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Network: June 1990

Network reader-to-reader advice.
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Pet Project
Sharon Bennett and her husband think they're ready to take the plunge, moving their pet-collar and leash company out of their garage and going full-time (Straining at the Leash, March, [Article link]). Any advice, they asked, from readers who have been there?

* * *

I have raised three kids and have grown a business out of my home, and the best advice I can give Ms. Bennett is: do it slowly! My husband and I started a small manufacturing business in our basement and it soon exploded, spilling over into every square inch of the house. When we moved into our first building, the reality of overhead, employee benefits, and lack of capital dampened our momentum. We were amazed that such a little company could generate such large orders. Gearing up for the large orders sounds good, but in fact, they almost cost us our business.

Before you rent a building, check with your local chamber of commerce about business incubators. These offer many advantages, but the most important is access to business experts. When you do go full-time, give it all your passion and energy; it's the most fun you'll ever have!

Diane R. Lewis

Zimmer Foundation

Ann Arbor, Mich.

* * *

My company developed the Cat.A.Comb, a popular cat brush. I handle sales and administration from my home and send manufacturing out to centers for the handicapped. We have six-figure sales and distribution through mail order, pet stores, and mass merchandisers. I advise Ms. Bennett to proceed with caution. There are probably a hundred different nylon collars on the market. Most distributors don't like single-product manufacturers -- and if her product is hot, another company with national distribution will copy it and steal her distributors from her.

If she still wants to proceed, she should line up a strong sales force and research what's already out there. She should also attend trade shows. The American Pet Products Manufacturers Association, for instance, will host its annual trade show this month in Atlanta. Ms. Bennett can contact the executive director, Jules Schwimmer, at (212) 867-2290.

Arthur Leopold

President

Tarel Seven Design Inc.

Secaucus, N.J.

* * *

I own a small-business training and counseling company in the Chicago suburbs. I meet a number of people who have started businesses at home, and I can suggest two resources that they have found helpful.

Overall, the best book on managing a home business is Homemade Money ($18.95) by Barbara Brabec, Betterway Publications Inc., P.O. Box 219, Crozet VA 22932. Also, the National Association for the Cottage Industry here in Chicago conducts seminars, publishes a newsletter, and encourages networking among home-based businesses.

Jeff Williams

President

Creative Market Solutions

Skokie, Ill.

* * *

I have done what Ms. Bennett wants to do, and it's worked. But I suggest that Ms. Bennett's husband wait for the business to pay for itself before quitting his government job. Also, the Bennetts will need employees to help when sales take off. They should factor that cost into the equation before moving the business out of their home.

Lindsey Fisher

President

Racquetech Inc.

Lafayette, La.

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Make a Bid
Doug Crane's woodworking business has grown steadily on the strength of referrals and advertising. Now, he wants to grow the company faster, and he asked for advice on finding jobs and bidding for them (Out to Bid, March, [Article link]).

* * *

I faced the same problem Mr. Crane does. My answer was a service provided by Advanced Techniques in Cheshire, Conn. Construction Online allows small construction companies to learn what products contractors require and to bid for the work. I enter a product code and indicate where I want to work. I receive a list of projects in that area requiring the products I sell, including information about the project and where to send my bid. I also check my electronic mailbox, where I find from 5 to 20 requests each day from companies seeking bids on my type of products.

My business has easily tripled since I began using this service.

Mike Belemere

New Haven

* * *

Mr. Crane should order the F. W. Dodge Service for his specific area of interest. This is a list of all new projects and requests for construction permits in his area. Success will take digging, but all the necessary information is in these reports. Alternatively, he could hire a salesperson to call contract design firms, contractors, developers, and building managers, and ask if they know of any projects. Or he could use direct mail to introduce his firm to these people. He would have to prepare literature and buy a mailing list for the targeted region.

I had the same problem five years ago when I started my contract case goods company, and these marketing methods took the business from nothing to $3.5 million in three or four years.

Lester Weinman

President

Caseworks Furniture

Tucson

* * *

Mr. Crane should consider joining an organization of builders such as the Associated Builders and Contractors, where he could meet general contractors, network with them, and discover what jobs they have available.

John Smyth

President

Calvert Plumbing & Heating Co.

Baltimore

* * *

Mr. Crane could join a building association where managers meet and get to know the managers in his area. He should also get The Blue Book of Building and Construction (New England edition). If he wants to bid on government work, he should contact the General Services Administration and local government agencies. Out here in California, as we see buildings going up, we find out who the tenant improvement contractors will be and solicit them heavily.

Gary Pietruszka

President

Woodworking by Degree Inc.

Sylmar, Calif.

* * *

Tax Returns
After retiring, David Smith formed an S corporation and began consulting for companies as an independent contractor. He pays Social Security taxes for himself and his wife. But his accountant told him that S corporation earnings are not taxed as self-employed income, and so he needn't pay Social Security. Afraid of losing his benefits, he wrote to Network for help (Taxing Problems, March, [Article link]).

* * *

Mr. Smith is correct in believing that his earnings from the S corporation are not self-employment income and therefore not subject to Social Security taxes. But an S corporation requires that reasonable compensation be paid to shareholders who provide services to the corporation. If Mr. Smith is audited, some of his earnings may be recharacterized as regular wages, on which Social Security and federal income taxes should have been withheld.

Also, he says he's paying his wife wages and is withholding taxes. If his wife is not providing services to the corporation as an employee, but is receiving a salary just to get her Social Security built up, he has another problem concerning reasonable compensation.

Robert Houston

Tax Manager

Coopers & Lybrand

Oakland, Calif.

* * *

Mr. Smith has lots of company; many people do not understand S corporations and payroll taxes. If he pays himself a reasonable salary, he will assure himself of continuing credit for Social Security benefits. But I have a question for Mr. Smith: why is he incorporated? I doubt there are advantages in the situation he describes.

Dan Bowser

Owner

Bowser & Associates

Durango, Colo.

* * *

Patent Pending
Network has received many queries from readers with ideas for new products or services. In March Manuel Byrge asked readers for advice on approaching potential investors and on protecting his plans (Selling an Idea, [Article link]).

* * *

While it's true that Mr. Byrge cannot patent a service, objects used to provide that service -- software, manuals, and instructions, for example -- may be patented or otherwise protected. He should file a disclosure document with the U.S. Patent Office. For a $10 fee, he can establish the date he conceived his idea and protect it for two years while he gets his idea ready for a patent.

When approaching large companies with his plans, Mr. Byrge should describe the benefits of his project, its profit potential and resource requirements, and offer to discuss details only after the company signs a confidential nondisclosure agreement.

Srikumar S. Rao

Professor

Long Island University

Long Island, N.Y.

Last updated: Jun 1, 1990




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