In Episode #37, we discuss networking tactics for busy entrepreneurs and aspiring entrepreneurs. If you’re sick of attending the same networking events over and over again, we have a new plan for you. In the second segment hosts Elizabeth Larkin and Gene Marks talk a business owner through the process of selecting a structure. What does it mean to be C Corp vs. S Corp? Finally, in the third segment, Gene and Elizabeth discuss how China is a big opportunity for small businesses.
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- Podcast from BBC: In Our Time
- How to Pick Your Business Structure
- Advantages and Disadvantages of C Corporations
- Advantages and Disadvantages of S Corporations
Elizabeth: Okay we are back with another exciting episode of The Small Biz Ahead podcast. Gene, how are you doing?
Gene: I am doing well. How are you doing?
Elizabeth: I’m doing okay. I actually didn’t get woken up by my dog in the middle of the night last night, to go out.
Gene: Do we always get back to the pets, and the dogs?
Elizabeth: And you got up at what time to get here?
Gene: To get here I left at four in the morning, and drove to get here. I have been listening to podcasts along the way. Great podcast for your listeners, that doesn’t even compete with this one, I just want to say. BBC Four, it is on CastBox. You can get it as a podcast called, In Our Time, and it’s a history show.
Gene: It’s been going on for a few years. They have it every week. It’s one guy that hosts it. He has two or three very British academics that speak like, “You know, oh” .
Elizabeth: I love that.
Gene: They are all very much smarter than all of us, of course, because they are academics, and they are from England.
Gene: They pick a specific topic in history like, The Dutch East India Company, Alexander the Great, The Great Wall of China, whatever it is. For forty-five minutes they just riff about it.
Gene: It’s absolutely fascinating.
Elizabeth: Then when you go to cocktail parties, you are like the most interesting man in the room.
Gene: Oh, I’m so smart. You know what it does? We talk about different things that help you with balance in your life and running a business and all of that.
Gene: I’m listening for an hour about The Dutch East India Company and how they collapsed, or I listen about the Augustan Age, or whatever.
Elizabeth: Mm-hmm (affirmative)-
Gene: It really does put things into perspective.
Gene: You know? This isn’t about the Spanish Inquisition.
Elizabeth: How, like, exciting CRMs are?
Gene: It does! Thank God we live in 2017. Whatever problems and issues there might be in the world. Trust me, you don’t want to be living in the age of the Vikings. You know what I mean?
Gene: Life is good. When you listen to these shows, it puts your life, our little itty-bitty stupid lives into perspective.
Gene: It’s good! It’s called, In Our Time, and it is BBC Four show and it is on CastBox. You can get it.
Elizabeth: Okay, I’m going to put that in the show notes.
Gene: The show notes! I really like that show a lot.
Elizabeth: Okay. We are going to be right back with our first question. This is about networking, but it is very involved and very funny about networking. I think you are going to like this one, Gene.
QUESTION #1: Like-Minded People
Elizabeth: Okay we are back with question number one, and I just have to say, the question is from Scott from Ohio, but our producer Mike Kelly, he is the one who voices all the ads and works on the podcast with me, he is going to love this question, and Gene, I think you are too. It’s very funny.
Gene: I can only imagine. Okay.
Elizabeth: Scott writes: Hello, I’m currently working full time as an IT specialist but I’m starting a business in my free time. The business I’m starting is just a simple app I call Grubber. That’s G R U B B E R.
Gene: Grubber, okay.
Elizabeth: A user puts his or her dietary specifications into the app, and then the app pulls up meals from restaurants and eateries that are within a set radius, that have online menus and then makes a meal plan or a suggestion for the person.
Gene: Ah, that’s a great idea!
Elizabeth: I know! Right?
Gene: I like that.
Elizabeth: It’s mostly for people who travel a lot and are trying to eat healthy. For example, if you are away for business and it’s dinner time and you are trying to stay low carb, the app may find a Chipotle, within 10 miles of you and recommend the Chicken Burrito bowl with no rice.
Elizabeth: I’m always being told to go to these small business owner meetings in my city. I went to one, and it was the worst. It was basically a group of twenty people who didn’t own businesses but were basically just trying to latch on to any unsuspecting fool with a good idea that stumbled into the meeting. Literally, not a single person actually ran a legitimate business.
Gene: Mm-hmm (affirmative)-
Elizabeth: It was a bunch of people with half-baked ideas and unqualified skill sets trying to come up with ways to “do business with me”. Quote on quote.
Gene: Mm-hmm (affirmative)-
Elizabeth: Think of a room filled with “business consultants” who have never run a business or who have no understanding of the technology field I am working in. I left there with a jacket pocket packed with business cards that I just threw out, the cards, not the jacket.
“How can I find like-minded people who have actual experience and more compatible skill sets that will help me with my business/app?”
This is a great question!
Gene: It is a great question. By the way, he could not be more spot on.
Elizabeth: I know!
Gene: Some of the experiences I have had at networking groups … Everyone here is either looking for a job, or they are like a life coach. I would like to meet someone who is actually running a bonafide business.
Gene: You know what I mean? I could tell you some advice, when we are talking about networking, that I think works really well. The best networking that anybody can do is in their specific industry. Right?
Gene: You are going to pay for it, by the way. He has to first of all decide, is he in the food industry, or is he in the app development industry.
Elizabeth: I think it is more of a tech play.
Gene: Could be, but that is up to him to decide, and by the way, maybe it is both. He needs to find easily online, one of the hundreds of app development conferences, for example, that go on around the country. Find one that suits basically the content that they are doing, the agenda that they are doing, the speakers that they have, the company that sponsors it. Then go for a few days, because it is usually an out of town, two to three days. He is going to go to one of those or maybe he is a foodie guy. Maybe he’s both. If he is a foodie guy, he is looking for conferences in the restaurant industry, or for the fast food industry, or nutritional food industry.
When you go to those conferences, first of all, people that go there are paying to be there.
Elizabeth: They are serious.
Gene: They are serious because they are leaving work. My clients, the only time they leave their office, they don’t go to these networking events, they go to their industry conferences. So you are going to be there and not only get educated and go to some good forums or sessions or workshops. There is tons of networking available and now the networking is all people that are in the business, in some way or form, that you will then meet and talk to.
I mean, you are still going to get those few people that are looking for jobs, but a lot less because you have to pay and commit to be at those events.
Elizabeth: So spending a couple thousand dollars on a business idea so you can actually rub elbows with people who can help you launch this business …
Elizabeth: … there are people who might say this is a stupid idea.
Gene: That’s exactly right! You know you really want to talk to people who are in the industry already. Who might have already done this or might be prospective customers. But these are people that are serious people. That’s what I would do. It’s usually not going to be local, unless … He lives in Ohio, right?
Gene: It’s definitely not going to be local for him. If he lived in Vegas or Orlando he might of gotten away with something local. That’s what he should commit to, that’s the event that he should be going to.
Elizabeth: I love the idea for this app. I would totally download that app.
Gene: It’s very cool. The question is does he want to talk to developers that are developing similar apps and ask what features do they include, where do they hire their staff? You might have a bunch of interesting things to learn from people, so you might want to go to a technical conference, but that is up to him.
Elizabeth: What if you are not techie? What if you have an idea for an app but you are not techie at all?
Gene: Well, it depends on the industry that the idea for the app is in. Again, the technical part of it can be outsourced but you have to see if there is a market for it. So you are going to go to that industry for the app.
Elizabeth: Yeah, okay. All right we are going it be right back with question two, about starting a business, after a word from our sponsor.
QUESTION #2: C Corp or S Corp
Elizabeth: All right so we are back with question number two. This is about starting a business, and its from …
Gene: Don’t do it! Don’t do it!
Elizabeth: Yohan in Ceronak Lake, New York writes:
“I’m thinking of starting a business. Does it make a difference if I register as a C Corp or an S Corp?”
Elizabeth: Gene, I’m going defer to you on this.
Gene: You love having these … anything tax related … you want to …
It does make a difference. It actually makes a lot of difference, in certain ways. First of all, if it is a side business or a freelancer business or something that you are just kind of getting it up and running and it is unofficial you don’t have to form any of those you can just put it on your schedule C, to your regular 1040 tax return and that is for other income. You can deduct expenses against it.
However, if you want to make it official and you are really starting up a company and you want to get it going it is about liability and it is about tax rates. If you set up a C Corporation you are really protected from a lot of liability under a C Corporation, so that’s good, but you will pay higher tax rates. Because corporate tax rates, unless they get changed, by some of the tax reform thing that’s talked about or is being talked about now in D.C., you are going to be paying a rate that could be as high as thirty-four or thirty-five percent. Plus, when you want to take money out of a C Corp people take it out through dividends and you get taxed on that as well. C Corps are good for, mostly larger companies and companies that really want to make sure that they protect themselves liability wise.
An S Corp is the most popular form of set up for most small businesses. It provides most of the protection that you need from a liability stand point … and I’m looking at Elizabeth and she is yawning right now, she’s falling asleep as I’m talking … but an S Corporation is popular because it is easy to set up and it does provide you with probably enough liability protection. Also, all the income just filters right down onto your tax return, so it is easier to do your filings. However, an S Corp any income that you make is taxed at your individual rates, which depending on where they are could be higher than a corporate rate after your deduction. You have to evaluate which is going to cost you more.
I think, most people, have lower individual rates than the corporate rate and with some of the changes that are likely to happen in tax reform as well, an S Corp is going to be your best bet, to setting up for your company. Talk to your accountant!
Elizabeth: Do you need to incorporate if you are like, a life coach?
Gene: Right, so that gets back the schedule C on your 1040 return.
Gene: If you are doing a side business or you are a freelancer …
Elizabeth: What if it is your full time business though?
Gene: If it is your full time business then, yeah, I think you would incorporate as an S Corporation or even an LLC. That’s like a partnership, a Limited Liability Company. As a life coach, you know, you could be sued. Who knows? Maybe you coach somebody to end their life, I don’t know, or there is a really bad judgement and you get sued because of it and if you are doing that under the auspices of an entity you will have some legal protection.
Elizabeth: What if you are a freelance writer or a freelance video editor?
Gene: If you are doing it full time? Then, again, an S Corporation return is usually what we recommend to our clients.
Elizabeth: Could you get sued as a freelance writer?
Gene: Sure thing. You can sue … are you kidding me? Anybody can get sued.
Elizabeth: Yeah, I’m just trying to think of under what circumstances …
Gene: If you give bad advice that costs somebody money, or they followed your advice and it was negligent advice, kind of like all the advice that I give on this show! You know? If that’s the case you could open up yourself to being sued.
Elizabeth: All right, watch out Gene. Okay we will be right back with our word of brilliance.
WORD OF BRILLIANCE: Chinese
Elizabeth: Okay we are back with our word of brilliance from Gene.
Gene: My word of brilliance this week is Chinese, Elizabeth. Why would I be bringing up the word, Chinese? You will never get this. It has nothing to do with ordering food.
Elizabeth: I was hoping it was about food.
Gene: You are a traveler, you like to go over, maybe someday you will visit China as well. It’s a great country. China is a huge opportunity for American businesses and Microsoft has recently done something that will benefit any business, your business, if you would like to do business in China.
Microsoft Skype which is part of Office and we are all familiar with it as the video calling technology, now has an added feature that will do real-time instantaneous translation of a whole bunch of different languages, including Chinese.
Gene: Why I think that is really valuable to a business that wants to invest in learning it and getting it up and running and operational, again it is included if you have an Office 365 subscription, is that now you can think about if you have any Chinese suppliers and potential Chinese customers or you want to talk to a Chinese partner. Language is always the biggest obstacle. Now you can set up a Skype call and build in this interpretation service, and you will have the actual languages being interpreted in real-time as you have that conversation. I think that’s a huge bonus and benefit for any company that is looking to do work overseas. Not just Chinese, it is Spanish as well, and French as well and Ancient Latin and Greek …
Gene: … no, I’m just kidding, it is not Ancient Latin and Greek, but it is a bunch of different languages and I pick out Chinese in particular because it is obviously a growing big market for American companies.
Elizabeth: Are a lot of American businesses … what kind of work are they doing with China right now? I know they have a lot of suppliers there. If you are a small business, like a retail shop or something, where else could you look to expand?
Gene: The biggest issue with China is that selling into the Chinese market has always been very, very challenging. Okay, that is more of a thing than part of this conversation, it is more, supply, that is were it has really been. It’s about meeting suppliers and meeting potential customers and partners. Looking for something for somebody to buy cheaper in China, because goods are just cheaper to buy in China, that has been the number one reason why American companies do business in China. Unless you are a Starbucks or a McDonald’s and you want to enter the Chinese market and deal with the regulation and the system and all that, that is not usually something that most small business owners do. You are looking for supplies.
Elizabeth: Great. All right, that is going to do it for this week’s episode of The Small Biz Ahead podcast. We will be back next week.