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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

Low vs. High Margin Businesses: Which Is Right for You?
By Rick Bell Tuesday, March 24, 2015

Business MarginSmall entrepreneurial businesses can be broken into two categories: Low-margin businesses and high-margin businesses. You can analyze your best and most efficient path to attain your goals and choose your next business with greater understanding.

Often, the primary difference is in the DNA of the business model itself and is readily apparent to any business analyst, but many entrepreneurs ignore any analysis and go for their passion or convenience.

People go into low margin businesses because they love the type of work, or because they unexpectedly fell into it or because they followed in the footsteps of someone they admired, usually without consideration of the financial consequences.

Note these traditionally low margin businesses:

All types of home building contractors and sub-contractors, including all small plumbers, electricians, painters, flooring installers, framers, concrete finishers, tile installers, landscapers, blacktop companies too small for government jobs, etc.

Small one-location eateries of all types – less than 150 seating

Small private schools: Under 500 students enrolled on all levels of education, unless government funded.

Small doctor’s offices, in small towns with a low volume of patients

Small (one-of-a-kind) retail stores that charge reasonable prices, but not enough to pay the rent.

Small used car lots, in fact, used-anything lots.

Small hardware stores, and small retail stores.

Yet, exemptions to this rule abound! Times change, market size changes, the needs and desires of people change, and administrative and “tax” costs – in the broadest sense -- continue to rise without an accurate way to gauge them.

One thing is for sure: If you choose to engage in a low margin business your path to financial success (and longevity) will be more challenging than if you choose a high margin business. To put it another way, it’s just easier to succeed if you select a high margin business to engage in.

Common high margin businesses:

The easiest way to make a gazillion dollars in 2015 is to come up with an app for your smart phone that you seriously NEED. It’s not simple, but it’s easier than laying tile or mowing lawns.

Some individual high volume franchises: McDonald’s, Starbucks, etc. are real gold mines. If anyone you know owns one, go to work for them and, when they get old, offer to buy them out.

Get a law degree and take the bar: Big city lawyers work long hours at high rates, like $600  an hour PLUS a percentage of your winnings. PLUS you get the first pick at a lot of opportunities as a lawyer as you watch other people go under, or start up something with real potential.

Hedge funds: You’d be surprised at how easy it is to start a hedge fund. If you have investors ready to go, and you’re up for the ultimate challenge you can make it happen, with the right law firms.

Real estate developments that own the land your home sits on. If you control the maintenance fees, you’re set for life with just one property.

Condo management companies who can charge cost-plus and adjust their prices annually without resistance.

Jewelers – even small time / small town jewelers. Their mark-up is so sweet it’s hard to fail at this, even with one small shop in a small town, if you can develop a clientele. Parlay this into three large stores in a major metropolitan area and you’re set for life, and so are your grandchildren.

You Tube: The NEW Hollywood – even an amateur video can make gazillions. Just get your kid to bite his brother’s finger, how hard can that be? The key is, you have to capture it on video and post it to YouTube. Then ride the viral wave.

Realtors, even small ones who still get a percentage of the deal as commission and still get first opportunity to buy up the good stuff cheap, before anyone else even sees it. This is a GREAT career for someone who loves interaction with people, driving them around and making conversation. They usually end up rich, one way or another.

Most of today’s new entrepreneurs ignore the difference between high margin (HM) and low margin (LM) businesses when they start their first business.

Today’s entrepreneurs are attracted to the freedom to pursue their passion as a primary reason to start their own business. Second is their desire for the freedom to control their own schedule when they start their own business. Taking third place is the desire to make more money than working for someone else. And, lastly, in fourth place is the desire for an extraordinarily high monetary reward. From what we have seen over a period of 30+ years at HBS, most people starting a business want to do what they want, on their own time, that allows them to live well, as compared to working for someone else, IF they can make more money doing it.

Does that describe you? If so, there is a strong chance you’ll be going entrepreneurial some time in your future on your path to your ultimate success.

I can’t prove it but I’m betting there is an “entrepreneurial gene” that is a part of the makeup of a good percentage of the people of all cultures and countries. Individuals who desire to start a business will start a business because the gene is there. The decision as to what kind of business to start, and especially the analysis of the potential margin of the endeavor may determine how successful a person becomes, but is too seldom considered beforehand.

 

Photo courtesy of gotcredit.com

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How Much Does a Delaware Series LLC Cost?
By Brett Melson Monday, March 23, 2015

how much does a delaware llc cost?How Much Does a Delaware Series LLC Cost to Form and Maintain?

The Delaware series LLC is still generating a lot of interest from clients who have multiple properties to clients who run a variety of different businesses. Those clients often ask, "How much does a Delaware series LLC cost?" The series LLC allows clients to save money by forming one LLC that is composed of any number of individual series of membership interests as opposed to several LLCs. Here's how it works, plus how much you can expect to pay each year to maintain a Delaware series LLC.

Each series is effectively treated as a separate entity, meaning the debts, liabilities, obligations, and expenses of one series cannot be enforced against another series of the LLC or against the LLC as a whole. Each series can hold its own assets, have its own members, conduct its own operations and pursue different business objectives, but remain insulated from claims of members, creditors, or litigants pursuing the assets of or asserting claims against another series. But the key factor in a series LLC is that it is treated as one entity for franchise tax and registered agent fee purposes, meaning that it is assessed one registered agent fee and one $300 annual franchise tax, rather than the separate tax and fee that would otherwise be applied individually to separate LLCs.   

At first glance, the potential to save so much money on an annual basis would make the Delaware series LLC a no brainer to use for every business need. However, you should consider some disadvantages or challenges some of our clients have come across using a Delaware series LLC instead of using separate individual Delaware LLCs.

The biggest issue is the business bank account. Unfortunately, most banks are not able to accommodate the structure and allow a separate bank account for each and every series of the LLC.

The series LLC (as a legal entity) has also not been tested in the courts and many attorneys do not want to test the waters in the courts on an unproven structure. Even if a Delaware series LLC were properly operated with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could determine not to recognize the legal separation afforded under Delaware law.

Finally, many accountants are not familiar with the structure and are not able to provide advice on complicated tax issues.   

To summarize, the Delaware series LLC structure is available, easy to form, and has the potential to be one of the most popular types of entities. It also is less expensive than forming separate LLCs, since annual savings on franchise taxes and registered agents fees can be significant. However, due to the difficulty in obtaining necessarily separate bank accounts and the uncertainty surrounding the courts acceptance of the structure, many clients are sticking with the proven structure of separate legal entities for each venture.

Feel free to reach out to me personally with any questions at brett@delawareinc.com, 800-345-2677 ext 6131, or DelawareInc via Skype.  

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Doing Business in Arkansas with a Delaware LLC
By Devin Scott Monday, March 16, 2015

doing business in arkansas with a delaware llcWhen forming an LLC, Delaware is often the popular choice because it is known for having the strongest corporate law structure. Clients from all around the world reach out to Delaware to take advantage of the state’s benefits. It's possible to operate a Delaware company anywhere, which is why you can do business in Arkansas with a Delaware LLC.

When forming a business in Delaware, your company is considered domestic to Delaware and foreign to every other state. Generally the next step is to register as a foreign entity in the state in which you are operating. If you're planning on doing business in Arkansas with a Delaware LLC, certain steps will need to be taken. The process of registering your Delaware LLC as a foreign entity in Arkansas is called foreign qualification. This is how you obtain permission from Arkansas to operate there with a Delaware LLC.

Like all states, Arkansas has an application process and a state fee, and will also require additional documentation from Delaware. The additional documentation specifically required by Arkansas is a Delaware certificate of good standing. The certificate of good standing proves that your Delaware LLC has a legal existence, is up to date with all Delaware franchise taxes, and has a current registered agent in Delaware. Typically, a certificate of good standing will be accepted for up to 90 days from the date it is issued, but some legal transactions may require that you obtain the certificate on the same day as the filing.

As your Delaware registered agent, Harvard Business Services is happy to assist with your Arkansas foreign qualification. We will prepare the documentation, send it to you for signature, obtain the certificate of good standing, file the prepared paperwork with Arkansas, and even act as your Arkansas registered agent. The typical turnaround time is often about five business days.

If you are filing a company that happens to be in the medical professional service business, Arkansas will also require your certificate or card that was issued by the medical board. This will need to be sent by mail or fax before your filing is approved.

Once registered as a foreign entity in Arkansas, the state will have an annual reporting requirement. This annual report is due before May 1 each year. If we’re your Arkansas registered agent, we will notify you of this filing and help you file it in a timely manner.  

If you would like Harvard Business Services to file your Delaware LLC and file as a foreign entity in Arkansas for you, or if you have any additional questions, please call 1-800-345-2677 x6130 or email devin@delawareinc.com.

 

Blog image courtesy of Stuart Seeger

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How to Write an Operations Manual (And Stay Sane)
By Gregg Schoenberg Tuesday, March 10, 2015

operations manual for your businessThe Operations Manual is a valuable but often forgotten document for entrepreneurs. Want to know how to write an Operations Manual and stay sane? Here's what you need to know, plus the easiest way to go about it.

Most of us managed to slog our way through creating a business plan when we got started, and—let's be honest—most of us then filed it away in some deep, dark place and never looked at it again. But that’s OK; the business plan was what we needed to get started. The Operations Manual, however, is what we should refer to in order to keep things running smoothly as our businesses grow.

A good Operations Manual can be broken down into two sections: first, a brief passage that describes your company’s values and mission, followed by a comprehensive guide that lays out how the core business functions should be handled. If you need help with the values and mission statement, take a look at our advice for building your brand.

As for the core of the Operations Manual, you’re going to want to document step-by-step instructions for handling all of your firm’s mission-critical tasks. While this can seem like an overwhelming task, and one that stops a lot of entrepreneurs before they get started, if you take things one step at a time, you’ll see that in reality it’s quite doable.

Start with the really easy stuff, like putting together a list of contact information for all of your employees, clients, and vendors. Be sure to include after-hours or emergency contact info where applicable.

Then move on to compiling a list of the tasks that must be performed each day in order for your business to operate. Start with your own responsibilities and give detailed instructions on how to complete each one. Once you’ve done this, ask each of your employees (or department heads if you’ve got a big enough company) to do the same, following the template that you created. Now you or someone you designate can review these mini how-to guides and combine them into a comprehensive set of operating procedures.

In addition to the procedures, it’s also a really good idea to include a policies section in your operations manual. These can include everything from how to interact with customers to what constitutes appropriate workplace attire to procedures for handling employee grievances. The key here is to create consistency and avoid ambiguity.

Finally, an operations manual is incomplete without a set of emergency procedures. Because the time when employees are most likely to refer to the manual is when things are not running the way that they should be. What do you need to do if any of your systems crash, your vendors become unavailable, or your office becomes inaccessible? Figure it out, write it down, and include it in the manual.

When you’re finished, you’ll have a well-written operations manual that should provide you with the piece of mind that all of your employees know what is expected of them and know how to keep your business running even in your absence or the absence of other senior personnel.

And you’ll also have a blueprint to do a lot more than that. If you are hoping to build a scalable business, then having rock-solid operating procedures is one of the keys to realizing your growth ambitions. Take a look at any large multinational brand like Starbucks and you’ll see that no matter which location you are in around the world, the customer experience is the same. That’s because all of the employees are operating from the same playbook—the operations manual.

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Can I Operate Multiple Businesses Under One LLC?
By Frannie Esparza Monday, March 9, 2015

can i operate multiple llcs under one llc?The Delaware LLC is by far the most popular entity type for most entrepreneurs building a startup.

 

 

As a result, people often wonder if they can operate multiple LLCs under one umbrella LLC. 

 

 

Can I operate multiple businesses under one LLC?

 

For example, let's pretend a business owner has a trucking business incorporated as an LLC but after some time, he/she may also want to offer real estate services.

 

These are two completely different types of businesses, so it raises the question of whether or not the owner can provide both services under one LLC. Part of the consideration is, naturally, wanting to avoid additional costs for maintaining another LLC.

 

The answer is yes--it is possible and permissible to operate multiple businesses under one LLC. Many entrepreneurs who opt to do this use what is called a "Fictitious Name Statement" or a "DBA" (also known as a "Doing Dusiness As") to operate an additional business under a different name.

 

However, just because it’s permissible and possible to operate several different types of businesses under one company (LLC or corporation) doesn't mean you should, as there can be downsides.

 

For example, if a lawsuit is filed against any one of the businesses, the assets of the others could be at stake. The result is that you put yourself at a higher degree of liability risk.

 

Instead, many people opt to file a new LLC for each of their start-up ventures. This isolates the risk instead of spreading it around. There are, of course, additional maintenance fees, but these can be well worth it in order to protect your businesses.

 

If you would like more information or have any questions about forming your own companies, please contact us by phone (800-345-2677), Skype (DelawareInc), email or live chat. One of our knowledgeable business startup specialists will be happy to assist you.

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