You’ve reached a point where you’re ready to tear your hair out. You’re pulled in 17 different directions and, try as you might, you haven’t found a way to manufacture the 28-hour day. Much as it’s daunting, you’re staring down an inescapable fact: In order to grow your business, you . . . need . . . staff. But what kind? In-house or outsource? Full-time or part-time? Hourly or project-based?

Part of that decision you’ll base on the cost. Here are some of the pros and cons of the different options, nicely outlined by Linda Coleman at BizTaxTalk.com (Note: She looks at it from the perspective of the worker choosing how to be hired):

Employee:
Pros: Always at your beck and call/dedicated work force

Cons: You pay for the privilege with employment taxes, benefits and increased risk of employment liabilities (discrimination suits, employee theft, time for supervision and training)

W-2 “Consultant” (someone hired out to you by a broker or third-party service):
Pros: Can get full-time staff without the need to offer benefits (the broker may do so); mitigates the risk of IRS penalties for choosing the wrong employment category

Cons: You pay a higher fee to the employment broker who provides you with the employee; cost could be prohibitive<

1099 Sole Proprietor:
Pros: You only pay for what you need when you need it; no need to account for employment taxes/withholding or benefits

Cons: Big risk that the IRS (and state tax authorities) will consider your 1099 proprietor an employee and thus subject you to penalties and interest for late taxes–even if you have an agreement stating that the worker is an independent contractor (the IRS will disregard form over substance)

Independent Contractor (B2B):
Pros: By hiring a corporation or LLC to provide the services you need, you can avoid getting caught in the employee/contractor “net”; no need to account for employment taxes/withholding or benefits

Cons: Independent contractors are independent businesses with their own client base; service may not be immediate.

A common suggestion for effective networking is “Get involved.” So we join organizations and nonprofit groups with the hope that, as we serve in a leadership capacity, we are also piquing the interest of others who might want to use our services–or be willing to refer us to others who do. When the opportunity does come to deliver our services on a paying (rather than volunteer basis), it can seem like we’ve hit “pay dirt.”

But these kinds of opportunities are not as straightforward as they look. Board members in particular need to make sure that, if hired, they have followed the laws of their state concerning the conduct of nonprofit organizations.

Let’s say your business provides web design services. You serve on the board of your local chamber of commerce. The chamber happens to need a new website, and hires you to design and host it–for a fee.

Those kinds of transactions are known (not surprisingly) as “interested transactions” because the board member (you) has a financial interest in the outcome. Under many state laws, if a board or committee member has any financial interest in a business opportunity being presented to the organization, that financial interest should be disclosed to the board. This is different (although related) to having a “conflict of interest.”

Ideally, when you serve on a board, you put the interests of the organization ahead of your own. It’s in the organization’s interest to get the highest quality web design services at the lowest possible price. It’s in your interest to get paid as much as possible for providing the web design services. Therein lies the conflict.

The “conflict” doesn’t arise in performing the services; it arises when the opportunity is presented to the board. If you receive a financial gain but your proposal has been vetted fairly, there’s been full disclosure of the financial interest and the proposal has been deemed in the objective best interests of the organization to pursue (with other members having had the fair opportunity to participate and offer proposals of their own), it’s not a conflict. However, you will have to recuse yourself from the voting when the proposal comes to the board for a vote.

To protect yourself (and the organization), make sure there are minutes of the meeting where your proposal is discussed and a record of the vote taken.

Does this sound like you: “I’ll just work harder and sell more stuff/get more clients. That’ll turn my financials around.”

Well, as Jay Goltz says in his FSB article, “Why Small Businesses Fail,” working harder won’t fix a broken businesses model.  You’ll either face burnout, or worse, a bevy of legal headaches resulting from your inability to pay vendors, employees, and other creditors.

As frustrating and daunting as it may seem, “every business owner needs to be his or her own CFO,” says Goltz.  But how do you know what to look for?  How can you make more informed decisions?

One way, certainly, is to hire a CPA or CFO to help you interpret the numbers (and educate you in the process so that you know what you’re looking for).  Another, suggests Alan Badey, in his New York Enterprise Report article, “Uncover What Your Numbers Say About Your Business,” is to create a basic business dashboard so that you can see and analyze the numbers that substantially affect your bottom line.  These include:

• Using existing technology and systems
• Determining which areas/data are most valuable to track
• Comparing numbers not only month to month but year to year
• Sharing data with key employees

Your dashboard will help you better forecast and budget–and can help catch fraud, Badey writes.

So you’ve identified the exit events that can trigger a buyout. Yippee-ki-yay.

Is that the end of the exercise? Of course not. (You knew it wouldn’t be, didn’t you?).

Identifying when a buyout situation might arise is one thing. Having the funds for the payout is quite another.

Chris Mercer sagely points outa number of business factors that could negatively affect your ability to muster the moola when the time for buyout comes:

• Being the minority owner needing to purchase the shares of a departing majority owner.
• Being the owner who needs the business for your livelihood, rather than having independent means to fund the purchase.
• Differences in health and age between the owners can mean that you have to come up with alternative arrangements if one is less insurable, and can also affect the time frame within which you need to come up with the funds
• If the business doesn’t have the funds to make the payout, the owners may need to reach into their pockets to do so.
• Loan agreements (and this was one I hadn’t thought of!) may restrict the use of company funds to make the payout if doing so would harm the creditworthiness of the company.

If you look up the definition of “control freak” in the dictionary, you’ll probably find my picture.  It’s not in my nature to delegate—and the same often holds true for business owners in general.  Many are fiercely independent … but there comes a point when that ferocity prevents success – if it keeps you from delegating less critical tasks to capable staff members so you can focus on the more critical tasks that make the company profitable.  What can the hard-charging, “nobody does it better”-type delegate?  Consider these situations:

1.  General knowledge tasks – There are many tasks that require no special knowledge or expertise; for example, ordering office supplies or delivering a product.  Hire an assistant, even if only part time, to work through your to-do list.

2.  Expert tasks – Some tasks do require special knowledge or certifications; for example, legal and accounting work.  Do not invest the time to gain that expertise when others can do it better and faster.

3.  Well-defined tasks – Are you crystal-clear on what you want done and how? Then get it off your plate. Usually, you do not want to delegate a task until you can provide clear instructions on its execution.  Otherwise, your assistant will either perform poorly or return for more guidance.

4.  Task dumps –Okay, so you’ve procrastinated or made a situation worse in an attempt to perform a task. That doesn’t mean it shouldn’t be delegated.  But when dumping an ugly project, make sure it comes with an extra dollop of explanation and encouragement (and gratitude!).  Then, learn from the experience to delegate it sooner.  Repeated dumping is a mark of disrespect for your staff … which breeds contempt. Morale will suffer.

5.  Take a long-term view – Yes, it might take more time the first time you delegate a task to instruct and supervise the worker in its proper execution.  That’s not a reason to hold onto it. You’re business can’t flourish if you do. Go through that painful phase. If the task arises regularly, you will save time again and again.

Tip:  There is an art to delegating – you must choose the best staff member and provide clear instructions and training to expect satisfactory results.

For more perspective on how to avoid micromanaging, check out the Forbes piece, “Be a Healthy Leader: Master the Art of Delegation.”

Don’t run afoul of local ordinances that could shut your business’s doors.

If you’ve given thought to setting up a home office, you’re not alone. An estimated 39 million people in the U.S. work part-time or full-time from home. But working from home is not as simple as A-B-C. In fact, many home business owners are in violation of the Big “Z”–zoning.

Zoning laws in many communities forbid the operation of a home business. In addition, condominium and co-op apartment homeowners’ associations often have restrictions regarding home businesses. But because of how irregularly these rules are enforced, many office owners risk violating the law to operate their businesses.

The main goals of zoning laws are to curtail high-volume or high-traffic activities in a residential neighborhood and to protect property values. Local government officials may not bother a solo “infopreneur” operating in her cramped city apartment with no employees or the virtual assistant working from her attic. She may be able to fly under the radar. After all, who’s to say what you’re doing tapping away at your keyboard at all hours of day and night as long as you don’t disturb the neighbors? However, any more activity than that starts to raise alarms–and tattletales.

Zoning Concerns and Restrictions
Neighborhood complaints are the chief deterrent to illegal home offices. Complaints may stem from entrepreneurs hanging out even a small sign, having commercial vehicles on the property, putting in additional parking spaces or having a lot of client or employee traffic. Having invested substantially in their real estate, residents are naturally concerned about how business traffic will affect the community.

Building owners are particularly concerned about foot traffic, because any injury that occurs to visitors on the premises could embroil the owners in a lawsuit. Should your employee, client or colleague slip on the marble floor on the way to your apartment and crack her head open, the building could be looking at nasty litigation as well as greatly increased insurance premiums. Reducing the foot traffic that comes with business flow is just one way of reducing  exposure to risk.

Even where home businesses are allowed, limitations are often imposed, such as:

• Restrictions on employment of nonfamily members. If non-family employees are allowed, you might be limited to one or two.
• Limits on the square footage that can be used for business purposes.
• Prohibitions against changing the outside appearance of the building–such as a garage adjacent to the house.
• Constraints on warehousing inventory.
• Restraints on the size of signage.
• Curbs on the traffic flow the business will generate.
• Limits on the use and parking of commercial vehicles on the premises.
• Prohibition of equipment or processes that create excessive noise or noxious odors.

In addition, the home business owner can be subjected to fines and may be expected to close down operations immediately should a complaint be made to local authorities. Failure to abide by the law after being warned or fined can lead to criminal charges and even imprisonment (rare, but it does happen).

Don’t Be an Outlaw
Before beginning your home office remodeling campaign, do your homework. Find out what your local ordinances say. They vary by county, city, and state–visit your local library or MegaLaw for links to zoning-law sites. If the terms are too restrictive, find out whether it would be cost-effective to obtain a special permit or variance. You might also want to know how strictly your local government enforces home office zoning ordinances. Better yet, find an attorney who is familiar with these issues and get him or her to find out for you.

Here’s the lowdown on taxes when it comes to home-based businesses. If you earn money on it, no matter how little, plan on paying taxes. Doesn’t matter that it’s for a little “walking around” pocket change, for the baby’s diaper fund or to help Grandma get her heart medications.

Q.: I was thinking about doing something from home–gift baskets or cookies–because I am a stay-at-home mom. I was wondering if I would have to pay taxes if I made these items and sold them to make a little extra money. Also how would I go about checking to see if the business name I want has been taken? Is there a specific website for that? And can I advertise on one of those free websites?

A.: Let’s leave aside for now the morass of food licensing issues that arise if you use your home kitchen for a food-based business. The IRS takes the position that whatever income you generate through a business activity, no matter how small and no matter whether it’s a home-based business or otherwise, is taxable . . . so yes, you’d generally have to pay taxes on what you earned. An exception is if your legitimate business expenses outweigh your income but, in that case, you’d be losing money on your products (which brings up other headaches).

In terms of checking the business name, if you plan to form a corporation or LLC, your state’s secretary of state may have a website where you can check business names. Or if you just plan to file a fictitious name (or DBA), you’ll want to go to the offices of your local county clerk (usually you have to go there in person; not that many have business name records online).

From there, however you want to advertise your products is up to you. However, I’d strongly recommend that you put together some form of business plan so you can be crystal clear about your product expenses, advertising budget and competition for your target market. I’ve encountered a lot of people who have run headlong into business ideas that they thought would make them easy money, then ran out of cash before they could really get them off the ground. I’d hate for that to provide an extra strain on your family. Consult with your local Small Business Development Center. You can find a list of centers near you at http://www.sba.gov/aboutsba/sbaprograms/sbdc/sbdclocator/SBDC_LOCATOR.html.  They should be able to give you all of the basic information you need to get started and have many programs available for free. 

On a recent trip to Santa Monica, my husband and I stopped into 24 Hour Fitness Express. Armed with a free three-day pass and dressed to sweat, I was ready to climb the Stairmaster and pretend to work off the previous night’s dark chocolate lava cake dessert.

Only there was a problem—I hadn’t carefully read the fine print (my inner lawyer had obviously accepted this time as vacation), which clearly stated the special offer was open to “Local residents only.”  No way midtown Manhattan could be “local” to Los Angeles.

Membership Counselor James Sandoval took this all in stride, smiling like he could have been Manti Te’o’s twin brother (if he had one).  “Let me talk to my manager,” he said.

James reported back within a matter of minutes.  24 Hour Fitness Express was prepared to honor the three-day pass nonetheless—not just for the first day, but for all three days.  Wow!  I had steeled myself for paying the gym’s day rate. Gratefully, I accepted this unexpected gift—a real bright spot in my morning.

From a customer service systems perspective, though, did this make sense?  Clearly, the Club had systems for membership. Systems for marketing to local residents.  In-gym systems for welcoming people. If systems = efficiency, what would make a company deviate from their systems?

After my workout, I asked James and the Club’s Manager, Ivana Spasic. If we weren’t local, why be so generous?  They shared several important facets of the Club’s philosophy—and their approach to customer service:

• We recognize it’s hard to work out and simple to walk out; let’s make it easier for people to stay
• We’re committed to helping people get fit and healthy in a friendly and welcoming environment
• We see ourselves as ambassadors for the whole network of 24 Hour Fitness clubs

When have you made exceptions to your customer service systems rules? How did that work out for you?

Not that women entrepreneurs are so different from men entrepreneurs, but there’s often a different sensibility toward how you handle matters when you become a business owner.  I had interviewed Alicia Marie Fruin on the subject of whether yours “is a business worth having” and in this podcast, Alicia Marie Fruin of Peoplebiz turns the tables.  She interviews me about the basics that women entrepreneurs should know when starting and running their businesses including:

• Whether a written partnership agreement means you don’t trust your business partner
• How to hold yourself and others accountable–and ways that a coach can help
• Exit strategies in business … and the less-discussed but all-too-common reasons that force women entrepreneurs to abandon their companies
• Making “follow the money” and “date before you marry” your watchwords in any strategic alliance or jv partnership
• Why choosing the right form of business entity really matters
• Smart ways to handle debt collection … and to distance yourself from the (icky) process
• The advantages of building a workforce without employees
• How multi-scoop ice cream cones relate to the busiess decisions that women entrepreneurs make

Any other words of wisdom you’d share with women entrepreneurs?

Once upon a time, there was a fox that had fallen into a well. A thirsty goat ambled by and asked the fox if the water was good. The fox told the goat that he had never tasted such clear, pure, water in his life. The goat was so thirsty, that he went into the well to drink his fill, without thinking how he would get back out of the well. Once there, the fox suggested that the goat stand on his hind haunches so that the fox could nip up to the top, and then pull up the goat after him. The goat happily complied. However, once the fox climbed out of the well, he soon made off in another direction. “Wait!” cried the goat. “You broke our agreement! You promised to help me out of here!” The fox replied, “You have more hairs in your beard than brains in your head, Mr. Goat. Otherwise, you wouldn’t have gone down the well without thinking how you were going to get up.”

This Aesop’s fable tells us a lot about trust, collaboration, and – for the purposes of this article – having a plan. Plans are especially important when it comes to choosing a potential business partner. So often, the promise of “something new” (like new love) can make us blind to the realities, the quirks and the weaknesses, of the business relationship.

For example, there are a number of entrepreneurs who have formed a new business entity with a co-owner without having worked out the details of how the business will be owned, what each owner will be expected to contribute, and under what circumstances each can leave the company. Each issue by itself could wreck the company if the owners can’t reach an agreement. That’s why having a business owner agreement – whether a partnership agreement for a partnership, a shareholders’ agreement for a corporation, or an operating agreement for an LLC – is such an essential first step . . . perhaps even more important than forming the company itself. You can always form a company after you reach an agreement with your co-owner. But dissolving a company because you can’t reach an agreement with your co-owners is, well, a sad waste of money and time.

David learned this lesson all too well. He and his potential business partner, Kevin, were eager to start an animation company. They had worked together at Disney Studios a number of years ago, got along well, and when the time was right, looked to each other for the camaraderie and “brain trust” they had shared in the corporate world. So they started to discuss the possibilities of setting up shop together and began negotiating the terms of a business owners’ agreement. They were trying to work out the company’s operations – who would be responsible for what – when Kevin decided to totally renovate his apartment. This, despite the fact that Kevin was not in corporate America drawing a salary, but an entrepreneur trying to build his business. “All my friends in corporate America were getting something new,” Kevin explained. “A new apartment, a weekend place in the country, a new car, a long vacation – I deserved something new, too.” The contractor made a real mess of the place, so Kevin had to deal with that situation. This put negotiations with David on hold for a bit. Negotiations resumed, but several weeks later, Kevin developed some kind of debilitating stomach virus.

Then, a special (and time-consuming project) dropped in Kevin’s lap, which took him to Tokyo for several months on assignment. Then, Kevin’s father suffered a terrible stroke, and Kevin flew to Wisconsin to spend time with him. David hasn’t heard from Kevin in over a year. “Thank God we didn’t actually start something,” said David. “I would have had to spend all my time chasing after Kevin and following up after him. I’m glad I took the time to try to negotiate the deal instead of rushing into it.” In other words, David looked before he leapt and, in hindsight, he didn’t like what he saw.

So what should you look at before deciding to go into business with someone else?

1. Do you really need to do this? What’s your motivation? Are you lonely working alone, or does this person really offer another skill set that you don’t have? Think creatively about whether you can get your real needs met in an employee or outsourced contractor situation . . . or by developing a mastermind alliance.
2. Be honest with your own strengths and weaknesses. Like #1, above, it helps to know yourself and how you need the other person to contribute. Are you looking for a financial partner? Someone to share the workload? Do you need a creative mind to balance your managerial one? What strengths and weaknesses overlap?
3. Don’t fool yourself. As with personal relationships, we may turn a blind eye toward certain behaviors because we really just want the relationship to work out . . . for reasons having nothing to do with the other person. David saw Kevin undertaking major financial burdens (in the form of apartment renovation), and doing so at a time when Kevin did not have a lot of disposable cash. And why? For the adult equivalent of “all my friends have [one].” Kevin’s financial irresponsibility was a definite warning signal. David was wise to keep his eyes open.
4. It’s never too late. Entrepreneurs often feel pressured to start a business right away because they might lose a competitive advantage, or the potential business partner might walk away. In some cases, you might be right that you can’t wait forever. Nevertheless, that doesn’t mean that rushing into a new venture is right for you, either. If David had rushed to form a company with Kevin, he would have found himself tethered to a company with an AWOL owner, and possibly incurring a lot more in expenses to either keep the company running or dissolving it altogether.
5. Get it in writing. Mr. Goat didn’t think through what would happen if he went down the well. And many entrepreneurs don’t think through the possible permutations and options in starting a business with another. That’s why having advisors on board – legal, accounting, coaching, etc. – are so important in guiding you through this process. Putting your observations and desires in writing helps crystallize your thinking about the relationship.

Entrepreneurship is a calculated gamble. That’s why making sure you have a business owner agreement before you form the business is so important. If you “look before you leap” – especially when choosing a business partner – you can ensure that you’ll leap into abundance instead of a dry well!