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How to Pick the Right Entity: LLCs v. Corporations

When you create a business plan, you probably talk about finance, marketing and similar topics. But have you ever stopped to think about what kind of business entity makes sense for your new business?

There are a lot of options out there including LLCs, Corporations, Non-Profits, Partnerships, and more. LLCs and Corporations are the most popular for entrepreneurs creating for-profit companies. And in recent years, LLCs have been the favorite. But they are not always the best.

Below are a few thoughts to help you decide if an LLC is for you:

FORMATION

It’s easier than ever to form a business online. Most Secretaries of State allow you to form LLCs and corporations through their website and most charge a relatively small fee to do so (usually less than $200).

You might be surprised that when you form an LLC you usually don’t have to provide too much information to the state. Some states only require your business name and registered agent. Those that require more often don’t have too many more requirements.

That makes LLCs pretty attractive because when you form a corporation you often have to provide more information such as information regarding stocks, officers, directors, and more.

INTERNAL GOVERNING DOCUMENTS

Every business needs a set of governing documents. For LLCs, this usually just means an Operating Agreement. That document will outline each owner’s rights and responsibilities with respect to the company, including voting rights, economic rights, and more.

This is another factor that makes LLCs attractive because your governing documents are relatively simple. Further, LLCs are flexible. You can have different types of owners, different management structures, and you can choose how you want to be taxed.

As a comparison, corporations often have Bylaws, Shareholder Agreements, and a small number of other governing documents.

OWNERSHIP ISSUES

One big drawback of the LLC form is that it can’t issue stock options the same way a corporation can do so. Accordingly, if your business plan calls for stock options, you may need to consider forming a corporation instead.

MANAGEMENT

You’ve probably heard about shareholders, boards of directors, officers, and the like. Those are typical of every corporation. It is owned by shareholders who elect a board of directors who hire officers (presidents, treasurers, etc.).

LLCs typically don’t have all of those roles. They usually just have owners (called members) and one or more “managers” who make decisions for the company. This is often a good thing because most new companies and most small businesses don’t want to deal with the complicated management structures in corporations. And further, if you really want a board with officers, you can always create those in your LLC’s operating agreement.

TAX ISSUES

Perhaps the biggest factor you should consider is tax issues. If you form a corporation, you’ll effectively be taxed twice–once on the corporation’s profits and once when you issue dividends to shareholders. For this reason, many corporations make an “S-Corp” election to avoid the corporate-level taxes. That is often a good idea for small businesses, but it is often a bad idea for high-growth potential startups.

This is where LLC’s come into play. When you form an LLC, you get to choose how you want to be taxed. More specifically, you can choose between sole proprietor taxation, partnership taxation, S-Corp taxation, or C-Corp taxation. This is a big benefit of choosing the LLC form for your new business.

NEED MORE HELP?

If you are looking for more tips on how to structure your new business for success, consider enrolling the free FastTrac program offered by the Kauffman Foundation. Their online courses dive deeper into these issues and more. Learn more and sign up for free at www.fasttrac.org.

CONTRIBUTOR: Chris Brown, Attorney/Founder, Venture Legal

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Exhibiting at a Fall Festival or Event? Make the Most of it.

Temperatures are dropping, leaves are falling, and there’s a good chance a number of fall festivals and events are popping up in your area!

Exhibiting at a local fall festival or event is an effective way to build your brand recognition and your customer base. If you’re new to the market, exhibiting your products or services at an event booth can help you spread the word about your business and what you have to offer. And if you’ve been around for awhile, exhibiting at an event or festival can help you reach a previously untapped customer base, launch a new product or service, or conduct real-time market research.

One of the most stressful parts of exhibiting at an event or festival is prepping! We recommend making a list so that you don’t forget anything. And to help get you started, we’ve compiled four must-haves that you should bring with you, regardless of your business or industry.

4 Things to Bring to Your Festival or Event Booth

1. YOUR ELEVATOR PITCH

One of the biggest advantages to exhibiting at a festival or event is that you’ll have a captive audience. A steady stream of people will be walking by and visiting your booth. And that means you need to be ready to (briefly!) tell them what you’re all about. If you haven’t yet developed an elevator pitch, they’re typically one minute in length. That’s not much time, so you should be able to clearly and succinctly articulate what you do and why you’re different. In an action-oriented setting such as an event or festival, you may also want to include a CTA. Will you have a product for sale that you want a prospective customer to try? Or could they sign up for your email list to get product or service updates? Think about what you’d like your booth visitors to do, then tailor your elevator pitch accordingly.

2. INVENTORY

Sounds like a no-brainer, right? But there are a couple of inventory-related questions you’ll want to think through before your event. The first is how much inventory you’ll bring. See if you can get an idea from event organizers or a fellow exhibitor about how many attendees are expected. Then, plan to bring inventory to cover 5 to 15 percent of the project attendance. As you exhibit at more shows, you’ll have the sales data to refine your inventory so that you’re bringing just enough. Depending on what you sell, you might also consider offering samples or testers. And think about how you want to display these items.  If this is your first event or festival, you don’t have to blow your annual marketing budget on your display. Your booth, like your website, is fluid and will evolve over time. That said, a few display fixtures and a table skirt (use a clean and pressed black bed sheet, in a pinch) can go a long way in making your booth look polished and professional. One more thing: make sure you can take payments, including credit cards. Bring change for cash payments and equip your smartphone with a Square reader or the PayPal Here app so that you can process card payments with your business account.

3. MARKETING MATERIALS

Business cards, brochures, informational postcards — you’ll want to be sure to have a few marketing materials on hand that prospective customers can take with them to learn more about your business, stay in contact and make a purchase. If you haven’t yet developed marketing materials, consider this as good a reason as any to create an introductory piece! Start with business cards and an informational postcard that tells people more about your story and what you offer. Include ways to connect, including your website and social media channels. You could also create a tailored marketing piece like a coupon that will help you track the efficacy of the event or festival. You’ll want to track your sales during the event, of course, but you might also consider giving people a coupon with a code for a percentage off a purchase, or another perk like free shipping. That way, you can decide if this particular event or festival is a good fit for your business and worth making a recurring part of your marketing and outreach strategy. If you’ll be exhibiting at multiple events or festivals, you might also consider in investing in booth materials like a branded table skirt and a pop-up banner. They’ll give your booth more polish and also help you draw in attendees to learn more about your business.

4. AN ASSISTANT

Let’s clarify: bringing someone with you to help staff your booth isn’t mandatory, but it’s definitely a good idea, especially for multi-day events or festivals. For one thing, booth hours can be long, and it’s nice to have company and conversation.If you’re exhibiting at a large event or festival, it might be worthwhile to have someone with you so that you can talk (and sell) to more people. Don’t yet have employees? That’s not a problem. See if a friend or family member will help out (ideally for compensation, rather than as a favor). Just make sure that if the person working with you isn’t an employee, they’re well-versed in your business so that they can confidently talk to prospective customers. Having someone with you can also help boost other marketing efforts, including getting photos and video to use on social media and your website. And you can flip a coin or play rock, paper, scissors to decide who’s going on food and coffee runs!

Now that you’re feeling more prepared to exhibit at an event or festival, what’s the best way to find upcoming events? Try searching the calendar or events page of your area Convention & Visitors Bureau or Chamber of Commerce. You might also want to check with local entrepreneurial resources to see if they have a list of upcoming events that might be a good fit.

One last tip? If you get stuck on honing your branding or elevator pitch — or feel like you need a marketing refresher — register for our free Kauffman FastTrac online course, which covers a number of topics to help you launch your business. The immersive class is self-paced, so you can take modules whenever it fits with your schedule. Just sign up, grab your favorite fall beverage and dive in!

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Should You Work From Home? Answer These 4 Questions

Break out your favorite coffee mug and your best pajamas: it’s Work From Home Week!

According to Fundera, 3.7 million employees worked from home at least part of the time in 2017. That number is undoubtedly higher for entrepreneurs, especially those who are preparing to launch or just launched their businesses.

There’s a lot to love about working from home: no dress code! Flexible hours! Play your music or Netflix shows as loudly as you want! And if you have pets, furry coworkers!

But there are some downsides, too — working from home isn’t for everyone, and sometimes it doesn’t make sense for your business.

As you ponder whether working from home is the best fit, answer the following four questions to help you decide your ideal office space scenario.

1. WHAT ARE YOU LOCAL ZONING REGULATIONS?

Start here, because this will determine if you can even work from home. Check your city regulations to see if they have any stipulations regarding home-based businesses. You may also want to check with your homeowner’s association or landlord to ensure that all of your bases are covered.

If you do find something that prevents you from working from home, it might be tempting to see if you can sneak under the radar, especially if money to secure office space is tight. Don’t do it! Part of being a successful entrepreneur is adhering to a variety of laws, regulations and guidelines, and you don’t want to risk getting your business in trouble.

2. CAN YOU AFFORD AN OFFICE?

Budget is one of the biggest factors in determining whether you work from home, opt for a desk or office at a co-working space or buy or lease your own office space. Early-stage entrepreneurs, who are still building capital and revenue, are more likely to start out working from home, then expand to an outside office space as their budget allows.

If you find yourself going stir-crazy or in need of human interaction but you can’t afford to lease or buy office space, do a little research to see what’s available in your area. Many coworking buildings, for example, will offer one day a week of free space so that anyone can drop by and work (space permitting). You could always post up for a few hours at your neighborhood coffee shop. Public libraries are another popular option, especially if you prefer a quieter atmosphere.

3. HOW MUCH SPACE DO YOU NEED?

Assess your business and your workflow. If you need room for production, assembly or shipping, for example, you may find that a home office doesn’t quite cut it.

As you assess your space needs, turn a critical eye to your home. Do you have any unused space that you could use for your business, not including a work area? We strongly suggest keeping your workspace and living areas separate, if at all possible. Work-life balance boundaries — already a struggle for entrepreneurs — can easily blur when you live and work in the same place. Your commute might only be a flight of stairs or even a few steps, but giving yourself a dedicated workspace can help you maintain the separation you need to keep yourself from overwork-induced burnout.

If you do have room to accommodate your workflow — at least to start — you can furnish the space without derailing your budget. Try a kitchen supply store for affordably priced, industrial shelves that are ideal for a variety of storage. A desk or table is, of course, a must, and if you do spend a little more money, invest in a quality office chair that provides plenty of support. Make sure you have a stock of office supplies, including printer ink or toner and paper, pens, mailing and shipping supplies, filing folders, notepads and a stapler, just to name a few.

4. CAN YOU MAINTAIN YOUR IDEAL OUTPUT (AND STAY ON TRACK) AT HOME?

One of the challenges of working from home is that it can be difficult to maintain a consistent schedule. You might find you have interruptions at home, for example, especially if the kids are home from school or your pets want some extra attention.

It’s also easy to let your attention wander at home. You might step away from your desk to take care of a couple of chores, or grab a quick nap. And then there’s that pesky TV that’s beckoning you to Netflix and binge.

Of course, maybe you’re incredibly disciplined and you can work anytime, any place, no matter what’s happening around you. (If so, teach us your secrets!) But it’s worth keeping an open mind as you start working from home. If you’re curious about how much you’re working, try using a time-tracker app. And don’t be afraid to set (and spread the word about) your schedule. Let’s say you worked 8 a.m. to 5 p.m. in an office. Family members, friends and peers would generally respect that time, right? It shouldn’t be any different when you work from home. Establish your working hours, and give yourself a couple of short breaks and lunchtime.

And if, after a few months, you find that you really can’t get much done working from home, that’s OK. Check your budget and see what your options are for office space.

Ready for a bonus tip? If you do work from home, be sure to check with your accountant to see what expenses you might be able to deduct from your taxes. This is when dedicated office space within your home comes in handy: you can measure the square footage of your work space, then calculate (and deduct) that percentage of your rent or mortgage. Again, check with your accountant to understand all of your options and ensure you’re maximizing every possible deduction.

Now you’re ready to make an informed decision about whether working from home is right for you and your business. To those entrepreneurs who already work from home, we raise our coffee cups to you. Happy Work From Home Week!

While perfecting your new business plan and starting a business, you’ll need help. And along the way, you’ll need to share your secret sauce with people outside of your inner circle. When you do, you should consider using non-disclosure agreements (NDAs) to protect your confidential information.

In this post we’ll look at five things you should consider when working with NDAs.

1. MUTUAL OR UNILATERAL

There are two types of NDAs:

• In a unilateral NDA, only one party is agreeing to protect the other party’s confidential information.
• In a mutual NDA, both parties are agreeing to protect the other party’s confidentiality.

Which type you use is dictated by the circumstances of the deal. For starters, if only one party is disclosing confidential information, a unilateral NDA is probably appropriate. However, if both sides are disclosing their confidential information, then a mutual NDA may make more sense. But you should note that you may not always be able to get a mutual NDA. For example, some larger companies refuse to sign NDAs with smaller companies simply to reduce their risk.

2. “CONFIDENTIAL INFORMATION” DEFINED

Almost every NDA will include a definition of what is, and is not, “confidential.” Sometimes it will be very explicit and include a large list of items. Other times it will be simplified to something along the lines of anything that a “reasonable person would deem confidential.”

In either event, you need to ensure you know what is going to be considered confidential. And further, you should consider whether you need any exceptions to the definition (for example, information that may have been confidential at one point but later becomes publicly known).

3. RESTRICTIVE OBLIGATIONS

The next thing to consider is what the recipient is actually prohibited from doing. Depending on the complexity of your NDA, you may see one to three common restrictions:

• The recipient may be required to use commercially reasonable efforts to protect the confidential information they receive under the NDA.
• The recipient may be prohibited from disclosing the confidential information to third parties.
• The recipient may be prohibited from using the confidential information for any reason not authorized under the NDA.

However, you should also consider whether there should be exceptions to those restrictions. For example, you may want permission to disclose the confidential information to third parties (but only if it is in the ordinary course of your business and only if they agree to protect the information in a similar NDA).

4. DURATION

There are various approaches to the duration of NDAs. Some NDAs will be perpetual in length, but more commonly you’ll find some pre-defined term. Often between one to ten years (five may be the most common).

The length may depend on the nature of the relationship. If you are just exploring a potential relationship, it might be five years from the day you sign the NDA. However, if you are going to be working with someone for a few years, it might be the length of the relationship plus five years. Further, consider adding a statement that the NDA should not be used to reduce any obligations a party may owe the other party under applicable trade secret laws (which exist separate from the contractual obligations under the NDA).

5. “HIDDEN” TERMS

And last, but certainly not least, always consider if there are additional terms that might be “hidden” in the NDA. For example, in a stand-alone NDA (one that exists separate from other service-related agreements), the NDA probably shouldn’t transfer ownership of IP or grant a license to IP. And it probably shouldn’t include non-competes, non-solicitations, and the like. If you need those provisions, then you probably need more than just an NDA.

DON’T STOP HERE!

In addition to legal topics, you have a lot of ground to cover when starting a new business. To help, you can enroll in the Kauffman Foundation’s free FastTrac program at www.fasttrac.org.

“Ask for Help.” How Coffee and Conversation Can Transform Your Business

No matter where you are in your entrepreneurial journey, you’re going to get stuck.

And that’s not a bad thing!

What’s important is how you deal with the challenge. The solution seems simple enough, but it’s not always easy to do.

“You ask for help,” said Danny O’Neill, founder of The Roasterie and a Kauffman FastTrac alum. “You ask those who’ve done it. Those who know just seek.”

Why not start those conversations over coffee? National Coffee Day is coming up on September 29, and to celebrate, we decided to showcase the connection between two important entrepreneurial tools: coffee and conversation.

Whether you’re building your network or sitting down with a fellow entrepreneur to bounce ideas off each other or discuss an obstacle you’re facing, you can’t underestimate the power of staying connected to your entrepreneurial peers. To help give you some ideas about how you can tap into the benefits of coffee and conversation, we’ve compiled a list of caffeine-fueled gatherings that we think should be on your radar.

1 Million Cups: The Kauffman Foundation launched 1 Million Cups in 2012 based on the notion that “entrepreneurs discover solutions and engage with their communities over a million cups of coffee.” 1 Million Cups has since grown to 180 communities, which means there’s probably a 1MC meet-up near you!

The foundation of 1MC — besides coffee, of course! — is weekly meet-ups that feature presentations by local entrepreneurs. This is a prime opportunity to share more about your business with an active, engaged audience to build your brand recognition.

“It’s not a sales pitch, and it’s not an investor pitch,” according to 1MC. “The goal is to have people understand what you do and some of the challenges you have had in building your business.”

Check out what 1MC events are coming up in your community and consider applying to be a 1MC presenter. Think of it this way: 1MC meet-ups are also an effective way to polish your elevator pitch. Just don’t forget your business cards and, of course, coffee!

Creative Mornings: Each month, people interested in creativity and connecting with others gather for this breakfast lecture series that launched in 2008 in New York. Now, Creative Mornings has local chapters in more than 180 cities around the world, including Kansas City.

Don’t let the name fool you: you don’t need to run a creative business to attend Creative Mornings. These monthly meet-ups are more about inspiration; about showing you what’s possible; and about helping you tap into the incredible creative and entrepreneurial energy that’s buzzing around your own community. In addition to networking time, you’ll hear from a speaker who structures his or her talk around a one-word theme (i.e. community, chaos, craft) that’s followed by all Creative Mornings chapters.

Oh, and did we mention free (usually local) coffee? We bet you’ll be buzzing when you leave a Creative Mornings breakfast — and it won’t just be the caffeine! Find an event near you.

Your neighborhood coffee shop: When’s the last time you invited a fellow entrepreneur out for a cup of coffee? There’s no doubt that being an entrepreneur can sometimes make you feel isolated. That’s why meeting up with other entrepreneurs isn’t just helpful — it can be downright invigorating!

A casual conversation over a cup of coffee can also be an effective way to follow up with a new connection. Instead of throwing those business cards you’ve collected in a pile and forgetting about them, why not schedule a follow-up chat? Networking events are wonderful, but they’re not always the best place to get into an in-depth conversation, especially if you want to meet multiple people. By scheduling follow up chats, you’ll learn more about fellow entrepreneurs, have an opportunity to share more about your business and see if there are ways you can help each other succeed.

If your business allows, you might also consider working in a coffee shop a few hours a week. Your brain will appreciate the change of scenery, and you never know who you’ll bump into or meet! Bonus points if you bring your own mug to cut down on environmental waste.

BYOC with Kauffman FastTrac: If you find yourself stuck on a particular business problem or simply need a push in the right direction, try this. Brew your favorite coffee, grab a mug and register for Kauffman FastTrac, a free online course that gives you all of the information you need to know to start a business.

“FastTrac had a huge impact on me and a lot of my colleagues,” said O’Neill, who completed Kauffman FastTrac in 1994. “First and foremost, validation and, just as important, confidence. Not everybody’s honest about it but most of us are scared to death when we’re starting.”

Be Smart About Non-Competes, Non-Solicitations, And Non-Disclosure Agreements

Successful entrepreneurs understand how to use restrictive covenants (non-competes, non-solicitations, and non-disclosure agreements) to protect their businesses. In this post we’ll cover the differences and some practical tips for each.

NON-COMPETES

A non-compete is just that–an obligation not to compete with another party. These are most often found in some form of employment agreement and often prohibit the employee from competing with the employer while employed and for a period of years after the employment ends.

While most states will enforce reasonably drafted non-compete provisions, you should use them with extreme caution (if you use them at all). You may experience a direct benefit when using them with senior-level employees, but your business (along with other businesses in your community) will likely experience negative side effects if your community uses non-competes broadly. That’s because they restrict works, reduce innovation, and can cause long-term negative effects to local economies.

Rather than relying on non-competes, you might consider using non-solicitations and/or non-disclosure agreements to protect your company’s rights.

NON-SOLICITATIONS

Although related to non-competes, non-solicitations are different. These provisions restrict someone from soliciting your employees and/or your clients.

For example, an employment non-solicitation provision would prohibit a prior employee (or client) from inducing your employees to leave your company and to go work for them. And a client non-solicitation provision would prohibit a prior employee from asking your clients to fire you and to hire them.

In both cases, it is more likely to be enforced by a court if it is narrowly tailored to protect a legitimate business interest. Usually, this means limited to some degree to a number of years after the relationship between you and your employee (or client) ends.

It is almost always a good idea to include a non-solicitation (especially in the absence of a non-compete) to ensure your employment and client relationships are not harmed.

NON-DISCLOSURE AGREEMENTS

While you may or may not use non-competes and non-solicitations, you should almost always use a non-disclosure agreement whenever you are giving your confidential information to anyone–regardless if they are inside or outside of your company.

In short, a non-disclosure agreement will define what is and what is not “confidential” and then outline what the recipient can and cannot do with that information. Most often they will be required to protect it, not use it for an unauthorized purpose, and not disclose it to third parties. An NDA can be unilateral (in which case only one party has confidentiality obligations) or mutual (in which case both parties have confidentiality obligations).

You can create a stand-alone non-disclosure agreement, or you can just include a non-disclosure obligation in another agreement such as in an employment agreement.

BECOME A  SUCCESSFUL ENTREPRENEUR YOURSELF

As you can see, there are a lot of critical steps to starting a business and becoming a successful entrepreneur. To help, you can enroll in the Kauffman FastTrac program at www.fasttrac.org. With the program’s free classes and materials in hand, you can improve your odds of entrepreneurial success.

If you’re an artist, crafter or maker and you haven’t yet exhibited at a fair or festival, you may want to make a plan to do just that.

Pulling together the materials for a booth can seem daunting, as can talking to attendees for hours at a time.

Yet fairs and festivals—especially those that are maker-themed—can positively affect your business in a variety of ways. Let’s take a closer look.

1. BUILD YOUR BRAND.

One of the biggest advantages to exhibiting at a fair or festival is brand-building. Not only can you brand your booth—you should also distribute business cards and collateral like a brochure or postcard to introduce yourself and what you make.

Of course, that means you need to have these branded materials on hand, so give yourself plenty of time before the event to prepare. It’s tempting to go all out on your booth: Lights! Displays! Faux (or real) plants! All the swag! But pace yourself.

Start with the basics: a table or two, a table covering, risers or shelves to display your wares. If your budget allows, you might consider making a small banner to hang above your table, or a pop-up banner to place beside your booth. Be sure to check with event organizers to see if they have any guidelines on booth size and what you can and can’t use.

Other important items to have: business cards, an informational handout and a way to make sales like a tablet or phone equipped with a Square or other plug-in card reader. If you have an email newsletter or are planning to start one, you might also want to put out a sign up sheet so that booth visitors can opt in to get more info from you.

2. FIND YOUR AUDIENCE.

There’s nothing like a fair or festival to give you the perfect opportunity for real-time customer research and development, which is especially helpful if your business is newly launched.

Take note of who visits your booth and how they react to your product. You’ll likely find yourself striking up conversation with attendees, too, which can give you valuable insight into prospective customers, including what they’re buying and how they prefer to communicate with businesses.

Keep this in mind: you may not necessarily find your target audience at the first fair or festival at which you exhibit. And that doesn’t mean your business is doomed.

Instead, look at these events like any other business research: it takes time to understand where your people are and how to best reach them. If your resources allow, take a look at upcoming fairs and festivals not just in your city, but throughout your state or region. Then, see if you can exhibit at a few of them throughout a one-year period. Use each event as a learning opportunity; then, when you have a few fairs or festivals under your belt, look at where you had the most success and, going forward, put more of your resources in that particular basket.

3. TEST YOUR PRODUCT.

Just as a fair or festival can give you valuable, real-time insight on prospective customers, it can also be a helpful product development resource.

One of the key questions to ask is, “What’s the response to what I make?” Are products flying off the shelves? Are people browsing but not buying? And if they’re not buying, are they taking cards or collateral or asking if products are available online?

Again, a lack of sales doesn’t necessarily spell doom for your product. It may be a case of identifying your target audience. That’s why fairs and festivals are so valuable: you can see and interact with people in real time so that you can spot opportunities for improvement, whether in the product itself or your marketing. And if you don’t have a brick and mortar store, exhibiting at events is even more helpful so that you can still benefit from face-to-face interactions.  

4. NETWORK.

Most of your attention will likely be focused on your prospective customers, but fairs and festivals can also be prime networking opportunities. Here’s one suggestion: get to the event a little earlier than you usually would, then stroll around and see who else is exhibiting. Have some business cards handy so you can exchange info.

This is also a great way to check out other booths and get ideas for future displays, especially if regularly exhibiting at events is part of your business plan.

Some fairs and festivals might also host mixers or other networking events, so take a look at the schedule and see what’s available. Sure, your feet will be aching at the end of the day and you’ll probably want to head straight home. Yet there’s nothing like commiserating with your fellow exhibitors and swapping stories from the day!

 Don’t forget to follow up! If you hit it off with another exhibitor, don’t hesitate to invite them out for coffee or lunch once the event concludes. And at the very least, be sure you connect on social media with people you meet. Few things beat building an in-person connection, but in this digital day and age, online interactions can prove both effective and inspirational.

ONE LAST THING …

If you find yourself preparing for an upcoming fair or festival and get stuck, especially on key business attributes like branding and marketing, help is a few clicks away. Register for Kauffman FastTrac, a free online course that guides you as you prepare to launch your business. And even if your business is already up and running, take a look at the FastTrac topics and see if you need a brief refresher. It’s never too late to learn!

One of the most exciting parts to starting and growing a business is hiring other people to work with you. But for many entrepreneurs, this is one of the most complicated tasks due to regulatory issues. But with the right planning, you can make the right decisions to help your new business grow.

The key thing to remember is that when you hire someone to work for your new business, you need to classify them as either an employee or an independent contractor. Generally speaking, you’ll have less regulatory work to do when you hire independent contractors, but you’ll lose some control over their work. Conversely, when you hire employees, you’ll gain a lot of control over their work, but you’ll also gain a lot of additional regulatory obligations.

Regardless how you classify them, the IRS will have the final say.

To help you make the right classification, here are five things to consider:

1. CONTROL

When you hire an employee, you’ll have a lot of control over their services. You can dictate when and where they work, and you can oversee their performance on a daily basis.

However, when you hire a contractor, it is generally understood that the contractor will set their own schedule, will decide where to work, etc. You can have a say over their final work product and some control over the timing of the work, but the finer details are left to the contractor.

2. EQUIPMENT

As you can guess, business owners usually have to provide their employees with equipment to get the job done. For example, you may need to buy them a phone, computer, desk, and office space.

Conversely, when you hire a contractor, you don’t have to provide any of those items unless your contractor agreement requires you to do so. And even then, it is uncommon for you to have to buy their equipment. What’s more common is for you to just reimburse them for some things they might purchase for you under the agreement.

3. TAXES

Perhaps the biggest difference between employees and contractors is how you pay them and how taxes are paid to the government.

When you hire an employee, you will have to withhold portions of their paycheck for their income and employment taxes and then you’ll have to remit that to the government throughout the year. Additionally, you’ll have to pay a portion of their employment taxes to the government yourself. The process can be quite a pain and most companies outsource that function in one way or another.

On the other hand, when you hire a contractor, it’s quite a bit easier. You pay them their service fee, but that’s it. You don’t have to do any withholdings for taxes and they are responsible for all of their employment taxes. The only catch is that if you pay a contractor more than $600 in a year, you’ll need to file a 1099 with the IRS to let them know about the payments (see this post for more on that).

4. INTELLECTUAL PROPERTY

If your workers are creating anything which might be protectable under intellectual property law, then you need to pay special attention to the rules governing ownership of IP.

It’s kind of easy in employment relationships. In short, anything your employees create within their scope of employment will be owned by your business.

But for contractors, it’s not so easy. There are various rules at play, but what is important is to always get a written agreement with your contractor that makes it clear you own everything they create for you under the contractor agreement. If you don’t, they might be able to walk away with the intellectual property rights to the works you paid them to make.

5. TERMINATION RIGHTS

Most employee-employer relationships are “at will.” This means that either party can terminate the relationship at any time, for any (legal) reason.

Conversely, the termination rights of a business and its contractors is dependent on whatever your contractor agreement requires. Perhaps you can’t terminate at all; or perhaps either side can terminate with 30 days’ notice.

HAVE MORE QUESTIONS?

If you are at the stage where you are ready to start hiring people to work with you, you’ve probably got other questions about how to grow your business. That’s where the Kauffman Foundation’s FastTrac program can help you. You can enroll for free at www.fasttrac.org.

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6 Tips to Help You Start Your Side Hustle

Does this sound familiar? You know you want to start your own business, but for whatever reason, you can’t quite take the plunge into full-time entrepreneurship.

That doesn’t mean you have to put your dreams on hold. Instead, consider starting your business as a second job or side hustle while you maintain other employment.

If you already juggle a busy schedule, starting a side hustle will make things even more hectic. Yet some people thrive under pressure and accomplish more when they have a finite supply of free time.

Plus, testing your business idea as a side hustle means you’ll still have a safety net in terms of regular income, benefits and other employment perks.

Yet it’s not a decision to be made lightly. The biggest thing is to make sure your side hustle won’t be in conflict with your other employment. You don’t want to set yourself up for disciplinary or even possible legal problems with a current employer.

Once you’ve cleared that hurdle, put yourself on the path to side hustle success with the following checklist.

1. DEFINE YOUR VISION.

When you get caught up in the excitement of launching your own business, it’s easy to get lost in the details of your venture. Yet it’s so important to start by defining your entrepreneurial vision — you want to address the “what” and “why” before you start considering the “how.” Try answering these questions:

• What will your business offer?
• Why do you want to start this business?
• What makes your business different from your competitors?
• What do you hope to accomplish with your business?

Answering these questions — as well as defining your company’s mission — will not only help keep you on track, but will also help inform later work, such as crafting your company story and messaging.

2. SET YOUR BUDGET.

Ready to crunch some numbers? Here are a few important figures to consider: how much are you bringing in from other employment? How much money do you need for bills and living expenses? What are your initial and ongoing side hustle expenses?

You’ll want to break out costs of everything you can think of that you’ll need to get your side hustle going. Will you need inventory? Where will it be sourced/produced? Shipping materials? Office space or other premises? Support services? Research as many costs as you can to help prevent you from being blindsided by the cost of doing business. You might want to reach out to other entrepreneurs in your area to get their input. Or register for Kauffman FastTrac, a free online course that will help prepare you to start your business, including setting financial goals and identifying possible sources of funding.

3. ASSESS YOUR BUSINESS NEEDS (AND BE REALISTIC).

While you work on your budget, this is a prime time to assess your business needs. The most important advice: be realistic! When starting and running a business, it’s always easier to start small and then scale up. Use that same approach here. Do you *really* need separate office space, or can you run your side hustle from home for awhile? Supporting services can be another big expense. It’s a good idea to enlist the help of an accountant from day one — and, depending on your business and industry, a lawyer. Yet in your company’s early days, you don’t necessarily need to foot the bill for outsourced services like a marketing agency.

Try this approach. First, write down every single business need or expense that comes to mind. Then, revisit the list and pare it down to the essentials. Remember: you can always scale up as your business grows and you bring in more money. This exercise is more about determining what you absolutely need to launch (and run) your side hustle so that you’re not left scrambling.

4. LAUNCH A WEBSITE.

In today’s increasingly digital world, a website is among your business’s most important assets. A well-designed, responsive (read: mobile-friendly) website that’s easy to navigate will help more people learn about your company and understand why they should do business with you. There are a number of tools like Squarespace and Wix that can help you build basic, functional websites from a template. Or you can enlist the help of a web developer and designer to bring your vision to life.

Consider this, especially as you build your budget: robust, sophisticated websites aren’t cheap — and they shouldn’t be. This might be another place where you start small — with one of the aforementioned template-based tools, for example — and then refine or redesign your website once you can comfortably cover the expense.

5. FIND CUSTOMERS.

We’re guessing your goal is to build your side hustle so that, at some point, it becomes your full-time hustle! And that’s why it’s so important to find customers. A website is an effective place to start. You should also set up accounts on at least a couple of social media sites. Think about where your prospective customers might be and start there. Depending on your budget and type of business, you can also spread the word with direct mail pieces (assuming you have a mailing list) or go guerilla and distribute flyers in local businesses.

Another helpful resource: networking events. Grab a stack of business cards and share your side hustle story while you mix and mingle. And even in today’s technology-gripped world, few tactics can beat the power of word-of-mouth referrals. Make sure your friends and family know about your side hustle and encourage them to share the great news!

6. MAKE A SCHEDULE.

Starting a side hustle while you juggle other employment and a personal life can be challenging. And that’s why it helps to make a schedule. Where can you make time for your side hustle? If you have a full-time day job, for example, you’ll probably want to carve out early morning, evening and/or weekend hours to devote to your side hustle. If you can, try to schedule in time for personal interests, relaxation and self-care to help avoid burn-out and keep you as rested and refreshed as possible. As your side hustle grows and you bring in more income, then you can look at opportunities to scale back other employment hours so that you’re able to devote more time to your business.

Follow these tips and, before long, you just might find that your side hustle becomes your full-time career. We’re cheering for you every step of the way!

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Turning a Social Movement into a Business

To celebrate entrepreneurs and all the hard work they do, we’ll be featuring a Kauffman FastTrac graduate every month. Meet the people who once were in your shoes and learn how FastTrac can help a variety of people looking to start their own business.

Innovation can come from anywhere and anything. Imagine the creative freedom of being a performer, but struggling to put on a show without a record deal or the money to power an entire concert. AY Young’s path to entrepreneurship began here: no platform for his music, and no electricity to give off the full effect of a live music performance.

“I want it to be like when you walk into the Riot Room,” AY said. “I want it to feel like a concert.”

But with no money, no fans, and no backing, AY had to get creative. After discovering the sustainable use of car batteries, AY took to the streets of Kansas City, most notably the Crossroads and the Country Club Plaza, and put on his live performance, eventually earning the name The Battery Tour. He said he wanted to go where the people were at, so he could build a business through entertainment that would connect and get the world plugged in.

The Battery Tour consists of AY’s original songs, as well as popular covers. And since it’s an all ages show, kids dance to the Cha Cha slide and do the macarena, while other audience members try their hand at singing. It’s an interactive dance party, with the atmosphere of a live concert.

AY has traveled America, inviting thousands more across the nation to become Outlets (how he refers to the fans). While out on the road, AY said people would tell him that what he was doing was sustainable, environmentally friendly, and provided a platform for people to express themselves. The positive reaction got AY thinking: what happens to it when he’s gone?

AY enrolled in FastTrac when he got back to Kansas City.

“My whole life changed because of FastTrac,” AY said. “I think the most useful part of FastTrac for me, just personally, is just learning the appropriate way to build a business, learning how to scale one, learning what is highly scaleable, what may not be, the difference between a lifestyle business, just the differences and how to construct something, right? Construct a company and maybe even things like recognizing who to work with and who to partner with, what to look for in a partner, what to look for in a co-founder, what a founder is, like having those definitions that I never understood but I was doing business is really great. You have your measuring stick and now you won’t make some of those problems, and you won’t have some of those falls. Hopefully you can … You can still fail fast. One thing that I learned in FastTrack is to fail fast. That is okay. To fail fast, because you learn, you can apply, and adjust.”

The philosophy of the Battery Tour is all inclusive: for, by, and with the people. That’s why AY calls his fans “outlets”: “I’m like, ‘I’m AY and this is the Battery Tour,’ because there’s batteries. It just came out like, at a show, right? People would donate and donate and donate and things like that, and then some guy was just like, ‘Man, we’re your outlets. We’re powering the Battery Tour.’”

Community is what the Battery Tour is all about. And just like with AY’s Outlets, the entrepreneurial community can also help you succeed in your business. For AY, that just means you give back. Talking about his experience at a 1 Million Cups meeting, AY said it’s important to connect to other entrepreneurs, but while your connecting, you should support them as well. AY shared an experience he had at one particular meeting during which he saw a presenter talking about her yoga studio. Afterwards, he bought a yoga membership from her.

“Pay your dues, I guess, right?” he said. “Go pay that thirty dollar yoga membership thing and create a relationship with this entrepreneur or that business or that T-shirt company or whatever. I strive to do that in both, whether it’s music, or being an entrepreneur.”

As AY creates his social music movement, as he calls it, the business side of things allows him to cultivate a sustainable culture that supports artists and musicians and anyone wanting to join the scene, whether its through dance or song and simply being there.

It all started with a simple question: how to create a live outdoor concert experience without the money to do so? FastTrac can help you take an idea and turn into something potentially profitable, and possibly, something beyond that.

“It’s just kind of more than just the social music part and the live performance,” AY said. “It’s almost just like a family, right, of outlets that power each other. It’s really beautiful.”