Battling the bureaucracy? So are our readers, two of whom bring their problems to this month's Network. One's being hassled by the Internal Revenue Service; another finds his expansion plans stymied by state tax laws. Also: how do you make sure you get paid in timely fashion? How do you keep employees honest? If you have suggestions or experience to share, let us hear from you* * *
My housecleaning service employs 6 full-time employees and 84 independent contractors. In five years, with little more than elbow grease and ambition, I've built a profitable business. Apparently, however, the IRS doesn't respect us; it constantly questions our treatment of the independent contractors. State laws in this area are frustratingly vague. I try to make sure I follow them, but the IRS hounds my company anyway.
When I complained to my state representatives and asked them to work for clearer standards, they could promise only to "slap a few hands at the IRS." Do other companies have similar problems to mine? How should I approach this fuzzy legal area?
Sacramento* * *
Business is good at our dental and medical X-ray equipment company -- so good that we're considering national expansion. But that presents a problem. Once we establish ourselves in a state, whether with franchises, salespeople, or even a billboard, we establish a tax responsibility as well. Then we have to keep track of another set of rules for sales and property taxes. Some regions, like the Great Lakes states, have agreed to exchange information about sales tax, but elsewhere the codes are confusing and frustrating. Any suggestions for making expansion easier in this regard?
Fort Wayne, Ind.
The Money Pit
When I first saw INC.'s June article, "Getting Paid" ([Article link]), I thought I might get some much-needed answers. But few of your strategies apply to contractors. We have been in the commercial floor-subcontracting business for eight years. We get 95% of our business from general contractors. Typically, we order job materials and bill the general contractor for them; when we complete the job, we bill for the final contract amount minus a 10% retainer fee.
But even if we follow each contractor's, each architect's, and each owner's billing idiosyncrasies to the letter, it usually takes us more than 60 days to collect. Often it takes more than 90 days. That means more than 10% of our money is in limbo long after we've paid our bills. When we call the general contractor, we hear variations on a theme: "We haven't received a check from the owner yet, so we can't pay you," or "The roof leaks, and the owner won't pay until the roofer fixes it." The final payment is often held up by circumstances beyond our control. Does anyone have some pointers?
Interior Surface Co.
Cash in the Wrong Pockets
I run a business that sells stress-reduction services to companies. As part of the service, we massage each employee at the company for 15 minutes. These massages are inexpensive -- about $12 -- so most people pay for them in cash. Business has grown enough that I want to add some employees. I would pay them a 50% commission on each massage, but if they're paid in cash, what's to keep them from pocketing the entire $12, crossing the client's name off the sign-up sheet, and writing in "canceled"? I'd appreciate any suggestions on controlling cash and keeping employees honest.