Hiring subcontractors can provide many advantages to the small business owner, but with those advantages comes an additional level of risk.

Why Do I Need A Subcontractor Agreement?

A subcontractor can provide your company with valuable specialized skills needed to complete a project. Subcontracting work can also provide your company with staffing flexibility, cost savings, and increased efficiency and scalability. However, with the potential to add value to your company comes an additional risk. As a general rule, a company is liable for its subcontractor’s work even if the company did not directly perform the services for the client. In order to mitigate this liability, a business must protect itself by having a written contract with the subcontractor to allocate risk of loss to the responsible party.

What Needs To Be In My Agreement?

  • Project Length And Scope

Your contract should detail the exact deliverables of your project from both parties, a schedule of fees, and a clear timeline of completion. If these items are outlined in writing and agreed to by both parties, a business can reduce or eliminate its liability related to the non-delivery of products or services, and also the completion time of the subcontractors.

  • Warranty and Insurance Clauses

Warranty clauses seek to protect your business against any defects in materials or services for a defined period of time after the work has been completed. Insurance clauses requires the subcontractor to provide sufficient general liability insurance (and the subcontractor should provide written evidence that such an insurance policy exists). These key provisions will allow for the business to legally allocate any losses caused by the “at fault” subcontractor, and seek protection from the subcontractor’s insurance company.

  • Industry Specifics

As with any contract, you should consult your legal representative to discuss any specific issues relevant to your particular business, industry, or project

In Conclusion:

Without a subcontractor agreement, a business can be exposed to unlimited liability related to the performance of its subcontractor. Any mistake made by the subcontractor can be perceived as a mistake by the contractor without a written agreement in place identifying responsibilities of the parties involved. The best way to mitigate this risk is to contact your legal representative to create a written subcontractor agreement that transfers the risk of loss to the “at fault” party.

For most people starting a business is a giant mix of euphoria and fear. After filing the paperwork to start your LLC or corporation you may be riding high on a wave of elation, only to have it come crashing down when you get your first official looking piece of mail. UrgentAction required. Did you forget to do something important?

Not necessarily.

Once your paperwork is filed with the state, you are now part of publicly accessible records that fraudsters often tap into. Very often people will find new businesses and send off notices of phony requirements (or even of real but optional items) to try to make off with part of your hard-earned money. Business owners are frequently misled by these pieces of mail suggesting there is still more they need to do to keep their business in good legal standing with the government. Knowing up front what you really need will help give you piece of mind when these lousy letters find their way to you.

Annual Board of Directors Meeting

Wherever you live you’ll want to make sure you are in compliance with your state’s Department of Revenue. Generally speaking once you’ve filed your paperwork there isn’t much else you need to file (or pay) outside of renewing it yearly. However for corporations, you must also have at a minimum an annual Board of Director meeting and minutes (or notes documenting items discussed and agreed upon) on file.

Corporate Certificate of Status

A corporate Certificate of Status is optional for most businesses, usually only needed if required by your bank or another vendor. If you do need to get one, you should only get this directly from your state. Other services offering to do it for you charge big add on fees and then submit the same simple paperwork you would.

Let us help

While there is a lot of fraud and fake notices out there, there is no one blog that can answer for the demands of each individual business in every single state. However we want you to have peace of mind knowing exactly which letters you can send through the shredder and never give another thought to. Contact us today, sometimes all it takes is just a short 5-minute conversation!

Quote credit: Thomas G. Miller author of “It’s Your Business: So What Are You Going to Do About It?

Have you ever considered outsourcing your accounting and financial tasks? You are not alone. According to Forbes, finance and accounting was one of the first business processes that companies outsourced. Furthermore, outsourcing is NOT limited to large corporations. Small to medium-sized businesses are outsourcing their financial and accounting processes and reaping great benefits.

Why outsource?

  1. Outsourcing your accounting processes will give you more time to focus on your core business.
  2. Outsourcing your accounting and financial projects will give you peace of mind. When you work with a trusted accounting firm, you can rest easy knowing that experts are handling your accounting and finance related processes. [It goes without saying you’ll want to choose that “trusted accounting firm” wisely. Selecting a partner solely based on price could create more problems than it solves, but that’s an entirely different blog!]
  3. Outsourcing your accounting can help reduce your overhead costs. Instead of hiring an employee or in-house accounting staff to work full time, you can pay for only what you need. Today, you might need a bookkeeper’s services, but tomorrow a CPA. The right accounting and finance partner will have a well-versed team ready to serve your needs at different levels.
    Outsourcing your accounting can help reduce your overhead costs.CLICK TO TWEET

But it’s MY business, I don’t want to lose control!

You may fear losing control when hiring an outside firm, but this isn’t the case. A qualified accounting team will use advanced accounting software to provide detailed and clear metrics that you wouldn’t get in-house. They will help you answer questions like, “Was that advertising campaign profitable? Can we afford a second location?” as well as providing insights you never even knew you were missing.

What’s the bottom line?

Outsourcing your accounting and financial tasks can allow your business to be more efficient and to save money overall – all while you enjoy your own clients and family more.

If you could ask a team of CPAs anything, what would you want to know? While we’ve been working hard behind the scenes to come up with interesting content we want to tailor it to what our readers want to know.

Ask us about:

  • Starting a business
  • Bookkeeping
  • How to get the most out of your CPA firm
  • Taxes
  • Legal & HR requirements
  • Whatever else!

Please ask us in the comments below and follow us on Facebook & Twitter to see when we post answers!

If you were an “entity” what would you be, and why?

Not exactly something you, as a business owner, enjoy contemplating is it? But it is a decision that must be made when you are setting up a business.  The options are Sole Proprietorship/partnership, LLC (Limited Liability Company), C-Corporation, or S-Corporation. The decision you make has many implications. Start by asking yourself some questions:

  • How much personal liability are you willing to risk?
  • What do you anticipate as the income cycle over the next few years?
  • Do you think you’ll need to raise money in the form of investors or loans?
  • Do you have resources to help you with payroll, taxes and legal matters?
  • What are your ambitions to grow your business?

It almost seems like the deep questions of the universe, doesn’t it? But to truly figure your right fit, the first step is to understand where these questions fit in to the different structures.

Sole Proprietorship

A Sole Proprietorship is basically an individual business owner. This is the simplest and cheapest form of operation. All the ins and outs of the money just flow through to the owner’s personal tax returns on a Schedule C. There’s no true requirement to maintain separate business records, but of course it’s recommended. As the business owner, you are then subject to paying self employment tax on the earnings.

Doesn’t sound so bad right? The primary cons to this structure are:

  1. Liability – If you are sued or creditors come after your business, then you as the owner and all your personal assets are at risk.
  2. Tax savings – Generally speaking, there is an income threshold that usually makes it tax-wise to switch to a corporation.
  3. Business Growth – If there comes a time when you are hoping to get a loan or investor backing, its harder to prove your the financial worth and credibility of your business with intermixing of personal and business assets.

LLC or Limited Liability Company

An LLC or Limited Liability Company is similar to Sole Proprietorship as the income flows into your personal tax return but it provides personal liability protection. The downside is that there are state filing fees, some accounting complexities, and legal services that you should obtain to properly elect this entity.   In some cases LLC’s have even more legal/accounting complexities for compliance than corporations.   Also, since the entire profit is subject to the self-employment tax, it restricts your ability to defer income to later years and avoid higher tax brackets (as with the Sole Proprietorship).

Corporation

As a Corporation your business is its own “legal entity.” Business income, for a C Corporation, is taxed at the corporate level and the money taken out of the corporation by you as a dividend is taxed.

Primary pros and cons to being a corporation are:

  1. Only corporate assets are exposed to financial liability. (Your personal assets are protected.)
  2. A corporation may be given more credibility in the market place and additional capital may be more easily secured.
  3. State filing requirements to complete annual documents, pay annual fees, and hold officer meetings.
  4. Detailed record keeping in order to be in compliance with Corporation laws.
  5. C -Corporations endure “double taxation.” A corporate income tax on profit in addition to the personal income tax that you as owners have to pay on your dividends must taken into account before making the choice to be a known as a corporation.

Another election could be made to be what’s known as a S-Corporation (vs the normal C-Corporation described above).   The biggest advantage is that as an owner, money can be taken out of the business as dividends and there is no corporate income tax so there’s no double taxation. There are limitations on types and number of partners as an S-Corp though. Also, once this election is made, no change in entity form can be made for 5 years, so long-term planning is crucial.

Good news: it doesn’t have to be complicated if you have the right information. Bad news: There’s no one right answer for every situation.

As you can see, there are huge implications from this decision and we are more than happy to help you sift through the information and point you in the right direction. Contact us today! We promise to make it as painless as possible so you can get back to doing what you do best…making money!