitable Managed Services Business.

Whether you're a new "Computer Consultant" or an experienced Managed Service Provider, you need to create successful processes that will propel your company forward. Nothing is more critical to making profit than having the right processes and procedures in place!

When I take on new coaching clients, they have many of the same issues over and over again. And almost all of them boil down to SOPs - Standard Operating Procedures. Or the lack thereof.

Everyone knows you need SOPs. In fact you probably who which ones you need. But where do you start?
Checklist
You will learn
  • A practical introduction to SOPs
  • The relationship matrix of SOPs
    • Clients
    • Employees
    • Vendors
    • Internal Organization
  • The Ten Most Important SOPs for your IT Consulting Business
  • SOPs management, organization, and updates
  • Implementation strategies internally
  • Implementation strategies for clients
  • Service Department SOPs
    • Building
    • Training
    • Deployment
    • Upkeep
  • Avoiding the biggest pitfalls with SOP development and deployment
  • Building an Action Plan that works

Delivered by Karl W. Palachuk, blogger and author of the very popular "SOP Friday" posts at http://blog.smallbizthoughts.com.

Includes five weeks of teleclasses with related handouts, assignments, and "office hours" with the instructor.
This course is intended for business owners and managers. It is particularly useful for the Service Manager or Operations Manager.

Register Now

Friday, October 11, 2013

SOP Friday: Getting Started - The Form of Your Business

When you start out, you need to decide on the form of your business. That means, what will your business be legally and for tax purposes?

The first step in defining your relationship with your client is to define who you are. Are you a sole proprietor? Are you a corporation? An LLC? Something else?

There are really only a few ways to define yourself. And, really, the two default methods are sole proprietor and S-Corp. We’ll discuss why below. Pretty much everyone starts out as a sole proprietor. Once you get to a certain size, or a certain salary, then S-Corp makes sense.

Image courtesy of cooldesign / FreeDigitalPhotos.net
To your clients, only two things matter:

™ “To whom do I make the check?”

and

™ “Do I need to send 1099s at the end of the year?”

Other than that, the only time you really need to pay attention to how your business is legally defined is in your service agreements. Of particular importance is the question of getting out of the way of Uncle Sam.


Forming Your Consultancy

I’m sure you’re a very nice person. But if I were to engage in business with you, I’d want to make sure that your personal “stuff ” doesn't get all mixed up with my personal “stuff.” If you've ever been a landlord, you know what I mean. In business, we need to separate our personal financial life from our professional financial life.

In general, I think that sole proprietors should re-address the question of incorporation every few years. In particular, if you are successful, then revisiting the benefits is in order.

Another area affected by your business form is your status as an employer. When you hire people, then you have a whole new world of taxes and forms and filings. And now you have your personal stuff exposed to your employees’ personal stuff.


Important Safety Tip: Don’t Mess With the IRS

People go bankrupt when they ignore the IRS’s instructions. This is not for you.

You need to be very careful to make sure that your service agreements are written so that you cannot be considered an employee of your clients. You can say “I’m not.”

But that only goes so far. The IRS rules change all the time, but two issues will always affect independent consultants.

First, the question of whether the client should be withholding taxes from your “paycheck.” Second, the question of whether you can take a home office deduction. On both questions I’m deep into the “play it safe” school of thought.

We’re not going to look at the home office deduction very closely as it’s not the focus of this post. But you need to talk to your CPA or Enrolled Agent and take his advice. As for your Uncle, go to http://www.irs.gov and do a search of “home office.”

On the question of employee versus independent contractor, there are several items you should have in your service agreements that define this relationship. Again, to find out the latest rules and regs, go to http:// www.irs.gov and search for “Employee or Independent Contractor?” You might also look at IRS form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.”

Just so you know, your Uncle doesn't care how you see yourself or your relationship with the client. Uncle Sam has some very specific ideas about whether or not you’re an employee. The general rule is: If the client controls what will be done and how it will be done, then the client is your employer.

Of course this is broken down into specific discussions. For example, if the client tells you where to be, when to be there, how to get the job done, what tools to use, who to hire, where to buy supplies, and in what sequence work must be performed, then you are an employee.

Similarly, if the client pays for training, you might be an employee.

You might look at the IRS publications and find yourself on a borderline for one or more regulations. That’s where contracts or service agreements come in. The IRS specifically states that one of the criteria for defining the relationship is to specify that relationship in a contract.

So, you see why it’s important to make sure you never do any work without some kind of agreement. Even a basic “Credit Agreement” should cover the basics of the relationship. If anyone balks at signing this, you can tell them two things. First, you won’t work without it. And, second, one of the goals is to define your relationship so they don’t have to withhold taxes and put you on their payroll.

As for the longer service agreements, just make sure you cover all the major points the IRS might want to look at. State very specifically that you, the consultant, will determine what needs to be done, what tools are necessary, the order in which work will be performed, etc. Also state very plainly that you are a contractor and not an employee, and that you’ll pay your own taxes.

And that’s the key to success – who’s paying all those taxes? After all, the IRS does not exist to make the world a better place (which is good, because they suck at it). The IRS exists to collect various kinds of taxes. You don’t have to specify that you’ll pay your Federal taxes, and your state taxes, and your unemployment taxes, etc. But it goes a long ways to have a signed agreement that both you and the client know that you are paying your taxes.

If you are the kind of consultant who actually “goes to work” at a client’s office, has a desk to sit at, and you perform most or all of your work there, you need to be particularly careful about these regulations. You also need to be extremely careful about taking a home office deduction.

The bottom line: Find out what the current rules are and rely on professionals for advice. The tax business is just as fast-paced as the computer business. By the time something gets printed, it’s probably out of date. Find a good Certified Public Accountant or Enrolled Agent to advise you on these matters. And make sure you have a lawyer review your service agreements!


Define Yourself: Sole Proprietor

Perhaps the “default configuration” for an independent contractor is to be a sole proprietor. That means that you are just you for tax purposes. Part of you runs a business, and that part of you has to fill out Schedule C on your income taxes.

Legally it means that you personally are doing business with each of your clients. There is no entity between you and your clients, such as a corporation. Unless your business name is your name, then you need to file a DBA (“Doing Business As”) or Fictitious Business Name filing with some government agency.

For example, my business started out as a sole proprietorship. I was Karl W. Palachuk, DBA KPEnterprises. That allowed me to get a bank account under the name KPEnterprises. But it was still associated with MY social security number. Clients could write checks to KPEnterprises or to Karl Palachuk. It didn't matter because we were one and the same.

You can grow very large and remain a sole proprietor. If you ask your clients you might find some surprisingly large companies that are really sole proprietorships.

You can have employees, buy equipment, and depreciate assets. You can do 99% of all the things any other business does.

The advantage of being a sole proprietor is that it’s easy. You just start selling services and goods. You pay your bills, you collect money. If you make a profit, that goes onto your personal tax return and you pay taxes.

If you have a professional do your taxes, it’s certainly cheaper to do one extra Schedule C than to do a corporate tax return in addition to a personal tax return. So there’s an advantage there.

The disadvantages of a sole proprietorship (in my opinion) are all financial. First, your business is your personal life. Your “stuff ” is mixed up with your clients’ “stuff.” In particular, if your client is also a sole proprietor, then their personal stuff is mixed with your personal stuff.

I know that bad things almost never happen. In more than 15 years in my business (seven of them as a sole proprietor), I never even had a small hint of a problem along these lines. Nobody came after my house, no one put a lien on the contents of my garage, etc. But it is a fact that a sole proprietorship is just you personally and you need to be aware of that.

You can limit your exposure to lawsuits by purchasing Errors and Omissions insurance. I believe lawsuits are rare, but you still need to take seriously the possibility that someone will sue your business.

A second disadvantage to a sole proprietorship is the self-employment tax. This falls into the category of “Don’t get me started!” If you are an employee, roughly 7.5% of your wages goes to Social Security, where it is immediately loaned to the Federal Government for research on wasteful spending habits of political hacks. But you’re not alone. Your employer matches this amount. So, really, a number equivalent to 15% of your income is flushed down the government toilet.

When you are self-employed (as a sole proprietor is), you get to pay both sides of this, which is fine. If you were a corporation, you would also pay both sides, but you the person and you the corporation would each pay 7.5%. But here’s the bad news:

As a sole proprietor, all of your profit is considered your personal income. If you earn $60,000, you pay Social Security taxes on $60,000. If you make $90,000, you pay Social Security on all $90,000.

If you were an S-Corp, you’d pay yourself a salary and pay the Social Security only on your salary. The rest of the profit from the business would flow to you as “dividends.” So, let’s say you pay yourself that very reasonable $60,000 salary. You pay the Social Security on $60,000.

But you don’t pay the Social Security on the remaining $30,000. Fifteen percent of $30,000 is $4,500! That’s a chunk of change. You’d still pay your regular tax rate on that $30,000, but not the Social Security. Note that you don’t pay Social Security taxes after a certain income level (currently around $114,000, but this goes up every year). Your numbers may be very different. See http://www.ssa.gov/policy/docs/quickfacts/prog_highlights/.

The point is simple, however. There’s a lot of money at stake here and you should give some serious consideration to how your company is formed. Note that you cannot pay yourself a miserably low salary to avoid Social Security taxes. The basic rule for the IRS is pretty simple. If you do something just to avoid taxes, it’s not allowed. So you can’t pay yourself minimum wage and take $50,000 in dividends.

Again, don’t mess with the IRS.

But also remember that you are allowed to take normal, reasonable, legal actions to reduce your taxes. Creating a corporation for your business is certainly a normal business activity.

I am not a tax professional. Don’t do something just because I presented some ideas here. Find a qualified tax professional and go over the numbers. If you’re in that $60,000-$115,000 range, you might save yourself some money.

At a minimum, don’t dismiss the idea because it seems complicated or tax prep will become more expensive. A good tax pro will always save you money.


Define Yourself: S-Corp

When you decide to incorporate your business, you automatically form a Subchapter C Corporation or C-Corp. You must then file Federal form 2553 in order to “elect” to become a Subchapter S Corporation or S-Corp.

The primary difference between the two, for small entities, is that C-Corps pay taxes on the corporation’s profits and stockholders also pay taxes on any dividend disbursements. With an S-Corp, the corporation does not pay taxes. It files a tax form to determine what the profit is, then that profit flows to the income calculation on the stockholders’ personal income tax form.

In other words, with a C-Corp your income is taxed twice. There are other advantages for C-Corps that make sense for large entities. But for closely held companies (e.g., you, or you and a spouse, or you and one other person) the S-Corp is really the only option to consider.

The key benefit of an S-Corp is that you can avoid paying the Social Security or Self Employment Tax on a portion of your income. See the discussion of Sole Proprietorships, above. There are also several deductions available as an S-Corp that are not available as a Sole Proprietor.

Another major benefit of the S-Corp form of business is that the business is an entity unto itself. In fact, legally it is a person, which is bizarre. With a corporation, you personally have a relationship with the corporation and the corporation has a relationship with your clients. So you have this layer that protects your stuff from their stuff.

With a corporation, you have a certain level of liability protection. If someone sues the business, they can’t normally get to your personal possessions. I say “normally” because you have to take certain actions to maintain this “corporate veil.” If you treat the corporation like your personal ATM and don’t treat it like a corporation, the courts are likely to say that you did not maintain it as a corporation. So that puts your possessions back out there for lawsuits.

S-Corps don’t make sense when you’re first starting out unless you got some great long-term, highly profitable contracts. Generally speaking, you need to maintain a certain level of profitability—-and expect that to continue—-before you incorporate.

Note also that corporate tax rates vary from state to state. There may be minimum taxes due, even in a year when the corporation loses money.

If you are considering a corporation, find a tax pro who deals with corporations. Agree to pay an hourly fee and sit down with your financial information and “run the numbers.” Get a best-guess estimate of what you’d pay in taxes as an S-Corp versus a sole proprietor.

Finding a great tax professional is extremely important. And we tend to become personally attached to these folks. But your primary concern needs to be your business.

And it may be the case that you need to find “the next level” of skill and ability in a tax professional so that your business can move to the next level.

One final note on S-Corps. If you grow and are successful, you will eventually form an S-Corp. If you always stay just one person, you may choose not to incorporate.

But if you hire people and start growing, there are too many advantages to not incorporate.


Define Yourself: LLC, Partnerships, etc.

Once you move away from Sole Proprietorship and S-Corp, there’s whole alphabet soup of options available, including:

• General Partnership

• Limited Partnership

• Limited Liability Partnership

• Limited Liability Company

• and additional entities available in individual states.


Partnerships are generally to be avoided. They are easy to set up, but they provide no protection of your personal stuff from your own business partner. So, if things go bad, they can go very bad. If you invest in real estate, revisit this issue for that enterprise, but not for your technical consulting business.

LLCs aren’t bad. They act a lot like corporations, but allow profits to be allocated by means other than percent of business owned. They tend to be more expensive to create than a corporation, and state laws governing LLCs can be different from Federal laws.

Again, I sound like a broken record here, but you need to do your research and check with your tax and legal advisers.

Generally, you should have a solid business reason for choosing the form of your business. And for almost everyone, that choice will come down to being either a sole proprietor or an S-Corp. If someone suggests that you create some other entity, make sure you understand why.

It never hurts to get a second opinion.


Concluding Thoughts

How you define your form of business will have little direct effect on how you write your Service Agreements or operate your business. Remember to play your role at all times. If you’re a sole proprietor, act like a sole proprietor. If you’re an S-Corp, act like an S-Corp. And so on.

Some clients will request a W-9 form, which is a statement relieving them of the responsibility of withholding taxes from your “pay.” You should fill these out for anyone who asks. If you are a Sole Proprietor, you must give this information to each client. Consider filling out one form and photocopying it for each new client.


Good luck out there.


Comments welcome.

- - - - -

About this Series

SOP Friday - or Standard Operating System Friday - is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.

Find out more about the series, and view the complete "table of contents" for SOP Friday at SmallBizThoughts.com.

- - - - -

Next week's topic: Rules for Working at Home

:-)

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Sunday, October 06, 2013

Great Little Seminars - A Series of 5-Week Classes Focused 100% on Managed Service Providers

Announcing:

Great Little Seminars

A Series of 5-Week Classes Focused 100% on Managed Service Providers




It's Always Easier to Keep Up Than It Is To Catch Up! 


I am VERY pleased to announce a series of classes designed to help MSPs of all sizes improve your business, make more money, and reach your goals. Right now we have defined eight classes. Each class will be for five weeks, which allows us to work at a much higher level than a simple one-hour webinar.

It also allows the instructor to assign some "homework." You are not required to complete the homework, of course, but you'll get feedback and advice from the instructor if you do. As with everything else in life, the more you dive it, the more valuable it will be.

We are offering ONE course during 2013:

Core Standard Operating Procedures for Small IT Providers

- Five Mondays - Nov. 18 - Dec. 16, 2013


This course is a great introduction to the series. It will be repeated in February of 2014. But you need to note two things about that. First - If you sign up for the class in 2013, the price is only $149. The February class will be at the regular price of $199. The two classes will be identical, but the first one is being offered at an "introductory rate" for the series.

Second, if you attend the November/December class, you will be allowed to sit in on the repeat class in February for free. So if you want to go through the material again - or just gain access to me for feedback again - then you can do so at no additional charge.

Topics include the following:
  • A practical introduction to SOPs
  • The relationship matrix of SOPs
    • Clients
    • Employees
    • Vendors
    • Internal Organization
  • The Ten Most Important SOPs for your IT Consulting Business
  • SOPs management, organization, and updates
  • Implementation strategies internally
  • Implementation strategies for clients
  • Service Department SOPs
    • Building
    • Training
    • Deployment
    • Upkeep
  • Avoiding the biggest pitfalls with SOP development and deployment
  • Building an Action Plan that works

Find Out More and Register Now


- - - - -

Check out the 2014 Schedule--> Improve Technical Mastery

--> Make More Money

--> Organize Your Business

--> Develop Business Plans for Growth

--> Adopt Standard Operating Procedures

--> Take Control of Your Finances

--> Find Your Ideal Clients

--> Get the Employees You Need

--> Manage Projects Profitably

--> Make Your PSA and RMM Tools Work for You 


- - - - -

Check it out. Let me know if you have any questions. And Join us in November!

Friday, October 04, 2013

SOP Friday: DiSC Profiles

I like to tell audiences that "Technicians are From Mars; Receptionists are From Venus." In addition to being mildly amusing, this points out a truth we all know: Techies and fundamentally different from clients.

Technicians tend to be "nerdy" and less social than the average client we serve. Of course that's not true across the board. Sales people have to have certain traits to be successful. Owners and managers tend to have other traits that make them successful.

That's where personality profiles come it.

DiSC Profiles are a popular kind of personality profile. Google "disc profile" and you'll find plenty of information. Basically, DiSC is a tool that helps you understand how people behave based on their personality. It can help you understand how people on your team prefer to be communicated with and motivated.


How Do Companies Use DiSC Profiles?


We use DiSC profiles for two primary purposes. First, we use them to look at prospective employees to help evaluate whether they would be a good fit for the job. Second, we discuss them as a group to learn how to work together.

As an example, let's go back to the technician and the receptionist. Very often the technician will walk into a client's office, say "I'll be at the server," and walk on by. The tech is focused on getting the job done and ticking through a checklist. In the meantime, the receptionist is a lot less analytical. She thinks the tech is rude because he didn't stop, say hello, and chat a bit about what he's there to do.

Some elements of a personality trait affect your job. For example, conscientiousness and attention to detail are very important for a technician. An easy going manner and an ability to influence others are important to sales people. As a result, it can be very useful to look at the personality traits of employees and prospective employees.

DiSC profiles are generally available for about $60-75 each.


When Do Companies Use DiSC Profiles?


Let's say you want to use DiSC profiles in the hiring process. When exactly do you ask a prospect to take the personality profile? After all, you can't ask every applicant to take one.

Some companies narrow the selection down to three prospects and then have those three complete the profile. In such a case, the goal is to use the profile to help make a decision among three people who have all interviewed well and are good candidates.

We like to narrow the choice down to the one candidate we think we want to make an offer to and ask that candidate to take the profile. The goal here is to see how the candidate fits in with the mix of personalities on the team. Since all personality types have strengths and weaknesses, you need to make sure you have a variety of personality types on your team. Where one is weak another is strong.


You certainly don't have to use personality profiles. And if you do, you don't have to use DiSC profiles. But it is certainly worth considering.

If you talk to anyone who has applied for jobs recently, they'll tell you that all the big chains now have online applications that go on for ten or more pages. They ask a variety of questions to determine whether you have the right attitude and temperament for the job. They are using their own kind of personality profile to screen candidates.

While profiles are not a perfect science, they can give you some good insights. It takes some serious training to use them well, especially with teams. But many companies use them for all new hires. In very small companies, you might consider having every employee take a profile. In larger companies, you should at least ask all of the "core team" to complete profiles.


I've been amazed over the years at how many people read their DiSC profile and are amazed at how accurate it is.

If you haven't taken a DiSC profile for yourself, you should. You might find it very enlightening. And you might decide that everyone in your company should follow suit.


Good luck out there.


Comments welcome.

- - - - -



About this Series

SOP Friday - or Standard Operating System Friday - is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.

Find out more about the series, and view the complete "table of contents" for SOP Friday at SmallBizThoughts.com.

- - - - -

Next week's topic: Getting Started - The Form of Your Business

:-)

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Tuesday, October 01, 2013

The Most Read Managed Service Blog Posts for September 2013

It's always interesting to see what brings people in. It's not always for the reasons I want, but who am I to complain? Here are the most read blog posts from last month:


#1 = Uhh . . . Nine New Podcasts Posted at Cloud Services Roundtable from March 2012

This perennial favorite is bookmarked on several sites and they just keep bringing in the traffic. Interestingly enough, this post is a collection of other blog posts. :-)


#2 = Register Now for My Live Cloud Workshop from June 2013

This is the announcement for the big SMB Preday show coming up next week. Again, lots of in-bound links. We'll see if traffic for this diminishes next month.


#3 = My 750th Blog Post from May 2010

I'm not sure why these "milestone" blog posts get any traffic. There's actually nothing here except a note that says Wow.


#4 = Microsoft Announced the End of of SBS from June 2012

This is the biggest post of the last year. And that makes sense given the impact the announcement had in the small business I.T. space. Traffic is slowing a little, but there are still lots of in-bound links.


#5 = SOP Friday: Setting Up an MSP Office from September 2013

A recent post. Also a post that was requested by a reader. Obviously, there was interest in this topic.


#6 = SOP Friday: Service Manager Roles and Responsibilities from June 2012

After more than a year, this one is a clear favorite. This post continues to get more traffic all the time.


#7 = SOP Friday: Inventory Management from September 2013

A recent post, which gives it an advantage on this list. But also a very popular topic. I think this one will stay on the list for a while.


#8 = SOP Friday: Organizing Your Company Files and Folders from October 2012

Now a year old, this post covers one of the most important topics for any business. Organizing your electronic files is critical. Duplicate files and time spent looking for data you know you have are big resource-wasters. This article has become a consistent favorite. 


#9 = SOP Friday: Time Tracking for Employees from October 2011

Now in it's second year "on the charts." This is one of the most critical elements of a profitable service business.


#10 = SOP Friday: DNS and DHCP Allocation - Server vs. Firewall from November 2012

Where do you put DNS and DHCP? Another topic that remains very popular.


- - - - - 
As always, the SOP (standard operating procedure) Friday series dominates the list. Sometimes it's hard for "old favorites" to be eclipsed, like the "Death of SBS" posting. 


I may have to report the top posts other than the perennial favorites just because they have so many in-bound links.


Keep reading! I appreciate your support.


And let me know if you have suggestions or comments.


:-)