Becoming a Business
The transformation from freelancer to small design design firm is a gradual shift from subcontracting to direct business relationship. When making this change seek guidance from professional advisors, such as an attorney, banker, business insurance agent, industry consultant, and a certified public accountant. These advisors would also help in the decision of choosing a legal structure.
- Sole Proprietor– Working on your own, there is no legal documents need to be filled by the government. But if something goes wrong its on you and you assets could be in trouble.
- General Partnership– No paperwork need to file. But be cautious when considering a partner because if they take a loan out form the business you are both liable for the debt. (“buy-sell” provision is a must)
- Limited Partnership– Complex and expensive to set up.
- “C” Corporation– It must meet the requirements of Subchapter C of the Internal Revenue Code. Owner and founders have a separate existence from the corporation.(“double taxation”)
- “S” Corporation– The most appropriate for small business owners and entrepreneurs who want to be taxed as if they were sole proprietors or partners. But “S” corporations have a number of IRS rules to follow and be maintained.
- Limited Liability Company (LLC)– The most recent business format to be offered and there are different versions in different states.
- Cooperatives– Several individuals voluntarily join together to provide services to members. As a legal entity, it’s owned and democratically controlled by its members.
- Collective– Used to describe any group of like-minded individuals brought together in an organized manner to accomplish a shared goal.(Not a type of legal entity)
Naming
Choosing a name is probably the most important part of the setup process and a key component in developing your branding. Depending on your category of services you might want your name to be available thought all forms of the legal structure: State, National, Internet, Local.
Licenses and Permits
You must have one or the other in order to operate.
Zoning
Zoning is public regulation of the use of land (Regulate the size, construction, and placement of signs).
Becoming an Employer
After you have established a design firm, next is hiring. You’ll need to apply for a Federal Employer Identification Number from the IRS and a State Employer Identification Number from your state government. Both of these are necessary for payroll processing.
Pricing Models
When selling work there are several different pricing formats:
- Time and Materials
- Fixed Fee
- Licensing: use-based
- Licensing: royalty
- Hybrid
- Free
Terminology
It is very important that both you and the client understand the meaning of the terms being used for projects. Frequently used negotiation terms:
- Estimate
- Quote
- Bid
- Letter of Agreement
- Proposal
- Not to Exceed
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