Among my many absolutely fascinating activities, such as watching exotic tropical milkweeds attempt to take over my apartment, I own (and have owned) in part or in whole a couple of small businesses, including sole proprietorships, LLCs and California C corporations. It’s been fun and interesting, and definitely an education.
First C corporation
One of the most interesting aspects of owning and operating a corporation is that the state of California apparently regards corporations as having bottomless pits of cash. As if “corporation” were some magic utterance by which cash magically appears. Thus, we got offers from various state agencies boasting “opportunities” to learn more about how to better comply with various regulations (that means sending cash or paperwork to the state). Such workshops have both direct and opportunity costs associated with them, over and above the regulatory compliance.
Then there’s whole notion that businesses pay taxes. They do not. They collect money from their customers, then give part of that money to the government. C corporations are taxed as an entity, then disbursements to the owners or shareholders are taxed again. At the small business level, this proved not viable, and when that corporation was dissolved, I went forward with an LLC. If the LLC really takes off, where “Eye Pee Oh!” makes sense, it won’t be that expensive to restructure the business appropriately. Sarbanes Oxley compliance will be the much greater expense in that case.
Business spam is still spam
We also got a phenomenal amount of business spam. Business spam is similar to regular spam in two ways:
- The spammer obtained our email address from a third party list which we were most likely involuntarily listed. That is, we gave some company your email address (so a salesperson could call, perhaps), and that company sold, traded or otherwise monetized our email address as a prospect. Exactly like all those “enlargement” (!) or “make money fast” schemes in your personal inbox. Completely and totally unsolicited.
- Getting off such lists generally requires doing more work than the common double optin marketing lists. You may need to call, log in, or otherwise alert the spammer that there’s a real live person at the other end of the email. Whence, they have a qualified prospect to move to a different list, and the spam continues. Since these outfits aren’t running confirmed optin marketing lists. I just report them as spam. I haven’t checked, but I suspect that “legitimate” advertisers got themselves exempted from CAN-SPAM because they had the lobbying muscle when the CAN-SPAM act was proposed, and email marketing was “new.” The immediate effect, of course, hammers the email marketers. The long term effect is blow back on business spammers hard, as all consumers become much more aware of the much higher standards required for email and internet marketing. As I said, any email I get not coming from an opt-in list I report as spam.
The difference between business and personal spam is (supposed to be) that business spammers actually represent real companies selling real products and services. I wouldn’t know, we didn’t use any.
But I really don’t know how the business spammers can be in compliance with the CAN-SPAM act. Can anyone enlighten me here?
Employees… not a chance!
The biggest eye-opener was the cost of employees. I now know why companies lay off instead of reduce salaries: it’s cheaper to lay off or fire. When you lay off an employee, you get rid of all the state and federal overhead costs associated with that employee. Those costs run about what salaries cost. That is, if your company pays you $75,000/yr, you cost them at least $150,000/yr.
For larger companies, this isn’t that much of a problem. It turns into a problem when you want to hire someone unskilled to lick envelopes, and it costs you $30+/hr. That’s untenable. Which is unfortunate, because my intellectual time is worth a lot more than that. And if the envelope licker cuts his or her tongue, there’s whole ‘nother can of worms I don’t want to deal with.
Which small business type for you?
Choosing the structure most suited for your business can seem challenging, but it’s much easier when you have the right information available. I used several of the great business books from Nolo Press to help me decide. Here’s a couple of things I would do different had I known (this is not business or investment advice):
- Consider making an agreement with your partners to use the cheapest business service you can find to handle the incorporation details… such that when you find you need to dissolve or start over, you’re only out $200, and you can try again with more knowledge for another $200. With my first C corporation, we hired a lawyer, and it set us back a large chunk of change. We could have have experimented with a dozen different ways to structure the company for that cost.
- If you’re physically mainly in California, feel free to incorporate anywhere, but you are going to be taxed as if you were incorporated in California. It’s kind of a racket, but it works well for the state: we incorporated in California instead of elsewhere.
Currently, no more C corporations. I’m staying strictly with LLCs and sole proprietorships.
What’s your experience?
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It being tax season and all, that sounds useful. I’m all ears!