An Introduction to LLCs

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One of the topics that clients at the Kansas SBDC frequently come to us for help with is whether they should form an LLC and, if so, how to go about it. While, in some cases, we recommend that clients also confer with an attorney and/or accountant, we can help with some basic information.

Terms

 LLC stands for limited liability company (not limited liability corporation). It is a popular business structure because it can combine the advantages of a sole proprietorship or partnership for purposes of taxation with the advantages of a corporation for issues of personal liability protection. A limited liability company must use the words Limited Liability Company or one of these abbreviations as part of its name:  LLC,  L.L.C., LC,  or L.C.  In business transactions, correspondence, marketing, and so forth, it is important that the legal business entity name, including the chosen way to represent that it is a limited liability company, be used.

Owners of an LLC are called members. An LLC with just one owner is a single-member LLC. One with multiple owners is a multiple-member LLC. Members can have an active role in the management of an LLC or be passive investors in the company.

Articles of Organization give public notification of the formation of the business, ownership, location and the legal contact. They are registered with the Secretary of State for the State of Kansas here. The fee is $160 –  $165. They need to be renewed annually and the registration needs to be renewed here. For for-profit businesses, the renewal cost is $50.

An Operating Agreement is a legal document that spells out important information for the ownership of the business. It is an internal document that does not get filed with the State of Kansas but should be retained by the business whether it is a single-member or multiple-member LLC. (See #4 below for more information below.)

More information about options for business legal structures can be found at the Kansas Secretary of State’s office.

6 Reasons to form an LLC

(1) To reduce personal liability on the part of a business’s owner or owners: By separating an owner’s personal assets from the business’ assets, a limited liability company limits an owner’s personal liability to the amount invested in the company should the business be sued. It does not completely eliminate the potential for personal liability in case of a law suit, it does not eliminate liability for debts for which any personal guarantees are given, and it does not protect the business from law suits.  Another way to help protect assets is to carry adequate and appropriate insurances. (Read more about insurances here.)

So, questions to ask include: What personal assets do you have to protect? How much do you foresee your personal assets growing and, in turn, needing protection? What types of liability risks are associated with your business/industry? How severe are they? How likely are they to occur? How well are you personally covered by insurances for any liabilities potentially associated with your business? How comfortable are you with these risks?

(2) To establish some protection for the name of the business: By registering an LLC with the Secretary of State’s Office for the State of Kansas, no other business entity in the same industry has the right to use that name in Kansas. The restriction does not apply to businesses in an unrelated industries or to businesses outside of the State of Kansas. (You may also file a trademark with the State of Kansas. Read about state trademark registration here.)

So, a question to ask is: Would my business or brand be damaged if someone else were to open up another business with the same name, in the same industry, somewhere else in the state of Kansas?

(3) To validate the business as “a real business” in public perception: Some people think that a business is not reliable, serious, or legal, if it is not an LLC or a corporation. They think that it is just a hobby business, a fly-by-night business, not quite trustworthy or not quite legal. For some businesses, being able to put LLC at the end of the business name is an important part of branding.

So, questions to ask  include: Are most other businesses in my industry structured as LLCs? Do my vendors, customers, or lenders expect businesses in my industry to be an LLC?  Would being an LLC make my business look more professional ?- or is it acceptable to be a sole proprietor/partnership? – or is the expectation even higher, that businesses in my industry be corporations, e.g., for reasons specific insurances or bonding?

(4) To reduce some of the risks associated with having multiple owners of a business: In forming an LLC, it is important to have an operating agreement. An operating agreement is a legal document that spells out things such as how much each member has invested in the business in cash or other capital contributions, the purpose of the company, its management structure and the responsibilities of each member, how profits and losses are to be divided, how disputes will be resolved, what happens if someone wants to leave the company or if an owner passes away, the duration of the existence of the company and the terms and procedures for its dissolution. Having important information of these types written down and agreed upon literally helps multiple owners be on the same page.

So, questions to ask  include: Do the owners of my business have a contract or other written documents that ensure that we are on the same page about important issues about which we, our spouses, or future owners of the business might need to agree? What is at stake if we do not have these things spelled out in writing?

(5) To avoid the double-taxation issues faced by shareholders of corporations: Typically, LLCs are structured so that the income tax liabilities of the business “flow through” onto the owners’ personal income taxes. Corporations, on the other hand, are taxed on profits and so are their owners – called “double taxation”. (Another option for avoiding double-taxation is to have the corporation set up as an S-Corp. Note, LLCs, can also be set up as S-Corps.)

So questions to ask include: On how much income in total do I need to pay income taxes? How much business income would I pay taxes on under the different structures? Do I, my spouse, other owners of the business have other sources of income on which we need to pay income tax? What are the tax rates for the different types of income?

(6) To enhance the value of the business in the context of succession planning: Related to the previous points, businesses that have operated as sole proprietorships or partnerships, sometimes elect to form LLC’s when they are in the process of getting ready to sell a business or transition it to new ownership as a way of enhancing the apparent and real value of the business.

So questions to ask include: Do I eventually plan to sell the business (or my portion of it)? Do I plan to transition it to employees or a family member? Given all of the various considerations, would having the business structured as an LLC make it more attractive to a future owner or owners?

If you are considering forming an LLC, evaluate what you want to accomplish and your options for achieving these goals. You may also need to discuss these things with your attorney and or accountant, as well as with other owners of the business, particularly when it comes to drafting your operating agreement or deciding on the best tax structure. Choosing the right legal structure can be to both the advantage of you, your family and your business.

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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8 Things to Do Before Launching a Crowdfunding Campaign

CrowdFunding

Crowdfunding might be right for your business if you don’t qualify for a commercial loan (e.g., because you haven’t developed a credit history or don’t have collateral), if you are good at social networking in particular and networking in general, or if it can be utilized as a marketing tool to generate a lot of buzz about your products, services or technology.

Before deciding to launch a crowdfunding campaign, if its success is important to you, then do everything that you can to prepare to achieve your funding target. Most crowdfunding campaigns fail: slightly less than 1 in 3 reaches their financial goals. In many cases this is  due to lack of advance planning and preparation.

Here are 8 things to do before you pitch for money on a crowdfunding platform.

(1) –Do your research on whether your type of business/product/service has much success in crowdfunding and, if so, on which platform(s).
–(2) Chose the type of crowdfunding – donations, rewards, lending or equity – that is appropriate for your stage of business, the amount of money that you need and what you are going to do with the funds.
(3) –Study successful campaigns and learn from what they did right. Try to find someone who has had success in crowdfunding to coach you.
–(4) Develop and follow a pre-launch marketing plan. You want to generate interest before you start asking for funding. The start is crucial.
(5) –Prepare a plan of action for what you are going to do when, what you are going to offer, and how you are going to follow-up. Don’t promise rewards or results that you won’t be able to make good on (e.g., because you won’t have the production capacity).
(6) –Develop your story so that you can pitch with passion and keep the buzz going after the launch.
(7) –Know what’s in it for the crowd that you are going to pitch to so that you can make what you offer attractive to that group; i.e., know your audience and market appropriately.
(8)  Be aware that sometimes it is unwise to try to go it alone, especially if you are needing to raise large amounts of capital. You may need to hire a professional, e.g., an attorney (to help protect your interests and make sure that you are operating legally in offering equity positions), a graphic designer (to develop marketing materials) or a marketing consultant (to manage your campaign).
At the Kansas SBDC, one of our areas of advising is how to access capital; and, we recognize that financing solutions are not one-size-fits-all. Our business advisors can help you figure out how much money you need to bring in to launch a business start, new product or expansion. We can also help you evaluate options for bringing together the financing you need and prepare you to work with the resources you chose.
Related articles:
Laurie Pieper, Ph.D.
Business Advisor
Washburn University SBDC
America’s SBDC Kansas
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Tips for Writing an Executive Summary Aimed at Potential Investors

Having decided to seek investors, one of the next steps is to prepare an Executive Summary. Business-Deal

Access to capital to complete the development of products, technologies or platforms to deliver services – and to then to rapidly scale the growth capacity of their business – is a nearly ubiquitous need for entrepreneurs with a big vision. One option for companies with high-growth potential is to seek qualified investors. An entrepreneur considering this route should do his or her homework first.

Understand your goals. Talk with trusted advisors about your financial needs, options for meeting them and implications of each possibility. Consult with resources such as your state’s Department of Commerce or Securities Commissioners Office before soliciting investors. Learn about the experiences of other entrepreneurs who have sought and worked with investors and about what investors are looking for. Research what investment groups or individual investors might be interested in your company. 

Having decided to seek investors, one of the next steps is to prepare an Executive Summary. Here are some tips.

Keep in mind that your potential investors are likely to busy people with many demands on their attention. Write in the 3rd person so that the document looks professional and also so that they remember who you are while they are reading. Keep the paragraphs short. Limit yourself, ideally to 1 -2 pages, but to no more than 3. Use graphics or images if they help make your points more clearly than words alone do.

Put your bottom line up front. What is your company? What problem are you working on solving? What are you asking for?

Then go into details.

• What is the problem that you are solving? Why should anyone care? How are you solving it? What is the market for this solution? Why is solution original or better than competing solutions?

• What success have you had so far in solving the problem? What are the indicators that key resources believe in your potential for success? For example, have you won any grants or received interest from government agencies or other potential big customers?

Keep in mind that you are writing for investors who want expectation of a return.

• Who is the management team? What, if any, success have they had in commercialization of products/technologies/services? What other credentials do they possess that demonstrate their capability for moving this solution and this company forward toward successful commercialization?

• What is your business model? What is the commercial potential for your products/technologies/services? What, realistically,  could potential gross revenues and net profits look like?

• What is the expected structure for investment and what is the expected strategy for investors to receive a return? If this requires the sale of the company, what is your exit strategy? What is the anticipated timeframe for return on investment?

Invite a connection. Sometimes the difference between interest and investment is having the opportunity to go into more depth on the proposal in person.

At the Kansas SBDC, one of our main areas of advising in working with our clients is access to capital. Our business advisors can help evaluate needs and options, assist with market research and cash flow projections, and connect entrepreneurs with valuable resources to help them along the road to commercialization.

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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Growth Resources for Women-Owned Small Businesses

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Recently, I attended a conference for entrepreneurs, business support resource professionals, angel investors and venture capitalists. One of the themes that came up repeatedly was that communities in which female entrepreneurs thrive have healthy business ecosystems – with cause and effect moving in both directions. That is, in healthy business ecosystems woman-owned businesses have access to the resources that they need in order to be successful and woman-owned businesses contribute back to those ecosystems in many ways.

Though business ownership by women – especially women of color – has grown significantly in the past few decades, there are several measures by which women-owned businesses lag private sector businesses in general: access to capital; access to markets in certain industries; and gross revenue and jobs supported.

On May 3rd, the WU Kansas SBDC is hosting a day of workshops for Woman-Owned Businesses at the Milford Lake Conference Center at Acorns Resort in Geary County. The four workshops are  Financing, Marketing, Certifications and Government Contracting for Woman-Owned Small Businesses. We encourage women and men looking to grow and create more economic impact from woman-owned businesses to register for the day and attend any or all of the workshops! This is an opportunity to learn about resources, make connections and network with other people involved in the regional entrepreneurial ecosystem.

Our very knowledgeable presenters include: Imagene Harris of NetWork Kansas, Brande Stitt of the Kansas Women’s Business Center and of Women’s Capital Connection, Sheila Ellis-Glasper of SEG Media Collective, Teri Taylor of the U.S. SBA, Kristi Dunn of Kansas PTAC and Laurie Pieper of the WU Kansas SBDC.

Ways to register: Register online here, by emailing ksbdc@washburn.edu

Thank you to our sponsors for helping us to put on this day of workshops. Junction City and Geary County Economic Development Commission, Pottawatomie County Economic Development Corporation, the U.S. SBA, Kansas Department of Commerce, Washburn University Kansas SBDC and America’s SBDC Kansas.

Related Articles:

7 Things Women Business Owners Should Embrace

Government Contracting for Woman-Owned Small Businesses

Celebrating Women Business Owners

Behind the Numbers: the State of Woman-Owned Businesses in 2018

 

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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Dealing with Pain Points: Tips for Innovators & Entrepreneurs

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Sometime innovators and entrepreneurs get swept up in excitement for their own ideas and expect that once they start moving ahead, it will be a straight-line to success. In such cases, unexpected but ordinary challenges can feel like insurmountable obstacles. More often than not, there are  hurdles along the way to successful commercialization of a new product, technology or service; and it is helpful to be prepared for them ahead of time. It is important for innovators to recognize there are often pain points along the path to commercial success during start-up and growth phases: some are ordinary problems to be dealt with and others are red flags that something requires serious attention. Being prepared to mitigate and deal with problems can help prevent red flag scenarios or facilitate recovery from them.

Common pain points:

  • Cash Flow. Temporary lack of cash to purchase equipment, hire employees, market the business, or even cover existing accounts payable is a very common struggle, especially for start-ups that might have difficulty acquiring commercial financing due to lack of sales.
  • Employee Management. Many innovators experience uncertainty knowing when to bring on a new employee, how to define a job and set high but realistic expectations, where to find the right person, how to hold employees accountable without micro-managing them and when to fire someone for inadequate performance. This can be even more complicated in cases of family-owned businesses.
  • Time Management. Working long hours and even multiple jobs is not uncommon for innovators. It can be difficult to know which tasks to prioritize, how to set time limits and deadlines, and when to ask for help.
  • Work-Life Balance. While developing a new product or technology,  getting a new business off the ground or an existing business into a growth phase, entrepreneurs don’t always have enough time to spend with family and friends; and this can cause tension outside of work.
  • Failures and Doubts. Setbacks in developing a product or technology, or lack of initial market interest, can trigger lack of confidence about the worth of the innovation or the innovator’s capability to move forward with the idea.

Pain points can be difficult to get through; but while they present challenges to be dealt with, they are not necessarily signs that the idea cannot be successfully commercialized. There are, however, some red flags that things might need serious attention.

Red flags:

  • Lack of Financial Management. When no one is properly managing the finances, paying attention to cost structure and pricing, or when there is no feasible plan for controlling cash flow, the business might be in danger of running out of money rather than going through a temporary lack of cash flow.
  • Lack of Engagement in Planning. When the owner isn’t staying engaged in business planning on an on-going basis but is just churning through tasks, or when the owner is indecisive and puts off decision-making, the business might be in danger of stalling due to lack of direction.
  • Poor Employee Management and Company Culture.  When employees are overworked and/or micromanaged, performance expectations are lacking or are unrealistically high, tensions and pressures create a negative atmosphere, or poor compensation structure is in place, the business might be in danger of inconsistent performance and an inability to retain valuable employees.
  • Rigidity: When the owner/management lacks flexibility,  doesn’t listen to the support system that is in place or is not coachable, the business might be in danger of getting stuck with an idea or processes that won’t make it through to successful commercialization. This might happen, for example, when the owner is passionate but not realistic about the innovation.
  • Lack of Due Diligence: When a company is dependent on others to perform key tasks and does not go through a proper vetting process or make sure that appropriate contracts are in place, it may be at risk of failure due to the others’ failure to perform.

Strategies for planning and coping:

  • Don’t wait until you are out of cash or the sky is falling to ask for guidance about managing the business. Ask for real help from people you trust and whose opinions you value.
  • Make purchases carefully. Think of them as investments in the business.
  • Be creative during cash crunches (e.g., find creative solutions in working with vendors).
  • Don’t make rash business decisions under pressure. Take a walk, take a break, think things through over a period of time.
  • Plan ahead for the need to reevaluate your value proposition and best customer base.
  • Understand that the right team isn’t necessarily people who always agree with you. Figure out what you really need in a team in terms of experience, knowledge, skills, aptitudes, attitudes, etc. Find people whose strengths complement yours.
  • Get input from employees, customers, mentors, and/or reliable support resources.
  • Network and build relationships with people you admire and with people with which you potentially see future overlap.
  • Pivot when needed.
  • Diversify revenue streams.
  • Have contingency plans for what to do if things don’t go as planned. Don’t think that you need to keep moving in the same direction or keep going at all costs.
  • Learn what you can from your failures, adjust, pick up, keep going. “Failure is simply the opportunity to begin again, this time more intelligently.”-Henry Ford
  • Utilize good resources. Places to go for business support include your SBDC office, banker, accountant, attorney, mentor, and other entrepreneurs.

At the Kansas SBDC, we recognize the challenges faced by innovators along the way to commercialization and want to help them be successful and avoid costly missteps. Our advising services include cash flow and financial analysis, access to capital, management, market research, growth strategies and general business planning for both preventure and existing businesses.

Laurie Pieper, Ph.D.

Business Advisor

Washburn University SBDC

America’s SBDC Kansas

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Why Attending Conferences is Good for Your Business

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It is no secret: small business owners are busy people and often feel like they don’t have the time to do everything. Attending conferences can fall onto their list of things I wish I had time for but don’t, especially in this day and age when there is such a plethora of information available online. Professional development, however, is important for business owners and, in many cases, for their employees as well.

Here are a few reasons why attending conferences can be good for you, your employees, and your business:

• Interaction with other people at live professional events can be energizing and make people feel even more committed to success.

• Conferences provide opportunities to learn new information or skills, inspire people to try new things, and have a better sense for how to deal with challenges along the way.

• Sometimes you need to get outside of your business- your “box” – to think outside of the box.

• You can connect with resources that you might otherwise never connect with.

• Presenters at conferences are knowledgeable and willing to share their experiences – both successes and challenges.

• Investment in yourself and in your employees is important for personal satisfaction with the workplace.

The Kansas SBDC is hosting a Rural and Independent Innovators Conference in Manhattan on January 28th and 29th.  RIIC will take attendees through the lifecycle of getting from idea to commercialization and will enable them to connect with valuable resources and inspiring entrepreneurs. Two weeks away, we are excited about the enthusiasm that the participants are already demonstrating and about the positive outcomes that this conference will help support! Register here.

RIIC is sponsored by: Washburn University SBDC, America’s SBDC Kansas, North Central Regional Planning Commission, NCKCN, Networks Plus, Central National Bank,  Junction City & Geary County Economic Development Commission,  Manhattan Area Chamber of Commerce, Pottawatomie County Economic Development Corporation, U.S. Small Business Administration, Kansas Department of Commerce, USDA Rural Development and K-State Technology Development Institute

Laurie Pieper, Ph.D.

Business Advisors

Washburn University SBDC

America’s SBDC Kansas

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Rural and Independent Innovators Conference: Program Details

RIIC

Manhattan, Kansas

We are very excited about RIIC and looking forward to meeting innovators! Program details are included below.  (More information can be found here.)

Day 1 – January 28, 2019

8:00 – 8:25 Sign-in

8:30 – 8:50 Opening Address: The Importance of Innovation, by Kent Glasscock, President of the Kansas State University Institute for Commercialization

8:50 – 9:45  Panel: You think that you have an innovative idea – or you are trying to get involved in innovation – how do you know whether you should move forward? Alan, Badgley, Kansas SBDC Technology Commercialization Center; Tim Carty, EMP Shield; Bret Lanz, Technology Development Institute; and,Tim Penner, Harper Industries.

9:45 – 10:00  Break 

10:00 – 10:50 Panel: Once you have decided to move forward, what steps do you take? Nick Graham, Sileo Corp; Tim Haynes, FAB LAB at Independence Community College; Karl Klein, Washburn University Kansas SBDC; and, Rick LeJuerrne, Flow Capital, LLC.

10:55 – 11:50 Panel: Pulling Together Financing for Early Stage Ventures. Trish Brasted, Wichita Technology Corporation; Joe Fiorella, Central Funding Exchange;  Imagene Harris, NetWork Kansas; and, Doug McKinney, North Central Kansas Planning Commission.

11:50 – 12:45 Lunch Break: 

12:45 – 1:40 Panel: SBIR Grants. Tom Byler, Kansas SBDC; Bill Carey, Kansas SBDC Technology Commercialization Center;  and, Debra Franklin, WSU Strategic Initiatives.

1:45 – 2:40  Intellectual Property Basics by  Sara Butts, Engineering, Patents, and Trademark Librarian & Patent and Trademark Resource Center (PTRC) Representative, Wichita State University Libraries

2:40– 2:55 Break 

2: 45 – 3:40 Panel: Managing Risks.  Jerry Horton, Networks Plus; Patricia Judd, Washburn University School of Law; and, Rick LeJuerrne, Flow Capital LLC. 

3:45 – 4:40 Panel: Dealing with Pain Points: Knowing When to Call it Quits or How to Keep Moving Forward.  Trish Brasted, Wichita Technology Corporation; Bill Carey, Kansas SBDC Technology Commercialization Center; Nick Graham, Sileo Corp.; and, Pete Keegan, EMP Shield.

4:40 – 5:00 Lanes of Commercialization, Alan Badgley, SBDC

5:00 – 6:30 Networking

Day 2: January 29, 2019

Sign -in 7:30 – 7:55

Speaker: 8:00 – 8:25 Business Growth through International Markets, Dennis Pedersen of GT Mfg. Inc.

8:30 – 9:35 Round Table:  Product Development, Scalability and Production. Jim Correll, FAB LAB at Independence Community College; Fred Goertzen, Goertzen Manufacturing; Bret Lanz, Technology Development Institute; and, Tim Penner, Harper Industries.

9:35 – 9:45 Break

9:45 – 10:50 Round Table: Accessing Markets:  Tom Byler, Kansas SBDC; Scott Knapp, PTAC; Ken Williams, K-State Institute for Commercialization.

10:45 – 10:55 Break

10:55 – 12:00 Round Table: Financing for Later Stage Projects. Salih Doughramaji, Kansas Department of Commerce; Doug Haverkamp, Central National Bank; and,  Lyle Peterson, MidAmerica Angels.

12:00 – 12:30 Lunch Break 

12:30 – 1:00 Concluding Talk: Exit Strategies by Karl Klein, Washburn University Kansas SBDC & Tom Byler, Washburn University Kansas SBDC

 

Register here or by phone at our new office number: 785.215.8375

RIIC is sponsored by: Washburn University SBDC, Kansas SBDC, North Central Regional Planning Commission, NCKCN, Networks Plus, Central National Bank,  Junction City & Geary County Economic Development Commission,  Manhattan Area Chamber of Commerce, Pottawatomie County Economic Development Corporation, U.S. Small Business Administration, Kansas Department of Commerce, USDA Rural Development and Technology Development Institute.

Please check here back for program updates.

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