The reality is that it's likely going to take much longer than you think to get to where you want to be.
When I started my business, I made the mistake of spending a substantial amount of my startup capital on advertising. I thought, almost embarrassingly, that if I pumped enough money into sponsored listings with search engines and social media websites, clients would be flocking to me right away. That certainly was not the case. Because of that hasty decision-making and unreasonable expectation, I put myself and my business into a hole early on. It would have been much easier, and much less stressful, to start slow and start smart.
It’s easy to fall into a trap like I did, as we tend to tell ourselves something is bound to happen if we really want it. Silly, I know, but everyone can relate. It’s human nature to have faith in our beliefs even if that faith is unfounded. By putting some reason behind those beliefs we can give faith an objective ally.
In the beginning, there is really very little that you need to get started. Any new attorney can send out a nice letter to family and friends letting them all know what he or she is doing. In fact, I guarantee that, if it hasn’t happened already, your family and friends are going to be approaching you with plenty of legal issues they need advice about. Naturally, you’re not going to be able to help everyone because you simply don't have the expertise. But my point is this: There will be work that you will be able to do, and it will come to you with little or no effort. Of course, it’s probably not going to be enough to keep you up and running for the next few years, but it will hopefully show you that there are going to be people that need your help, and if you can keep reasonable expectations of how often those opportunities are going to arise, you are going to be ready to assist when they do.
That definitely does not mean that you shouldn't have lofty goals for what you want your business to become, but it does mean that you need to remember that it's going to take some time to reach those goals. In the short term, you need to look for small victories. Setting yourself up to meet realistic expectations is going to give you perspective and it's going to enable you to set realistic benchmarks for success. Hitting those will provide you with the motivation to keep pushing and give you optimism that you're on the right track. If you don't set reasonable expectations, you're never going to hit those benchmarks on time, and you may quickly convince yourself that you must be doing something wrong, or it's just not for you.
Set your expectations low and set yourself up for success.
Thinking that you're going to be pulling in $15,000 a month on a steady basis isn't realistic unless you are in an incredibly unique position in the market or geographically. I didn't pay myself a salary for six months as I built up a cash reserve and kept the lid on my spending. When I finally did pay myself, it was much less than my business plan or projections said it was going to be.
If you're expecting a $100,000 salary in your first year, don't bother taking the plunge into the world of solo practice. As has been said by practically any attorney who has done this before you, starting a firm isn't easy. And, a hefty paycheck certainly isn't going to come overnight. Reign in your expectations. Figure out the minimum you need to live and aim for that in the beginning. Your goal at the start is just to make it one more day. You're going to need time to feel out the market, establish yourself, and build your brand.
Understandably, it's hard to gauge where your firm will be in the future and when it will be there, so my advice is talk to other lawyers that have done it and ask them how long it was before they really truly were where they wanted to be. The answers might surprise you. They might give you a pessimistic view of whether you can actually succeed. But you know what? You can and you will, but only if you take it one day at a time and set reasonable expectations.
Oxford dictionary defines success as "the accomplishment of an aim or purpose." Often times we think of success in terms of achieving a particular level of wealth or outcome in a relationship or career. But look at the definition. Success is a finite concept. Once you find it, there's nowhere to go. You've hit the finish line. In business, how are you going to even begin to define what that finish line will be? Take a look at successful companies and you'll realize that they never hit the finish line—they aren't successful, but instead they are continually reaching for success while constantly redefining what success means to their businesses. You need to do the same thing.
Success by definition is a terminus. It's essential to the growth of your business that you don't ever feel satisfied. You should continually strive for success, but in doing so you need to always adjust your expectations and objectives in a way that is going to keep you moving forward. In business, there is no finish line.Michael F. Brennan is an attorney at The Virtual Attorney™ a virtual law office helping clients in Illinois, Wisconsin, and Minnesota with estate planning and small business legal needs. He can be reached at email@example.com with questions or comments, or check out his website at www.thevirtualattorney.com.
In a post last week I touched on some of the implications of the new tax law on pass-through business entities, like LLCs, S Corporations, partnerships, and sole proprietorships. Noticeably absent from that list is C Corporations. C Corps are the most common entity structure for America’s largest companies, like Apple, General Electric, Walmart and Target. It would be foolish to think any tax overhaul headed by republicans would be to the detriment of these behemoths. So, here are a few of the major ways C corporations will benefit beginning in 2018.
Corporate Tax Rate
Prior to the new tax bill being signed into law corporations paid income taxes based on their total income, just like individuals with rates ranging from 15% to 38%. Under the new tax law, all corporations will pay a flat 21% regardless of how much or how little the corporation makes.
Corporate Alternative Minimum Tax
Prior to the new tax bill being signed into law, corporations were potentially liable for payment of Alternative Minimum Tax (AMT), similar to higher earning individuals. Under the new tax law, beginning in 2018 corporate AMT is repealed.
For decades, US companies have been stashing profits internationally without incurring any tax consequences at a domestic level. That’s because under previous law, those international profits were not subject to tax liability immediately, but rather only upon bringing those profits back to the United States. And, doing so, would incur a tax liability of 35%. So, companies have been betting on being able to wait it out, so to speak in hopes that eventually that significant tax burden would be alleviated. Well, that time has come. Under the new tax law, domestic companies with profits abroad are given the ability to bring assets home to the US at an incentive tax rate of only 15.5% (only 8% on illiquid assets like equipment). For the country’s largest companies, that can be equal to billions of dollars in savings. In fact, just last week, Apple announced that it will repatriate its foreign cash holdings of more than $252 billion by paying a one time tax of $38 billion, so it seems the repatriation incentive is already achieving its intended effect.
There are numerous other incentives in the Tax Cuts and Jobs Act including the expansion of bonus depreciation, increasing the limit for Section 179 deductions, and easing the burden for other types of business entities wishing to convert to C corporations. All in all, tax reform will have a significant effect on taxes for the country’s largest corporations for the foreseeable future.
Michael F. Brennan is an attorney at The Virtual Attorney™ a virtual law office helping clients in Illinois, Wisconsin, and Minnesota with estate planning and small business legal needs. He can be reached at firstname.lastname@example.org with questions or comments, or check out his website at www.thevirtualattorney.com.
The information contained herein is intended for informational purposes only and is not legal advice, nor is it intended to create an attorney-client relationship. For specific legal advice regarding a specific legal issue please contact me or another attorney for assistance.
The Tax Cuts and Jobs Act, otherwise known as the tax reform bill includes some provisions which should prove beneficial to pass-through business owners. For those unfamiliar with the concept of pass-through businesses, they are the most common form of business ownership in the United States, particularly when it comes to small businesses. Pass-through entities include limited liability companies, partnerships, S corporations and sole proprietorships. The good news for small business owners with pass-through structured businesses is that beginning in 2019 (for tax year 2018) and running up through 2026, unless extended, they will be allowed to deduct 20% of all “qualified business income” But, the question then becomes, what exactly is qualified business income?
Qualified business income is defined as “the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer.” Less than helpful on its face, the definition turns on the meaning of a number if items, including what items are qualified. Well, put as simply as possible, qualified business income includes all business income except for a number of items, like reasonable S corporation shareholder compensation or guaranteed payments to stakeholders in an LLC, for example. But, overall, the new deduction has the potential to reduce small business taxes for pass-through entities by 20%.
Of course, this is the Internal Revenue Code, so there are a number of caveats, carveouts and specifics to ensure that abuse is curtailed and at least some semblance of fairness is written into the provision, or at least appears to be.
For example, there are phased-in caps on total income that qualify a business for the deduction and the deduction is simply unavailable for certain service trades and businesses unless they fall under certain income thresholds. Professionals in fields like law, accounting, and financial advising are not permitted to claim the deduction unless they fall under certain income benchmarks ($157,500 for single filers and $315,000 for joint filers), showing an obvious policy preference for favoring the manufacturing sector (one of those places we really only see a façade of fairness in the code).
The deduction is also limited to 50% of the W-2 wages paid by the business. So, with those caveats, it’s clear that the exact amount of the deduction is going to depend on the specific facts and circumstances of each business. For a great illustration of how the deduction for qualified business income would apply in various scenarios, I’d recommend reading Mike Piper’s detailed post on the qualified business income deduction over at Obvious Investor. Mike does a great job of using real life examples to show how the various nuances of the deduction may come into play for certain small businesses.
Regardless of the specifics, one thing is clear—the majority of small businesses operating as something other than a C corporation are going to see a benefit from this provision of the new tax law.
In the words of Benjamin Franklin, "an ounce of prevention is worth a pound of cure." Few places is that more evident than in the field of law, where taking proper measures to protect one's interests preeminently can ward off potentially messy situations down the road. Specifically, businesses that spend the time and resources to properly protect their interests before problems arise can limit their exposure to liabilities and lawsuits in the future. For that reason, it's important for every business owner to assess his or her exposure to legal risk from time to time and address any glaring holes in the business' risk mitigation practices.
When performing a legal audit of your business, ask yourself the following questions:
► Are you up to date on required filings, like your annual report, trademark and assumed business name renewals, business licenses and other registrations?
► Have you reviewed your operating agreement (if an LLC) or shareholder agreement and bylaws (if a corporation) within the last year to ensure they accurately reflect your business structure and operations?
► If you have employees have you assessed their status as exempt or non-exempt employees and determined your obligations to pay overtime?
► Have you appropriately classified your workers as employees or independent contractors?
► Do you have a written employment contract with each employer and a written consulting agreement with each independent contractor, and are they properly classified as employees or independents contractors?
► Have all employees signed non-disclosure or confidentiality agreements to protect your business’ sensitive information like client lists, business practices, marketing strategies, etc.?
► Do all directors/shareholders/partners regularly hold formal annual meetings?
► Are all business decisions recorded in writing?
► Have all transactions involving the business been properly documented?
► Is your business having difficulty collecting payment from your customers?
► Does to business have written contracts with all vendors and customers?
► Have you secured your trademarks?
► Have you reviewed your insurance in the past year with your agent to ensure sufficient coverage types and amounts?
If, after thinking about those questions you feel there are potential areas that may need to be addressed, drop us a line. Let's make sure we tackle things before they turn into expensive issues. You've worked hard to build your business, let us help protect it.