OPERATIONS: ADMINISTRATIVE & LEGAL

These are the things to be considered for running the business. They also imply costs that must be taken into account.

3.1    Business Structure (USA)

• Sole Proprietors/DBAs (“doing business as”)
• LLC (single or multi-member)
• Corporation (S-Corp, C-Corp, Other)

Talk to lawyers/legal services to help you decide which structure is appropriate, considering the legal factors. Discuss tax implications with an accountant, as the legal structure and the tax structure are not always the same. Setting up a business structure depends on the state (and sometimes even at the local level). Several services exist that will help create and register small businesses for a reasonable fee.

3.2    Taxes (USA) & Accounting

• Talk to a good accountant! Tax regulations differ by state, county, and/or city.
• Know the difference between accounting, tax preparation, and bookkeeping!
• The applicability and/or the specific treatment of the items below may depend on your tax structure.

3.2.1   General Considerations

• Get an Employer Identification Number.
• How should you get paid: W2, 1099, or Corp-to-Corp (not how you pay your taxes)? Talk to your accountant for the best treatment for your situation.

3.2.2   Types of Taxes

• Corporate taxes
• Payroll taxes
• Sales Tax. There have been recent developments regarding digital goods and services.
  • Digital goods (even interstate). Laws are constantly changing as e-commerce is evolving. Watch out especially if you provide training and other digital materials online.
  • There are automated services (quaderno.io, etc.) to calculate so you can collect the correct amount. You still have to file what you collect. Talk to your accountant.
• Quarterly Estimated Taxes
• There may be others for which you are responsible.

3.2.3   Other Tax Considerations

• Business expenses. Talk to a good accountant!!
  • What expenses are really business expenses?
  • There are things that seem like business expenses but are not.
  • There are things that seem like they should not count as business expenses but do.
• IRS reporting obligations. If you pay an individual, an LLC, or a non-U.S. entity to do work for you (including subcontracting), there are IRS reporting obligations (i.e., you may have to issue a 1099 for each over a threshold for a U.S. person/entity; W8 for non-U.S. person/entity). Talk to your accountant.
• R&D Tax Credit: if your client is taking it, you might consider charging more.

3.2.4   Administrative/Operational Considerations

• Banking Hygiene
  • Get a separate bank account(s) and credit card(s) for your business from your personal accounts.
  • Pay attention to transaction fees (PayPal, Stripe, bank).
• Consider a payroll service. They may collect federal and state income taxes, as well as handle other deductions.
• Understand your ongoing expenses.
• Consider how much cash reserves you need to have to keep yourself afloat in times of crisis. (The pandemic has shifted the general trends on this).

3.3    Business Insurance

• The need depends on:
  • Your risk tolerance.
  • Client/contractual requirements (some clients require specific limits). Large client organizations, government entities and university purchasing departments often have specific requirements.
  • The level of risk associated with your work in general.
• Types of insurance.
  • General business (i.e., general liability).
  • Errors and Omissions (E&O).
  • Workers’ Compensation (requirements vary by state).
  • Vehicle/Auto (riders may be available as an option).
  • Data breaches (riders may be available as an option).
  • There are other types depending on several factors.
• Ways to find business insurance (general liability and E&O). It is important to find someone who understands small business and technology (statistics/data science will generally fall under the technology realm from the insurance perspective). Your personal insurance agent/carrier is usually not the best source since commercial insurance is managed differently. It is a good idea to ask experienced consultants and knowledgeable professionals for guidance, as well as shop around since specifics and prices vary.
  • Specialized brokers. They can shop for the best deal for you.
  • Ask your accountant/attorney (since they work a lot with small businesses, they often have good contacts/leads).
  • Associations and groups (e.g., alumni associations, professional associations, etc.) often have discount programs, including discounts for small business insurance. Check membership benefits.
  • There are several national carriers (Hiscox, etc.).

3.4    Computing & Programming

3.4.1   Computing infrastructure

• Desktop/laptop vs. public cloud vs. private cloud/data center. Considerations:
  • Client requirements.
  • Data sensitivity.
  • Level of professionalization.
  • Cost.
• Statistical/analytical software: R, SAS, Python, Stata, others
  • Client requirement: if specific to the project, it may be possible to pass on the cost to the client.
  • Regulatory.
  • Industry standard practice.
  • Cost.
  • Level of professionalization.
• Other tools: Your needs will vary depending on your specific practice. Some are commercial, others are free/open-source.
  • Office software suite (Microsoft, G Suite, etc.)
  • Communication (Zoom, Teams, etc.)
  • Other connectivity (VPN, TeamViewer, etc.)
  • Other professional tools (MS Project, MS Visio, etc.)
  • Other administrative tools.

3.4.2   IT Support

Depending on your skill set and specific practice, you may need external support for maintenance of your technology environment.

•  Personal computing device.
• Managed services (servers, etc.).
• Others.

3.4.3   Other Considerations

• Consider ways to reduce software costs.
• You might be able to pass on some computing/software costs if it is specific to the project/client. (Need to build it into the contract; see the Section on Contract and Other Legal)
• Stay on top of new packages and updates (primarily for non-commercial software).

3.5    Office Equipment and Services

While they individually seem trivial, they can add up when someone else is not paying for them!
Some common considerations are listed below. The need for each (and others) depends on your specific situation.

•  Home office space: You may want/need to have a space where you can close the door (unless you live alone). A designated area—even a rented space—may aid in efficacy and attention.
• Phone:
  • Use your cell phone or have a separate business phone line?
  • Do you need a fax line? Some clients may require this.
  • Do you need phone equipment?
• Internet: residential or business? (Note business internet is not always available in residential areas.)
• Computing technology and other infrastructure costs.
• Software costs.
• Other equipment:
  • Printer/scanner?
  • Shredder?
• Residential vs. business mailing address?
• Other supplies will be needed.
• Anything else?
• Regular office supplies (copy paper, stapler, tape, markers etc.)
• Postage meter / stamps

3.6    Human Resources

Some key considerations are below (but not exhaustive). Keep an eye on the regulations (both state and federal). Movements exist to try to reclassify contractors as legal employees.

•  Will you have employees?
• In the US, the classification is currently based generally on 1099 vs. W-2.
• If you are incorporated, you are an employee of your business even if you are the only employee.
• Many regulations are applicable after a specific number of employees. Be on the lookout.
• Employees: Need to find out requirements (federal requirements; plus varies by state).
  • Health (USA)
  • Long-term disability (LTD) and short-term disability (STD)
• Pensions/retirement (if you elect so): Self-employed vs. employees (the contribution limits are different).
• Other considerations.

3.7    International Business

Do not do it on your own. Get accounting and legal help from professionals versed in international matters as well as matters local to each country involved (the latter typically means hiring someone local to the country in question).

•  If you are “exporting” your services to a non-U.S. client (you do work for them):
• • U.S. export laws.
  • Import regulations of your client’s country.
  • Contracts:
    • Choice of law (note some are not always enforceable depending on the country).
    • Jurisdiction.
  • Tax obligations: countries tax generally based on source of income, not location of business
    • Income tax.
    • Sales tax. Especially tricky with digital goods and services and changing all the time.
  • Billing currency.
  • Political impacts.
  • Other regulations.
  • U.S. Commercial Service (export.gov) can be a resource for support.
• If you are “importing” services from a non-U.S. person or entity (they do work for you):
  • IRS reporting obligations (see under Other Tax Considerations).
  • Check local employment regulations of the country in which the individual resides.
• Tax treaties may exist between the U.S. and the country in question.

3.8    Small Business Resources

Consultants from these organizations help small business owners with general business matters (administrative, etc.) for free.

• Small Business Development Centers (SBDC) (https://americassbdc.org/) is a partner program of the S. Small Business Administration. It is organized at the state level and can help with specific local matters and requirements. Contact your local office.
• SCORE (score.org) is a network of retired professionals who are trained to be mentors/volunteer consultants to small businesses.
• There may be additional resources and services provided by your state and local governments, especially for small businesses. Check with them.