The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
Bill Gates and Mark Zuckerberg would LOVE to eat Google’s lunch, but they were not invited today to Google’s California headquarters like I was. And Google’s not afraid of them anyway, because lunch at Google is just one of many meals they serve on a 24/7/366 basis.
Now, I’m not really a “big-company” guy. I love the size of Harvard Business Services. We have a really close group of 22 people. We all know each other and we have a terrific sense of camaraderie. When I started the company, 31 years ago, it was just me. I’ve enjoyed every level from two to three to 10 and I’m very comfortable with the team of 22 we have today.
Google, on the other hand, has about 22,000 people at its Mountain View, California headquarters. Today, I was one of them, there to eat lunch. Google does lunch better than any company in the history of capitalism. Maybe even in the history of lunch.
I’m not allowed to tell you too much, having signed the legally-binding super-restrictive non-disclosure agreement to enter the Google MultiPlex campus, but I can get away with telling you that you can have anything for lunch that you want, across the whole global spectrum of tastes, cuisines and diets. Multiple restaurants all around the campus, each with their own chef, menu and ambiance, feed and fulfill the appetites of the brightest and most ambitious team of people on earth, at least that’s the way they see it.
And let me make one thing perfectly clear. This is mostly organic, locally grown, healthy, fresh and delicious food, prepared with care to high standards. Everything was absolutely delicious.
I had a caesar salad with pita bread croutons, a slice of freshly baked Hawaiian pizza with fresh pineapple on it, some gluten-free pasta with meat sauce, grilled zucchini with an olive oil drip, a spicy Italian sausage and a draft ginger ale. Are you hungry yet?
I can tell you also, there are no lines at the cash register because there are no cash registers. Not even a checkout line. Nobody pays. Everyone eats whatever they want for free.
Ok, having said that I am not a big-company guy, I really wish our 22-person company could offer the same quality and variety of lunch options to our team. I have to admit that’s something a big company can do much better than a small company. The company that solves that problem for small companies will be very successful.
Now that the New Year has begun, a question we are hearing quite frequently is, “How can I dissolve my Delaware Company as of 2011?”
Well, you can’t!
To dissolve your company an official document must be filed with the Delaware Division of Corporations and they cannot be back-dated.
The bad news is that the state of Delaware will require the full annual franchise tax to be paid when the document is filed, in other words, you’ll have to pay this year’s franchise tax because the company was in existence for some of 2012. Even a day into the New Year will cost you $250 more in franchise tax than if you had filed on December 31st.
However, there is some good news with the bad. Now that it’s a new year, no matter when you officially dissolve your company, whether it is January or December of 2012, the cost will be the same for any LLC and for all stock corporations with 3,000 shares or less. Perhaps your business could use one more year? Or you could change the name and do something different with it.
If you own or manage a Delaware company, it is very important that you are aware of some of these quirks about the Delaware annual Franchise Tax. As your Delaware registered agent, our specialists answer questions regularly about franchise tax. We provide our clients with the most up-to-date information regarding this maintenance charge and other matters involving compliance with Delaware Corporation Law and Delaware LLC law.
Whether you have a corporation or an LLC, keeping up with this fee along with your annual Registered Agent fee will keep your company in good standing with the State of Delaware for a full year!
At Harvard Business Services, we pride ourselves on our friendly and expert customer support so if you would like more details regarding Franchise Tax, dissolutions or cancellations, please give us a call.
As a business owner in an era in which email and social media have become the primary means for communicating with many customers, it can be easy to forget about an older medium for promoting your company, the corporate sign. A well-designed and appropriately placed sign advertises your business twenty-four hours a day to any potential customers within viewing distance, and can be an economical solution, with the cost spread out over the life of the sign.
If impulse visits are an important source of business for you, as they are for most retail establishments and restaurants, then signage can be particularly effective. Whatever the nature of your business, if you are in the market for a sign then you’ll want to consider the following factors before making your purchase.
Size and Placement
While bigger may be better it will also, of course, be more expensive. To find the size that it is right for your business, consider how far away the average viewer will be from the sign and how well lit the area is. You’ll also want to account for how changes in lighting conditions throughout the day and the seasons can affect your sign’s visibility. While there is no magic formula, a good sign should be easily viewable by potential customers without being so big that you are paying for more than you need.
Once you decide on the size of your sign your next step is to choose the materials. Signs come in a wide variety of choices from basics like acrylics, plastics and metals to high-tech solutions incorporating neon or LED lights. As you move up the price scale you are essentially paying for two things: visibility and durability. In order to make an apples-to-apples comparison of different options, do some research on the average life span of different materials—the length of the warranty can be a good place to start—and divide the total price of the sign by its expected useful lifetime to figure out the per day cost of the different options you are considering.
It is not enough to simply hang a sign and expect it to increase traffic to your business. Your sign should be attractive, eye-catching and its design should be consistent with your overall corporate branding strategy. If you have an in-house graphic designer to do the work then you can control the process and make sure the sign fits your specifications. If you don’t, you can always rely on the designers at the sign companies you are considering, so make sure to take a look at their portfolios to see that their work is up to your standards.
Most cities and counties have regulations about the types of signs that can be posted and the maximum allowable size and height of signage. Before placing an order, you’ll want to ascertain that your sign will be in compliance with all applicable ordinances. If you feel that there are special circumstances—such as an obstructed location—that warrant an exception from the prevailing rules, then you can apply to the zoning board for a variance from the existing code
By assessing your particular needs based upon your type of business and its location, and taking into account the factors discussed above, you should be able to come up with a signage plan that maximizes your return on investment on this traditional but effective means of advertising.
We recently concluded our Introduction to Financial Statements series that gave readers an overview of the three major financial statements: the balance sheet (Part I and Part II), the income statement (Part I and Part II), and the statement of cash flows (Part I and Part II). Throughout our discussion we used the statements to calculate some ratios, such as the current ratio and quick ratio in part two of the balance sheet post, that are useful in gauging the financial well being of a company. Now let’s take a look at six more ratios that are easy to calculate and can offer more clues to the health of your business. We’ll use the financial statements that we created for the fictitious ABC Corporation in our prior posts, so you may want to have those handy as we go through this lesson in ratio analysis.
The aforementioned quick and current ratios are the two most important liquidity ratios, as they give us information about a company’s liquidity position, which reflects its ability to pay off its debts in the near term.
The next category of ratios, the asset management ratios, tells us how well a business is managing its assets. Let’s look at two of them.
Inventory Turnover Ratio = Total Revenue (also known as Net Sales) divided by Inventories.
In ABC’s case we have an inventory turnover ratio of $150,000/$10,000 = 15. This means that each item that ABC stocks is sold and restocked, or turned over, 15 times a year. The important thing to watch for here is how ABC’s turnover ratio compares with the average for firms in its industry (a firm selling fresh bread should obviously have a much higher turnover ratio than one selling custom-made electronics). If your firm’s turnover ratio is much lower than the industry average, it is an indication that you are holding too much inventory, which can be a costly mistake.
Days Sales Outstanding (DSO) = Receivables divided by Average Sales Per Day. (To calculate average sales per day we simply take total sales for the year and divide by 365.)
So ABC’s DSO is $13,000/($150,000/365) = 24.33 or roughly 24 days of sales outstanding. The DSO tells us the amount of a time that a company must wait, on average, to receive its cash after making a sale. In addition to comparing your DSO with an industry average, it is also helpful to see how it stacks up versus the payment terms that you have agreed to with your customers. If ABC’s contracts call for payment within 30 days, then it is doing a good job of collecting the money it is owed during that window. If, on the other hand, you find that your firm’s DSO is significantly higher than your payment terms, your business is being deprived of valuable cash and you may want to make more of an effort to collect your receivables on time.
Now, let’s take a look at two debt management ratios that can give us clues about a company’s ability to handle its debt load.
Debt Ratio = Total Liabilities divided by Total Assets and is expressed as a percentage.
ABC’s debt ratio is $38,000/$50,000 or 76% which means that its creditors have provided over three-quarters of its financing. Once again, the industry average can serve as a good comparison point, but in general lenders prefer to see lower debt ratios as they indicate greater protection against losses.
Times Interest Earned (TIE) = EBIT divided by Interest Expense
ABC’s TIE ratio is $40,000/$5,000 = 8. The TIE ratio tells us how many times over a firm’s annual interest expense is covered by its operating income. As you would expect, a higher figure indicates a healthier company and one that is less likely to have trouble paying its debts. If your firm’s TIE ratio declines steadily over time, or abruptly all at once, this should be cause for concern to both you and your lenders.
Finally, we want to examine two profitability ratios, which show us the combined effects of liquidity, asset management, and debt on a company’s bottom line. As with the preceding ratios, comparing your firm’s profitability ratios to your peers will prove instructive.
Basic Earning Power (BEP) = EBIT/Total Assets (expressed as a percentage)
For ABC we have BEP of $40,000/$50,000 = 80%. BEP shows us how well a firm is using its assets to generate earnings, so a higher percentage is preferable. Keep an eye on how your firm’s BEP changes after you acquire new assets to see if those assets have increased or decreased your earning power.
Return on Common Equity (ROE) = Net Income divided by Common Equity
ROE is one of the most, if not the most, important of the financial ratios as it tells us how well investors in a business are doing on their investment. ABC’s ROE comes in at $23,000/$12,000 = 192% (note that this is higher than anything you are likely to see in the real world, an ROE somewhere in the 10-30% range is more normal, but ABC has the good fortune to operate in the fictitious world). A higher ROE indicates that a company is delivering its owners a higher return on their investment and that, of course, is what all investors want to see.
If you take the time to understand and track all of these ratios for your company, you will find that your financial statements offer a wealth of valuable and easy-to-calculate information that can help you run your business more smoothly.
Many people who form Delaware companies are from California, with businesses that are physically located and operated in California. The reason they form a Delaware company may be because California’s corporate law structure is notorious for being one of the worst in the 50 states. Rather than form a California company, people form a Delaware company and register it to do business in California. You can read our previous blog for more information on registering as a foreign entity in California.
While operating in California, many businesses choose to operate under a different name than the company name filed with the Delaware Secretary of State. The state of California mandates that individuals or entities doing business for profit under a name different from the owner’s full legal name must file a Fictitious Name Statement with the county clerk’s office in the county where the business resides. This is called a “Doing Business As” name or “DBA.” Before you can register a DBA in California, the state requires you to register your Delaware company as a foreign entity in the state of California. This is called Foreign Qualification, and it is the first step in how to register a DBA in California.
When you file for Foreign Qualificaton in California, you will receive a Certificate of Authority for you Delaware company. You will need this Certificate when you register a DBA in California.
Here is an example of a DBA: let’s say John Slice forms a Delaware company called “John Slice LLC,” but he wants to operate in California under the name “Good Guy Delivery Service” rather than use his business’ legal name. In order to use Good Guy Delivery Service, John needs to register that name as a DBA in California with the county clerk’s office in the county in which his business resides.
However, be aware that when you register a DBA in California, you will not be protected from personal liability in the same way incorporating your compnay protects you. When Harvard Business Services, Inc. files your LLC or corporation with the Delaware Division of Corporations, it creates a whole new entity, which is separate, in most legal respects, from its owners, and offers asset protection for you and any other members or owners.
If you would like Harvard Business Services, Inc. to help you register a DBA in California and file your Delaware LLC for Foreign Qualification, you can call us at 1-800-345-2677 and a helpful specialist will walk you through the process.