Friday, September 27, 2013

SOP Friday: Getting Started in Business - Licenses, etc.

One of the most daunting tasks when you set up your business is to make sure you have the licenses, tax identification numbers, and accounts. Luckily, most government agencies are pretty good with posting these on their web site.

But you might not know that you need to go to their web site! Here are some tips for making sure you're legal and ready for business.

Form Matters

We've already discussed Naming Your Business. The "form" of your business matters in this discussion because it will affect how you are taxed. At least in the U.S., a Sole Proprietor uses a personal Social Security Number as the Federal Tax ID.

But here's the thing. There really is no Federal Tax ID. There's an Employer ID Number - EIN. If you are a Sole Proprietor but you have employees, you cannot pay yourself a "salary" through the payroll system. You simply keep the profits and you are responsible for making quarterly tax payments. But you pay your employees through some kind of payroll system. And for that you need a Federal EIN.

Start Here for the Federal Government:
(Note that the IRS recently revised their web site and broke most links that you'll find in a Google Search. So go to the IRS site first and then search from there.)

Normally, you can apply for an EIN online and it will be issued almost immediately. The last time I did it, it took 15 minutes to receive my EIN. Every business entity (LLC, S-Corp, etc.) must have a separate EIN if you will be paying employees.

Having said all that, when anyone asks you for your Federal Tax ID, you give them your EIN.

For most people, that's pretty much all you need from the Federal government at this point. Assuming you're in I.T. consulting, you don't need permits for transporting explosives, alcohol, or other Federally-Regulated items. So now you can move to the State government.

Reading Assignment One

Somewhere on the IRS site you'll find a link to Small Business-Related Publications. As of this writing it is at Browse through that and make sure that you have some idea of the rules and requirements that apply to your business.

It should be clear right away that you need a good tax professional. Go get one if you don't have one.

State Government Requirements

Some states issue a separate state tax ID. All of them use the Federal EIN or SSN as a reference point to cross-check your Federal tax return with state tax returns and other state activities. Here the world begins to get a little complicated. Your best starting place for information is the U.S. Small Business Administration web site. It is not always up to date, but they try very hard. And you are guaranteed to miss something if you don't check out their site.

A great resource page is at It is a starting place for determining your obligations in each state. The most common kinds of taxes at the state level are:

- State Income Tax
- State Sales Tax
- Unemployment Insurance
- Workers Compensation

But there are lots of others that may apply. Start with the SBA and then find your individual state's web site.

The good news is that most of the taxes and registrations you have to take care of are almost automatic when you take care of a few items. You also have to register your business somehow. If you create a corporation or other tax entity, that will be done at the state level. So you'll get a state Tax ID as part of that process. When you file state taxes, the forms will include required payments for misc. items. When you collect and file sales tax, all the little stuff you never knew was hidden inside the sales tax code will be inside the forms you complete. When you pay employees, you'll shell out money for Federal Unemployment, State Unemployment, Social Security, and a myriad of other taxes that employees don't realize you pay.

Reading Assignment Two

Find the State web site that has all the juicy information and links related to business in your state. Every state is different. Some are very different. Again, read through all this and make links. It's up to YOU to make sure you're inside the law. State agencies have no obligation to inform you of your requirements. They just have the power to punish you if you do not comply.

Local Agencies and Licenses

There are three common types of "local" government agencies in most states. There are Counties (or Parishes) that cover a fairly large area. There are Cities (and Towns) that cover a smaller area. And then there are Special Districts that cut across city and county boundaries. For example, a utility district might supply water or electricity in an area that crosses several city and county boundaries. School districts are often within a county or within a city, but also often cross those boundaries. The same is true with fire districts. Transportation districts almost always cross city and county boundaries.

All of these districts might have taxes and regulations that apply to you.

The two easiest places to start are the county and city. One or both of these will need to issue you a business license, which is just that: A license to do business in their boundaries. You might need to get business licenses in several cities if you provide services in cities other than where your business is physically located. One of these entities will also deal with a D.B.A. if you need one. That's a "Doing Business As" statement or Fictitious Business Name application. Basically, if you have one legal I.D. such as Joe D. Plumber and you do business as Super-Good Tech Support, that you need a D.B.A.

One of these entities (city or county) is likely to have a good resource for all the local agencies and districts you need to deal with. Some will actually be able to accept forms on behalf of such agencies. Ideally, someone will point you to a golden web site that covers all the stuff you need to do to set up shop in your city/county.

Reading Assignment Three

You guessed it. Find the local web site that has all the juicy information you need to stay inside the law and make sure you are paying all the little fees and taxes that are required. Truer words have never been said than "The power to tax is the power to destroy." And since you are responsible for these taxes and fees whether you know it or not, it's up to you to know.

Another great resource in some locations is the local Chamber of Commerce. Sometimes, the local Chamber will have the golden web site you are looking for. Other times they'll be able to point you in the right direction.

A Google search for "Starting a business in [state]" should get you to some good starting places.

It's More Than Taxes

In addition to just paying taxes, you also have to make sure you're inside the law with all kinds of other things. You've seen the employment posters that take up the entire wall in almost every break room in America. You need those.

- You might also need to be registered with the local fire department so they can do regular inspections.

- You might need a license to do work in peoples homes or businesses.

- You might have to register with an agency just to let them know that you are operating or paying wages within their district.

And so on.

I am amazed at how many layers there are. Some states are better than others. I know California is one of the worst. But you can plow through it! Just remember that most of the businesses around you have successfully navigated these waters. (I say most, because many of them have not done this homework and will get a very big surprise one day when a government agency drops a big fine on their desk.)

Do your homework. Don't be one of the businesses that's driven out of business because you accidentally didn't file all the right paperwork or pay all the feeds.

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

- - - - -

Next week's topic: DiSC Personality Profiles

Still the best Quick-Start Guide to Managed Services: 

by Karl W. Palachuk 

Now only $39.95 at SMB Books!

Sunday, September 22, 2013

Relax Focus Succeed Revised Edition Released!

Well, the writing is done. Now the "publishing" begins.

The Revised Edition of Relax Focus Succeed is now available to purchase in both paperback and as an e-book. Very soon we'll have the audio version as well as Kindle and other e-reader formats.

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Friday, September 20, 2013

SOP Friday: Getting Started - Naming Your Business

Picking a good business name is an important part of starting your business. And, under certain circumstances, you might even rename your business. Here are some thoughts for picking a successful name.

Choosing a Name Based on The Formation of Your Company

Your company might be a sole proprietorship (doing business under your own Social Security Number/Tax ID). Or you might be a corporation (S corp or C corp), or an LLC, or a variety of other entities. This only matters for a few things.

First, you cannot use a title such as "Inc." when you are a sole proprietor. In some states it is illegal. But it's always misleading. Legally, when you sign contracts, you need to sign them with your name and title. This might be ...

John Doe, d.b.a. My I.T. Company
Jane Doe, President, My I.T. Company
John Doe, President, My I.T. Company, Inc.

It's important that, whatever the name of your company, you sign documents correctly. If you are not a sole proprietor, signing documents incorrectly could make you personally liable rather than your company - exactly what you want to avoid.

Second, if you move from a Sole Proprietor (Sole Trader in the UK) to a corporation or other form of business, you may want to take the opportunity to change your name. You don't have to, but you'd be surprised at what a difference it can make.

My business was originally KPEnterprises just because I'm KP and I don't have a huge imagination. When I incorporated, I changed the name to KPEnterprises Business Consulting, Inc. This sounded a little more formal and stuffy. And guess what? One of my long-standing clients called me and said, "I see you're doing business consulting now. Can you come by and help us with a problem?"

Of course I said yes. The cool thing is that even people who knew me took a different view of my business once the name changed.

Choose a Professional Business Name

Pick a good, professional name for your business. If you want to charge top rates, be taken seriously, and make it easy for people to give you referrals, then you need a good name.

As a general rule, you should avoid cute and gimmicky names. Instead, tend toward professional business-like names. As I've said before, I don't want to hire the Lawyer Wizards to represent my company. I don't want the Plumbing Guru to magically fix my pipes.

In Sacramento we have a transmission repair shop that used to be called the Transmission Nerds. Maybe it's just me, but I don't put a lot of faith in a company with a name like that. If we want to be professionals, we need to be aware of the kinds of companies that have respect among our clients.

If you're just forming a business, or reformulating your business, try to pick a name that sounds business-like. Ideally, your business name should state what you do. Computers, mobile, networks, and business consulting are fine. Partner names are great (e.g., Johnson and Andrews), as are local landmarks (tower, lake, Sierra, valley, etc.).

Here are some more good names:
_____ Associates
_____ and Co.
_____ Professionals
_____ Resources
_____ Technical Resources

I have high hopes that our field will become more professional over time. Perhaps a byproduct of that will be the gradual dissappearance of gurus, geeks, and cyber-goobers.

Just my opinion.

Changing Your Business Names

If you want a more professional name, incorporate, or just want to rebrand, don't worry about your existing client base. You might resist getting rid of a cutesy name because your ego gets in the way. If so, you have to decide how much your ego is worth.

One of the guys in the Sacramento SMB I.T. Pro group has changed his business name three times in the last twenty years. Note that he's still in business after twenty years! He never lost a client because he changed the business name.

In my own case, the move from KPEnterprises to KPEnterprises Business Consulting, Inc. was very minor and few existing customers really noticed. Later, when Mike took over the business, he adopted the name America's Tech Support, which is a sole proprietorship. We sent letters to our clients and asked them to change the name in their accounts.

No one mentioned it or questioned it. To existing clients, the name change was an extremely minor event.

New prospects didn't know, of course. The new name sounds nice and has no negative connotations. We do lose a bit of brand awareness, since KPEnterprises had operated and advertised that name for sixteen years. But this was a minor issue.

Ideally, any name change will be a long-term change. So take it seriously. Think of it as an opportunity to start your branding from scratch. In fact, that's exactly what it is.

Which Comes First: Company Name or Domain Name?

On several occasions I've mentioned to groups of consultants that I have several Internet domain names registered. Basically, whenever an idea pops into my head, I try to register several domain names for it. I have about 300 domains in total.
Sometimes the domain names I register are the name of a product, service, or company. Other times, they are additional "landing page" domains so I can use Google, Facebook, Twitter, LinkedIn, and blogs to funnel traffic to my primary sites.

But of course you will have one primary domain name. It should be as simple and easy to remember as possible. Many of the techno-goobery names discussed above are very difficult to convey to people by phone. Again, cutesy doesn't work well.

One of the important considerations these days is whether your domain name "matches" your company name. And then, do you name the domain after the company or name the company after the domain? I don't know if there's a right answer here.

Many very professional companies have domain names that are not their company name. Go down your list of clients and you'll see this, especially with service professions such as attorneys, doctors, and accountants. But you should try to get your company name and domain name as close as possible.

The good news on the domain name front is that people are now used to long domain names. It used to be that three- and four-letter domains were hot because they are short. But that's less of an issue today. So a name like Americas Tech Support can get away with

Let me jump back to the discussion of choosing a professional name for a moment. If you have a company name and a domain name that are descriptive of what you do, this can help with some very basic search engine optimization. After all, if someone searches for "Alhambra Computer Services" and your company name is Alhambra Computer Services, and your domain is, you should be right up at the top of the results.

You're probably happy with your business name, and don't plan on starting a new division anytime soon. But if do need to adopt a new business name, I hope these thoughts are helpful.

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

- - - - -

Next week's topic: Getting Started - Business Licenses, etc.


Still the best Quick-Start Guide to Managed Services: 

by Karl W. Palachuk 

Now only $39.95 at SMB Books!

Ebook or Paperback

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Thursday, September 12, 2013

SOP Friday: Inventory Management

There are a handful of things that can kill your cash flow and your profitability. One of them is inventory. Assuming you are not a store front, you need to keep inventory under control. There are three ways that inventory can kill you.

Note: I assume here that you are not running an actual store, so you don't need shelves full of inventory.

Many of us are creatures of habit. That means we do things the way we've always done them. Or we learn from someone else but don't really know why it's done that way. But that's the way we do it, so that's the way we do it.

With inventory, we used to keep quite a bit of stuff on hand. When I started my business in 1995, hard drives failed. So we kept a few hard drives on hand. We built our own systems, so we kept power supplies and memory on hand.

Intel P2 with MMX - Form Factor from Hell
But there were different kinds of hard drives. IDE and at least three kinds of SCSI. And they all cost a lot of money. There were also different kinds of power supplies. Yes, the form factor didn't change that often, but you still had to keep something on hand for the installed base. Memory has always been a quickly-shifting world.

In all of these - plus modems, mother boards, network cards, CPUs, CPU Fans, etc. - we found ourselves with current stock and outdated stock. And when a specific form factor simply disappeared, we were stuck with 1-2 items that we would never sell. So now we had 10 or 12 memory chips, a couple of small hard drives, some ribbon cables, 5-6 various fans, and lots of other little stuff that would never sell.

Every once in awhile we'd gather up all the old crap that was "brand new" but out of date and donate it to Goodwill or the local Indian reservation's ewaste program. Parallel cables. 5-Pin DIN keyboards. DAT3 tapes. Memory, memory, memory.

The first way that inventory kills your profit is tying up cash. Inventory costs money. A little here. A little there. Pretty soon you have $2,000 invested in things you will never sell. Of course you don't know you'll never sell them. They were originally "cost of goods sold." But they were never sold.

Now you see $2,000 worth of stuff go to the ewaste program and realize you could have bought yourself a really nice stereo instead!

In everything you buy for your business, you need to have a Return on Investment (ROI) calculation. Some things are true expenses, like office supplies. Some things are Cost of Goods Sold (COGS). But when you buy things for resale and never sell them, that's a write-off.

The second way that inventory kills your profit is that it has to be paid for with profit, not just money you have lying around. Let's look at some detail.

Let's say you have an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of 10%. That means that you have to sell $100 worth of product to buy $10 worth of inventory. But wait. We were looking at $1,000 or $2,000 worth of inventory. That means you're tying up the profit from $10,000 or $20,000 worth of sales!!!

You need SOME inventory. Just be real clear about how much.

The third way that inventory kills your profit is returns and RMAs. Even if you get pre-paid for hardware and software, there will always be the occasional return. Returns cost a time, and that's money. Whether it's the client who changed their mind or the product that arrived dead, you have to do whatever it takes to make it right.

You should calculate over time how much you spend on returns. It is not zero. So realistically, what do you spend on returns?

We have found that making clients prepay for everything has dramatically reduced returns.

In addition, we found that selling brand-name business class hardware with a three-year warranty has essentially eliminated RMAs (return merchandise authorizations) and DOAs (dead on arrivals).

So ...

This is not a policy or procedure that you need to talk about with all employees. But among the administrative and office staff, you should make it clear that you will work to keep inventory as low as possible.

It's a horrible feeling to realize that you spent good money on something that you need to throw away. But if you're conscious of the fact that you're doing this, it will help you realize that you need to minimize it going forward.

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

- - - - -

Next week's topic: Getting Started: Naming Your Business


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First, go check out all the stuff going on at SMB Nation 2013:

Second, sign up now because the price goes up tomorrow.

SMB Nation 2013 Fall conference is October 10-12 in Las Vegas

Pre-Day events are October 9th.

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I am honored to be one of the speakers this year.

The educational tracks are:

  • Migration Madness (MM)
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For some reason, I'm in the BS track!

Check out all the sessions here:

In addition to all the normal great stuff, there is a special program on site to earn your Master Certified Migration Expert certificate for migrating clients off Windows XP.

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The second session is part of the new Night School program.

Check out all the details at

Friday, September 06, 2013

SOP Friday: Setting Up an MSP Office

We get email. Duleep says

"I would like to see your thoughts on setting up an office for an MSP. How and where it should start. Though I started the business at my home (still the license is issued in that address), last year I rented a small cube in an office (to get a business address) and that has a conference room. Though me and others virtually work from our homes, think that I made a good choice. I would like to see your thoughts on setting up the first office. Thanks in advance."

This is a great topic. It has a few different sub-topics to address. In a few weeks I'm going to address topics such as naming your business and getting the licenses straightened out. The big question here is when to move from home office to "real" office.

There are a few stages to getting set up. If you start out as a one-person shop, then starting at home makes perfect sense. Even now, after 18 years, our business could be run almost completely from our various homes. But we've had an office for almost ten years because we need a place to build our company culture.

Think about this: Why do you need an office?

And why do you need an office away from home?

You Need An Office To Be Efficient

You need a place where you can get your work done. It should be free from distractions. It should have a place to store company paperwork, client information, and the general "stuff" that any business accumulates.

Your office should be a well-designed refuge where you can study online or with printed books.

It should not be piled high with crap - even if you're comfortable with that. You can have all the piles you want, but there should be a distraction-free zone that allows you to focus on the work at hand.

When you can no longer be efficient at home, that's a sign that an outside office is necessary.

You Need an Office to Meet Clients

While strictly true, business clients tend to want you to come to them. So unless you do trainings, you probably don't have clients coming to your office.

If you have a repair shop and clients are bringing in equipment, then you certainly need an office.

You Need an Office for Equipment Deliveries

Sometimes you get better service and even a lower price on shipping if you have a business address instead of a residential address.

But more importantly, you need a place where deliveries can show up any time and there's someone to sign for them. And that's really an argument for a mailbox address (e.g., the UPS Store) and not for an office. If you're a one person shop, you'll be running around making money and not hanging out at the office to sign for packages.

You Need an Office for Your Employees

This is true. When I started to grow, I had an employee show up at my house a few times. It was inconvenient. So we started meeting at a coffee shop. Less convenient.

Then I wanted to hire an assistant. Turns out temp agencies don't want to send people to home offices. I understand that.

An office gives employees a place to go. They get to set up shop - even if it's a box on the shelf or a drawer to call their own. When you have an employee, that's probably the time to start looking for an office. When you have two, then you definitely need an office.

Note: You will probably start with part-time employees. You still need the office. But don't drop that mailbox address because your part time employees will not always be around to sign for packages.

Having employees come together in a common place makes it easier to have meetings, trainings, etc. It gives you a place to build machines, stage deployments, and generally play with technology.

Then There's the Downside

An office costs money. And unless you rent space in a furnished executive office building, it can cost a lot of money. You need desks, chairs, a filing cabinet. Someone will want coffee and it won't be long before you decide you need a microwave and refrigerator.

If people have desks, they need computers and monitors. You need a white board, a network printer, paper, pens, staplers, tape, and all the other joyous things that go in offices.

You also need insurance.

We love the insurance program through The ASCII Group ( has a great insurance program for liability, property, and even worker's comp.

When you have employees you need worker's compensation insurance. This can be very expensive. You also have various other expenses that I just lump into the category of "taxes." These include Social Security (you pay 6.2% of the employee's salary into this) along with Medicare, state unemployment, federal unemployment, etc. etc.

In all, plan on spending 10-15% above the hourly rate for employee expenses. If you offer medical or other benefits, then it's more.

There Are Long Term Benefits

As I mentioned, we could probably work with no office whatsoever. America's Tech Support and Great Little Book have shared the same office since GLB was created in 2003. If we all just went home and stayed there, we would lose quite a bit of what our companies have become.

In addition to the culture, having an office infrastructure in place makes it a lot easier to grow and shrink as needed. If you need to hire some folks, we've got a place to put them. We can get interns and have a place for them to show up.

With an office we have lots of great flexibility to work and play together. Again, building culture is much easier with a common meeting place.

Overall, my advice would be this:

- If you're a sole proprietor, put off getting an office as long as possible (assuming you can work efficiently at home). This will save you a LOT of money.

- When you start to have employees, start looking for an office. If you believe you're going to grow and have an employee for the foreseeable future, get an office.

- Buy things only when you need them.

- Create a realistic budget of what it will cost to have a "real" office outside the home.

Looking around my office now I realize that all the furniture and equipment is pretty nice and pretty new. When we started it was a collection of yard sale stuff that was good enough to get by. Over time we traded up and up as we needed more desks, chairs, etc.

At this point I think I might always have an office just because it's so convenient for many things.

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

- - - - -

Next week's topic: Inventory Management


Check Out the Managed Services Operations Manual

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