Topics >  Managing Technology >  Internet and Online Business > 

Where, Oh, Where to Begin

Trying to decide what business to go into, and other perplexing problems.

Inc Query

This month we have another bevy of beautiful questions about choosing a business, getting the right corporate tax status, creating an online presence, and sharing equity with a salesperson.

Gearing Up to Take the Plunge
I am a 24-year-old student at one of the top 10 business schools in the country. I'm also working in a strategic consulting firm, which is fine, but my heart isn't in it. Hard as it is to turn your back on a more or less secure job in corporate America, I know I won't be satisfied until I have my own business. The problem is, I'm a bit confused about where to begin. For one thing, I can't figure out the best way to leverage my skills. In fact, I'm not sure how to identify entrepreneurial opportunities in general. Any advice would be appreciated. --Mike

You have good reason to feel confused, Mike. "I think it's real tough for anybody to go out and start a business in a world he knows nothing about," says Tom Golisano, the founder and CEO of Paychex Inc., an $870-million payroll-processing and human-resource-services company based in Rochester, N.Y. "My advice to Mike would be to find a job in a dynamic industry and then to be constantly on the lookout for opportunities within that industry. He can do a lot of investigation, research, and soul-searching without financial consequences as long as he maintains his job. In the process, he'll acquire in-depth knowledge of a particular industry, which will make him far more qualified to compete in it than if he had just walked in blind.

---

Hard as it is to turn your back on a more or less secure job in corporate America, I know I won't be satisfied until I have my own business.

---

"By the way, that's pretty much what I did before I started Paychex. I spent two years selling accounting machines, which were used, among other things, to process payroll. Then I spent two more years in sales and sales management for another payroll-processing company. Those experiences were critical to the success of Paychex -- because I knew there was a market for what I was trying to sell. That was a big advantage."

Trapped by the Tax Code
I am the operations manager of a small publishing company and the son of the entrepreneur who started the business. We will do approximately $2 million in sales this year. Lately, we have worked hard to streamline our operations, creating systems and procedures that have made us more efficient and profitable.

As a result, we have run into a problem. While we'd like to keep as much money as possible in the business to hedge against a downturn, we find that we're hindered by our corporate form and tax status. As a C corporation, we have to pay taxes of 39% on the portion of our annual earnings between $100,000 and $335,000. In addition, our inventory situation requires us to go from cash to accrual accounting this year, which makes it tough to switch to another corporate form. We could reduce our earnings by buying things, but spending money for its own sake runs counter to our culture. What would you do in this situation? --Jason

We'd get a very good accountant, Jason. Your business could be a case study in the importance of including tax planning as part of your overall business planning. You evidently came up with a good plan for your business, but you neglected to get good advice about the tax implications of achieving your plan. It also sounds as if you made a mistake in selecting the corporate form you adopted.

"The general rule is that a privately held business with a small number of shareholders should be an S corporation unless there are compelling reasons to have another corporate form," says Tom Feeley, founder and principal of Feeley & Driscoll PC, a Boston-based accounting firm that counts several Inc 500 companies among its clients. "I doubt that Jason and his father would have these concerns if their company were an S corporation, and it would have no trouble switching to S status if it were already on an accrual basis.

"But because the company has to convert from cash to accrual this year, it finds itself in a trap. The change will create on paper a lot of additional income. That income can be phased in over four years, but if the company switches to S status, it will incur an additional tax on the phase-in. The alternative is to wait for four years and then become an S corporation.

"There are strategies the company might use to make the S selection sooner without incurring a huge tax liability, but Jason and his father need help in exploring those options. They should find an accountant who has experience dealing with small, growing privately held companies. As for other private companies set up as C corporations, they should look into the advisability of becoming S corporations now -- before they fall into the trap Jason has found himself in."

Why Go on the Net?
My wife and I own a $3.5-million company that supplies and installs cabinets and provides finish-carpentry services. We have a reputation in Oregon and Washington as being the best company to work for and with. We're currently installing all the finish carpentry at the Seattle Seahawks' new stadium, and we have many other prestigious jobs. We're thinking about setting up a Web site, but I'm not sure how it would help us beyond being an electronic brochure. Am I missing an opportunity? --Bill

Read more:

9 Most Common Start-up Mistakes

Accelerator vs. Incubator: What's the Difference?

How Pinterest Really Makes Money

Bo Burlingham

Burlingham joined Inc. in 1983. An editor at large, he is the author of Small Giants: Companies That Choose to Be Great Instead of Big. The book was a finalist for the Financial Times/Goldman Sachs Business Book of the Year Award in 2006. Burlingham is also the co-author with Norm Brodsky of The Knack; and the co-author with Jack Stack of The Great Game of Business and A Stake in the Outcome.

Sign-up for our Technology Newsletter

Email Address: