The Three Types of People Who Start a Business

Rachael, Direct Incorporation Staff

There are a lot of reasons for not starting a business—and of course, many of them are valid. But some of the reasons for not starting that business you’ve been thinking about really shouldn’t stop you.

Here are 3 reasons you may be giving yourself for not starting up a business, and here are the 3 types of people who flip these roadblocks right on their heads:

 

1. Being afraid of failure

This is a big one, and an understandable one at that. The rate of failure in startups can definitely be discouraging. When interviewing about 20 people in the city of Ann Arbor, the most frequent answer to my question of “Why haven’t you started a business?” was the fear of failure or “It’s too risky.”

But as this picture shows, there are two routes you can take in response to fear. Any successful entrepreneur will tell you that of course they were afraid of failure, and still might be fighting that fear. But the difference between these people and those who choose not to start up is that these people are afraid of failing—but they do it anyway. If we don’t keep optimism in our outlooks, the future looks pretty bleak. Instead of letting the fear of failure stop you from trying, think about it this way: the only way to fail is to not try. And if you need some extra inspiration, check out this Forbes article to put things into perspective.

2. Worrying that you don’t know what you’re doing

Again, this might seem like a deal breaker for starting a successful company. Yet, regardless of whether you have an actual lack of business knowledge or you do in fact have knowledge but are a normal human who grapples with impostor syndrome, this is something that can definitely be dealt with. Take Rene Greff, for instance, the co-founder of Arbor Brewing Co. in Ann Arbor. In her words,

“I was a philosophy major and [my husband] was a political science major, so we had no business experience. We knew nothing about setting up or running a business, and we kind of just did everything by the seat of our pants.”

And 20 years later, Arbor Brewing Co. is still a thriving brewpub in Ann Arbor. In the words of Bob Helber, founder of Continental Capital Real Estate, Inc., if you are an aspiring entrepreneur,

“Don’t be afraid to make mistakes along the way, because mistakes are probably what makes you a better business owner. And you never know whether or not you’re going to be successful if you don’t take that leap of faith.”


And lastly, from David Klingenberger, founder of The Brinery,

“I got told early on to pay all this money to take a week-long business course and write a business plan, but my business plan was making a product and getting it in front of real people. And the feedback I got was enough for me to say ‘There’s something viable here.’ Of course you should be competent and you should have a business plan, but make your thing and get it in front of real people—that’s my best advice.”

While figuring out the logistics of your business is important, it doesn’t require an advanced business degree. One of the most successful local entrepreneurs in Ann Arbor, Mark Hodesh, never even graduated high school. In this day and age, it’s incredibly easy for an entrepreneur to take initiative and find endless online resources to help get their bearings on the basics of entrepreneurship—and most of these resources are free.

3. Not having enough funding

This is a tricky one, but if you think about it, there are actually countless businesses that require little to no startup funding: these include anything from online boutiques or website design to music lessons or tax advising. But even if your business does require funding, over 90% of small businesses are successfully started via personal funding. While this may end up taking more time, the advantage is that you alone own the business and are free to take all control.

The difference between someone who lets this roadblock get the best of them and someone who doesn’t is that even in seemingly hopeless financial situations, entrepreneurs will find a way to make it work. There are countless options to get outside funding for your startup. These include, but are not limited to: startup incubators, friends and family, angel investors, crowdfunding, and small business grants. If you are struggling to find a way to fund your business, the U.S. Small Business Administration is a great place to start.

In conclusion

There are endless ways you can convince yourself not to start up and incorporate a business, but the thing is, anyone can be one of these 3 types of people. Instead of letting fear prevent you from pursuing your passion, take a step back and realize that everyone is facing the same fears. It just that some people choose to rise above them.

Ann Arbor’s Entrepreneurial Legend: Mark Hodesh, Founder of Fleetwood, Downtown Home & Garden, and more

Rachael, Direct Incorporation Staff

“I’m a much better person in the morning,” Mark Hodesh laughed after I approached him in his store around 10:30 am. Personally, it was still very much “morning” to me, but when you’re legendary Ann Arbor entrepreneur Mark Hodesh and show up to work around 4 am every day just because you want to, I guess 10:30 is pretty late. We agreed that I would come by earlier the next day in order to sit down and talk about his story. And talk we did. Mark is the founder of Ann Arbor’s beloved Fleetwood Diner, Downtown Home & Garden, Bill’s Beer Garden, and Mark’s Carts, all of which are located at the corner of Ashley and First Street downtown. We talked about his journey as an entrepreneur and his advice for anyone thinking about starting their own business. Here’s our full conversation:

 

How about we start with who you are and what you do?

“My business career has been associated with this street corner for forty some-odd years. I founded Fleetwood diner and started it in 1972, and three years later sold the diner and purchased Downtown Home & Garden, which at the time was Hertler Brothers. Then my wife and I lived in Maine and had a summer hotel there: it was a nice 20-room, 20 bathroom, full dining room, summer hotel. And when Hertler Brothers started to do poorly in the mid-90’s, my wife and I moved back to Ann Arbor, took over the store, and we’ve been doing well here since.”

Adjacent to Downtown Home & Garden sit two more of Mark’s ventures: Mark’s Carts, a collection of outdoor food carts founded in 2011, and Bill’s Beer Garden, a beer garden selling Michigan craft beer and wine, founded in 2012. To say he and his wife have been “doing well” is a bit of an understatement—Hodesh reigns over almost an entire block of Ann Arbor, and a highly-frequented block at that.

What are some things you like about being an entrepreneur?

“I didn’t have so many choices in life. I didn’t get out of high school, I’m kind of unruly…so a situation where I could take charge just suited me better…that’s what led me here. And I always work for the public. I love the public adoration, I like being in contact with my customers, and enjoy their applause when they choose to give it.”

And he certainly gets applause. Mark’s Carts won an award from AnnArbor.com Business Review just months after it opened, Downtown Home & Garden has received more than one Reader’s Choice Award from Current Magazine, and Downtown Home & Garden, Mark’s Carts, and Bill’s Beer Garden have Google reviews of 4.4, 4.5, and 4.6 stars, respectively.

What have you learned from starting so many businesses?

“So I’m not a great planner. I’m detailed when I get focused, but I don’t plan from the beginning to the end necessarily. I like to do part of a project, assess, and keep adjusting all the way through it. When we took over this store in 1997, I didn’t really have any idea about a Beer Garden or Marks’ Carts, those were incremental thoughts that came along later. And to a lesser degree, we now sell a lot of clothing—I wasn’t thinking about selling clothing in those days. I’ve learned that customers change, circumstances change, and I try to stay with them. But each thought appears as a good idea and I think, ‘Well, we can try that.’ Sometimes it works and sometimes it doesn’t.”

Mark Hodesh | Photo by Benjamin Weatherston

What advice would you give to someone who is thinking about starting a business?

“Different people start businesses for different reasons. Sometimes it seems like a pretty straightforward path to riches—but it probably isn’t for a lot of people. So I think you have to face the reality that you might fail. And that scares people. If you grew up in a household where your parents worried about money, it might be hard to put down your pile of silver and bet on the future. But while my family certainly wasn’t wealthy, we didn’t worry about basic needs, and I’ve inherited that. When I start something, I figure that if it doesn’t work out, there will be another opportunity in 6 months and we can get going again. So be fearless. That may be impossible, but it certainly helps if you can be fearless going ahead.”

This sentiment has been echoed by both entrepreneurs and scientists alike. For instance, in cognitive neuroscientist Tali Sharot’s TED talk on optimism, she explains that “Optimism is not only related to success—optimism leads to success.” It makes us work harder towards our goals (and leads to better health, too)! So thinking about all the ways your business could go right, instead of worrying about all the ways it could go wrong, is the best thing you can do for yourself.

Anything else you’d like to add?

“It’s a rewarding life. I like it. It suits me. The work sometimes is dealing with employees: having employees takes some skill and some patience. They all have lives and needs of their own. But the reward is great. Watching people grow up—watching our high school kids turn into college kids, turn into entrepreneurs or working someplace…I like the whole continuity of the community. I just like, as life rolls on, watching the chances come and participating in the continuum. That’s my story. That’s my short and simple story.”

Personally, I’d call a 40+ year entrepreneurial career more of a “long and multifaceted” rather than “short and simple” story, but hey, I guess time flies when you’re having as much fun as Mark. Not only has he built up a wildly successful street corner, but he talks about it with such humble delight that it’s easy to see that this is exactly where he wants to be. To him, this life was never a question— 4am wake-up call and all.

 

8 Ways That Sports Can Help You in the Office

Rachael, Direct Incorporation Staff

Yes, playing on a sports team teaches you a lot about playing that sport. But it also teaches you so much more.

As someone who has spent more than two thirds of their life playing some form of organized sport—whether it’s basketball, soccer, track and field, or cross country—I’m able to witness firsthand how drastically it can affect your life. Some sports skills (like how to shoot a free throw) aren’t super useful in everyday life, but if you’ve ever played a sport, there are so many skills that will always be with you—whether in everyday life, at the gym, in the relationships you build, or in the office. Here are some of the most helpful ways that sports can carry over into your work life, starting with the most obvious:

 

1. Teamwork

There is nothing better to teach you teamwork than—you guessed it: working with a team. In sports, if your team doesn’t work together as a whole, it’s almost impossible to succeed. Learning to both step up when you need to, and delegate when practical is essential in the office. Being selfish or not taking the team’s needs into consideration won’t get you far in sports, business, or life in general.

2. Communication

The best sports teams are constantly communicating. In a game, you are always talking to your teammates, telling them where the other team’s players are moving, where they should watch or cover, or which play to run.

There is no such thing as too much communication in sports: when things get hectic, communication helps everyone stay calm and organized. In the workspace, effective communication is what helps keep things running smoothly, and reminds coworkers that they’re part of a team and that their input is important.

3. Pushing through the tough stuff

No one likes doing sprints at the end of basketball practice. But if you want to be able to run up and down the court for an entire game without dropping to the ground with exhaustion, you need to be in shape.

In the office, not everything is fun and games. But in order to become the best you can be, sometimes you have to do tasks that are challenging or (possibly worse) mundane, but necessary.

4. Handling pressure

On a similar note, sports involve not only pushing through challenging situations, but high-pressure ones as well. If you’re facing a full-court press in basketball, or are on the free throw line at the end of a close game, being able to have a level head in high-pressure situations is an incredible skill to have. In the office, this could apply to everything from making important financial decisions to public speaking.

5. Leading by positive vs. negative feedback

No one likes the teammate or coach who yells at people constantly when mistakes are made. While constructive critiques are important and necessary, it is also just as important to give positive feedback when things are going well.

This builds morale, gives people confidence, and if people’s accomplishments are recognized, they’ll be more willing (and happy) to work hard for the benefit of the team. This leads to the next point:

6. Commitment and accountability

When you are part of a team, you are going to do everything in your power to not let your team down. This means showing up on time for practice (or work), and showing up ready to games (or meetings). And if you can’t do these things, it’ll be for a good reason that you’ll be sure to communicate with the team.

7. Improvisation and problem-solving

In a game, if a play or tactic isn’t working, it’s time to problem solve and make changes to your strategy, instead of trying the same thing over and over.

The same applies in the office—customers, trends, and technology are always changing, and it is imperative to adapt to these changes. Being able to evaluate the situation and change tactics is a huge key to both work and life.

8. Optimism

Lastly, it’s impossible to succeed on a sports team without optimism. Sometimes, your team will lose. It’s going to happen. But instead of hanging your head and giving up all hope, it’s essential to bounce back, work harder, and take on the next challenge with even more fervor. Without optimism, we don’t give ourselves anything to work for or look forward to.

Whether or not anything discouraging has happened in the office, it’s so important to be optimistic. Entrepreneurs need to be optimistic that their new business will succeed. Sales representatives need to be optimistic that they’ll make the sale. Again, without optimism, we don’t give ourselves anything to work for or look forward to.

If you’ve ever played any kind of organized sport, I’m sure you’ll be able to relate to these skills. Sports are not only fun, but are one of the best life coaches you can find. Maybe that company softball team isn’t the worst idea, after all…

 

What is it like to run a business with your spouse?

Rachael, Direct Incorporation Staff

I was able to talk with two different local Ann Arbor entrepreneurs about their experience starting and running (very successful) businesses with their spouses. While the prospect of doing so may seem to some like a dangerous venture, these two couples have been able to work side by side to run wonderful Ann Arbor businesses—and here’s what they have to say about it:

Rene Greff & Matt Greff, Arbor Brewing Co.

Photo by Doug Coombe

Rene explains, “It was quite a roller coaster ride. We were in our late twenties, and my husband was a home brewer. He was working a corporate job that he hated, so we thought that it would be an amazing thing to open our own brewery so that he could become a professional brewer. I was a philosophy major, he was a political science major, so we had no business experience. We knew nothing about setting up or running a business, and we kind of just did everything by the seat of our pants. So as you can imagine, we hit a lot of bumps in the road along the way. But for all of the stress and the problems,  it’s amazing. In a restaurant, it’s so important to have a good team. We always say we can’t imagine doing anything else.”

Arbor Brewing Co. has now been going strong for more than twenty years, so it looks like Rene and Matt have gotten everything worked out, no matter how stressful things may have been in the beginning.

Kathy Sample & Bill Brinkerhoff, Argus Farm Stop

Photo by Patrick Dunn

When I asked Kathy what it was like to run a business with her spouse, she made it clear that it had never been a problem. “Oh, it’s great,” she explained.  “One of the things people told us before we started—and it would be the same rule for any kind of business partner—is to pick your tasks and stick to them. Bill’s analogy is that it’s like playing soccer: if the ball goes by, not everybody goes after the ball. You know when you go after the ball, and the other guy knows when he goes after the ball. We know what our roles are and we know what our skills are, so we’ve divided it that way. And then we hired an awesome staff. If you don’t have great people that are committed to your mission, its not the same. That’s the important thing.”

Argus has now been in business for almost two years, and there is not a time I’ve been in the store that it hasn’t been absolutely packed with shoppers or coffee shop-goers. Kathy and Bill know many of their customers by name, and greet them in the store as if they were family. Working together seems like second nature to them.

Mike Gustafson & Hilary Gustafson, Literati

Photo by Daniel Brenner

While I was unable to speak directly with Mike and Hilary, their story is well-known to any book lover in Ann Arbor. Mike and Hilary both grew up in Michigan, and then moved to Brooklyn together. When they heard that Borders was going out of business, they wanted to make sure that Ann Arbor had a bookstore to replace it. They moved back to Michigan, started their bookstore, and ended up getting married while running their business together. Their success has only increased over time, and they are going on year number three of operating smoothly in downtown.

From these examples it’s clear to see that doing business with your spouse certainly isn’t a hurdle to success—in fact, it might just be the key to it.

What’s the difference between management of S-Corporations and LLCs?

 

Rachael, Direct Incorporation Staff

When trying to decide between forming an LLC or an S-Corporation, it is important to know the differences in how the companies are owned and managed. The terms used for each type of company are more than just colloquial differences—a stock certificate is different than a share certificate. Here’s what you should know about these discrepancies:

Shareholders vs. Members

A shareholder is someone (or a group of people or company) who owns at least one share of a company’s stock. S-Corporations have shareholders with stock certificates, while LLCs have members with share certificates. Members, (which can be one or more persons, a corporation, or LLC) rather than owning a specific number of shares, own a specific percentage of the company. An important limitation for S-Corporations is that they can have a maximum of 100 shareholders, and all shareholders must be legal U.S. citizens. LLCs do not have these limitations.

Rights and Transfer of Shares

Shareholders can easily transfer their stock to another shareholder, while the process for LLC members can be slightly more complicated. S-Corp shareholders are able to attend meetings, vote on corporate matters, serve on the board of directors, and sue officers and directors for things such as fraud or misrepresentation. Members, if part of a member-managed LLC, can participate in the management of the LLC in the same ways. This usually happens when there is a small number of members. However, if the LLC is manager-managed, this job is done by a Board of Managers.

Board of Directors vs. Board of Managers

S-Corporations are managed by a Board of Directors, which are elected by shareholders. The Board of Directors then appoints the CEO. In manager-managed LLCs, the Board of Managers can be voted upon or self-appointed—something decided in the company bylaws.

Similarities

Of course, S-Corporations and LLCs have many things in common. Both forms of business give owners liability protection, and both are only taxed at the personal level (instead of at both the corporate and personal level). LLCs require less red tape and are cheaper to set up, so an LLC could be a good choice if you’re a new business owner. However, fast-growing businesses looking for investors could benefit from incorporating as an S-Corporation. Looking at the nuances in management can help you decide which form of business is right for you.

 

 

Don’t let these 5 things stop you from starting a business

 

Rachael Lacey
Direct Incorporation Staff

 

There’s no way around it: the thought of starting a business can be daunting. People will give you all sorts of reasons not to do it, and a lot of those arguments can be valid. However, some of the most common motives for hesitation are based on ideas that just aren’t true. Here are five frequently stated reasons for not starting a business, and why you shouldn’t let them hold you back:

1. “I don’t have a good enough idea”

You don’t need to be the next Edison in order to start your own business. Creating a product from scratch or coming up with a revolutionary new service is far from necessary. You can build a company around anything from wedding planning to accounting. If you like dogs, you can be a dog walker. Like writing? Be a freelance copywriter. Pretty much any hobby that you have can be turned into a business. So why not get paid for it?

2. “It’s too risky”

Yes, it is risky, and there’s no way around that. But it’s also incredibly rewarding. Julie Lepper, founder of Julie S. Lepper Accounting and Tax Services, LLC, explains, “The risk is high, but the reward is also very high. It’s very cool to see how you take nothing and turn it into something.” Here are some more rewards for starting your own business, according to other entrepreneurs in Ann Arbor:

3. “I’m too young”

Yes, I can tell you from experience that being a young adult feels like you are constantly scrambling to figure out what you’re doing. But the thing is, being a young adult also tends to offer a lot of freedom and flexibility. Chances are, you don’t have a spouse or family to provide for. It would probably be easy to pack up and relocate if you wanted to. And I mean, the founders of Facebook, Microsoft, Apple, and Google were 20, 20, 21, and 25, respectively. And this guy is a millionaire at age 22.

4. “Being the boss means getting bogged down with paperwork and boring stuff”

Administrative work is going to be a part of any business, but there are also lots of cheap options for hiring help with taxes and legal forms. Plus, being an entrepreneur is anything but boring.

This local entrepreneur argued, “As an entrepreneur, I was able to decide everything that I wanted to learn, and also be exposed to new things on a daily basis, and overcome new challenges. And for me I think that’s one of the best parts about running my own business”

5. “I don’t know what I’m doing”

Although it wouldn’t hurt, it’s not necessary to have a business-related degree in order to start your own business. Rene Greff, co-founder of Arbor Brewing Co. in Ann Arbor, reminisced about starting her successful brewpub with her husband:

“I was a philosophy major and he was a political science major, so we had no business experience. We knew nothing about setting up or running a business, and we kind of just did everything by the seat of our pants.”

And more than 20 years later, ABC is still going strong. Raul Perdomo, founder of Michigan Draft Solutions and current owner of Apples and Oranges in Ann Arbor, also told me about his experience incorporating his business:

“When I started Michigan Draft Solutions, I had no idea what I was doing. I talked to some business owners I knew to ask what they’d done, and once I figured it out and got the paperwork I needed, I was good to go.”

It might take some time and research, but if you want to figure it out, you’ll certainly be able to. Don’t let these reasons prevent you from starting a business you’ve been thinking about (or just thought about now). You’ll never know what you can do if you don’t try, so don’t let these doubts keep you from taking that leap of faith. It might just be the best decision you’ve ever made.

Mission and Community-Based Business: Kathy Sample Shares Her Story and Advice

Rachael, Direct Incorporation Staff

Among the most common types of small businesses in the U.S., “Farm and Food Production” ranks number 12, and “Restaurants, Cafés, and Bakeries” stands at number 5. In some ways, Argus Farm Stop in Ann Arbor might seem like a simple combination of these two types of businesses: a grocery store/coffee shop that sells locally sourced food. Yet, it is so much more than that. This week I had the joy of speaking with Kathy Sample, Co-Founder of Argus (which she owns with her husband Bill), about her experience with Argus for the past two years. Not only is her story inspiring, but she also offers great advice for anyone thinking about starting a business–especially one with a social mission in mind. Here’s our full conversation:

 

Can you start by telling me a little about yourself and what you do?

“Argus Farm Stop is an L3C: a Low-profit Limited Liability Company. So we’re a for-profit company with a mission to grow the local food ecosystem in Washtenaw County. We’re essentially a grocery store for which all the farmers own the produce and meat and dairy products, and we sell their products for them on consignment so that they don’t have to stay at a farmers market. You might have one guy who just has raspberries and wants to have an outlet but doesn’t want to sit in a farmers market, so we provide that space. We’re open every day all year, so we not only give them an additional approach to get to customers, we also offer an every day, year-round market for customers to access local food. So if they cant make the Saturday or Wednesday Farmer’s Market, they can come into Argus and get the same products from local farms. We started with about 40 farms but now we have about 150 different producers growing things or making things from local ingredients.”

How did you come up with the idea for Argus?

“We went down to Ohio to take our kid to college and saw a place that was similar to this called Local Roots in Wooster, Ohio. My first reaction was, ‘Why doesn’t every city in the United States have something like this?’ Where local farms can bring their stuff, and it can be sold but the farmer doesn’t have to stand there all day. Because you want to be working at your farm when it’s a nice day, and if it’s not a nice day, you’re not going to get a lot of traffic at a farmers market. We’ve made our famers work into a really weird model. You wouldn’t make somebody who sells gas stand there and sell their gas one day a week at an outdoor market. So I don’t understand how this has happened and its just a little boutique-y thing (well actually I do know: industrialization of food and the ability to call a 1-800 number and order everything at a big grocery store is what happened).

So we saw this place and said,  ‘We could do that in Ann Arbor.’ We came back here and called people at U of M that are in the sustainability area, asking ‘Has anyone ever done this in Ann Arbor? Is anyone doing this in Ann Arbor?’ We just kept making phone calls. Then at the Local Food Summit we introduced this concept to farmers and customers and got really good feedback. We wanted to make the Ann Arbor Farmer’s Market a full-time enclosed area, and they said, ‘It’ll take too long to get approved, but we love your idea so we’ll help you do your own thing.’ We started looking for locations, and this [building] was abandoned, and affordable, and we thought, ‘It’s kind of a cool part of town,’ so we took a chance. We did a demographic analysis with the Small Business Development Center, which is a fantastic resource, we used Michigan State University Product Center, we talked to people about what its like to go into business with your spouse…A couple people were like, ‘Grocery retail is really hard,’ but we both have business backgrounds and we thought the coffee shop would help us. The model is that the farms get eighty percent of the price they set and we get twenty percent, which you can’t run a business on. But the coffee bar gives enough margins to support the whole model. When we have this robust coffee bar with this community, (which is what the whole thing’s about: people who love local food) it works.”

Kathy and Bill inside of Argus

What do you like about having your own business?

“I was in the corporate world for my whole career, as was Bill, my husband, who started this company with me (we also had another partner, Scott Flack, who now works in Detroit). So coming from a corporate background, I like the fact that I have complete autonomy to make decisions about what happens here. If I see that something needs to change, I can address it by working out something with our staff and everybody’s opinions—but the point is, I can make a decision and get it done.”

Do you have any advice for someone who is thinking about starting something similar?

“My advice would be: make sure that you form a network. It takes a village. To do something with a social mission like this and a mission that involves a local community, you need to have a whole network of people who support you: in our case it was farms and customers. You really have to have the ability to contact people that you need at different points, you need a really deep net of contacts. You need to know people in the food industry, the people who do food policy, local people like the farmer’s market people (because they need to be supportive of you—it’s a community, we’re not trying to out-perform the farmers market, we’re trying to make everybody’s local food access better, so we work in concert with them). So I’d say at a very minimum, cast a wide net and find a lot of supporting characters. And then do your homework. Know what you’re getting into. Know what the rules and expectations are. If you’re doing something that copies another model, spend a lot of time with that model. We have about ten different entities working with us to form ‘Arguses’ in their own way around the country. They spend time with us, shadow us, learn our systems…they ask the right questions, the hard questions. So, learn a lot before you do it. Spend some time upfront, don’t just think, ‘Oh that looks like fun, I’m gonna do that.’ It doesn’t work that way.”

So what is it like running a business with your spouse?

“It’s great. One of the things people told us (and it would be the same rule for any kind of business partner), is to pick your tasks and stick to them. Bill’s analogy is that it’s like playing soccer: if the ball goes by, not everybody goes after the ball. You know when you go after the ball, and the other guy knows when he goes after the ball. We know what our roles are and we know what our skills are, so we’ve divided it that way. And then we hired an awesome staff. If you don’t have great people that are committed to your mission, its not the same. This is about food, and it’s about local farms. So all our people have farming backgrounds, or do some farming, or have sustainability interests, or cook…but they all can tell the story of local farms. That’s the important thing.”

When talking to Kathy, it was clear that she absolutely loves what she does. She’s managed to create a business that is successful financially, successful in food sustainability, and successful in working towards a mission that she is passionate about. That sounds like a pretty good business model to me.

S-Corporation, C-Corporation, or LLC?

Rachael, Direct Incorporation Staff Member

Thinking about starting your own business, but are unsure what form your business should take? Should you form an S-Corporation, C-Corporation, or LLC? While it can seem a bit confusing at first, it’s possible to figure out which type of business is best for you.

Let’s start with what they all have in common: by forming any of these types of business, you are given personal liability protection from anything related to your company. This means that your business is a separate legal entity, and any business debts or lawsuits are filed against the business and not you personally. Because it is a separate legal entity, it can be passed on to someone else like any other asset. Also, all of these forms are subject to filing annual reports and paying franchise taxes. But here’s how they differ:

Taxation

An advantage of both LLCs and S-Corporations is that instead of the company being taxed, they are taxed as an attachment to your personal tax return. C-Corporations, however, are taxed at both the corporate level and the individual level.

Ownership

In an LLC, owners are referred to as members. They are given membership Share Certificates that document what percentage of the LLC that they own. Corporations are owned by shareholders with stock certificates that show the number of shares they own out of the total number of shares. Because of the simplicity with which stock can be sold and transferred in a corporation, this can make it an appealing choice over an LLC (for which a sale of an ownership interest must be approved by other members).

While the decision-making authority of a Corporation is called the Board of Directors, for an LLC it is a Board of Managers (if there is more than one owner).

If deciding between an S-Corporation and a C-Corporation, there are two important guidelines for owners of an S-Corporation: there must be fewer than 100 shareholders, and all shareholders must be legal U.S. citizens.

Paperwork

LLCs are subject to less stringent ongoing formalities in their maintenance of corporate records, but they also tend to have higher filing fees than corporations. Also, some states require LLCs to list a dissolution date in their formation documents (whereas corporations are not required to do so).

If all of this still seems a bit confusing, here is a table to parse down the key advantages and disadvantages for LLCs, C-Corporations, and S-Corporations!


You’re officially incorporated! Now what?

 

Rachael, Direct Incorporation Staff

You’ve made it through the paperwork and red tape of incorporating–congrats! But of course, you’re probably figuring out that the paperwork and red tape never really ends. Sure, the initial steps are over. But here are steps beyond the initial incorporation paperwork that are important to remember:

Annual Report and Franchise Tax

You will be required to file either an annual or biennial report for your company, depending on your state of incorporation. This includes a Franchise Tax. The purpose of the report is to update both the state and the general population on basic information about your business such as location, ownership, and number of issued stock shares, while the Franchise Tax is a fee for the ability to run a business in that state.

Corporate Records

For S-Corporations and C-Corporations, it’s required that you maintain corporate records on file. The specifics can vary from state to state, but these records may include:

  • Articles of Incorporation
  • Bylaws
  • Minutes of shareholder and director meetings
  • Written communications with shareholders within the last three years
  • Stock transfer ledger
  • Names and addresses of current shareholders, directors and officers
  • Most recent annual report
  • Financial records from the last three years

For LLCs, the requirements are less stringent, but the company may still have to maintain:

  • Articles of Organization
  • Operating Agreement
  • Minutes from various meetings
  • Stock transfer ledger
  • Names and addresses of all current members, managers, and officers
  • Most recent annual reports and financial records.

Licenses

Practically every business requires some form of business license, including but not limited to:

  • Accountants
  • Architects
  • Attorneys
  • Collection agencies
  • Contracting services
  • Cosmetic and hair shops
  • Damage appraisers
  • Dealers and salespersons
  • Electrical workers
  • Employment agencies
  • Engineers
  • Manufacturing companies
  • Nurseries
  • Real estate brokers
  • Restaurants and food vendors
  • Security brokers

It’s essential to check with the appropriate state agencies to ensure that you comply with the license requirements for your particular business.

Trademarking

Filing for a federal trademark is not required, but if you want your trademark to be recognized and protected everywhere in the country—examples of companies with registered trademarks include Nike and Coca-Cola—you’ll have to file a trademark through the US Patent and Trademark Office. An unregistered, or common law trademark, doesn’t require additional paperwork, but is usually enforceable only within the geographic region or locale where the trademark owner is using it in business. It is incredibly important that you make sure to run a trademark search before attempting to acquire a trademark–because being sued for trademark infringement is the last thing you want.

Taxes

C-Corporations will have to pay both federal and state taxes at the corporate level (with the exception of Washington, South Dakota, Wyoming, Nevada and Florida).

Neither S-Corporations or LLCs are subject to taxation at the corporate level–instead, a simple attachment to the owner’s individual tax return is required.

Publication Requirement

In some states, it is required that a new corporation or LLC files a notice of incorporation/organization in a local newspaper. The following states have such a requirement:

  • Arizona (LLCs, C-Corporations, S-Corporations)
  • Georgia (C-Corporations, S-Corporations)
  • Nebraska (LLCs, C-Corporations, S-Corporations)
  • New York (LLCs)
  • Pennsylvania (C-Corporations, S-Corporations)

If you have the resources, it could save a lot of stress and time to hire someone to get you through these hurdles. Just remember, you’ve gotten this far–you can do this!

Real entrepreneurs give real advice for starting up

Rachael, Direct Incorporation Staff

We ventured out to the local business of Ann Arbor, and asked the real-life founders of companies what their advice would be for aspiring entrepreneurs. We learned everything from the highly practical to the highly inspirational. Here’s what four different entrepreneurs had to offer:

On making mistakes

“Don’t be afraid to make mistakes along the way, because mistakes are probably what makes you a better business owner.  You never know whether or not you’re going to be successful unless you take that leap of faith and have confidence in yourself. Don’t let the financial side of it steer you away from it, because ultimately it will get easier. It’s a lot of work, but it’s definitely worth the amount of time and effort that goes into it. So stick with it,  and make sure that whatever you do, don’t give up too early.”

-Bob Helber, Founder of Continental Capital Realty, Inc. in Ann Arbor.

It’s inevitable that you’ll make mistakes while starting your business–anyone who doesn’t, seriously deserves an award. Ask anyone who has started a business and they’ll tell you that yes, you’ll mess up occasionally. And you’ll learn from it. And the show will go on.

On knowing what you’re doing

You might think that in order to successfully start a business, you need to have an undergrad or graduate degree in business or economics or something “relevant” to business. While this certainly might help, it’s far from necessary. Take Rene Greff, co-founder of Arbor Brewing Co., for instance:

“I was a philosophy major, [my husband] was a political science major, so we had no business experience, we knew nothing about setting up or running a business, and we kind of just did everything by the seat of our pants.”

Arbor Brewing Co. has been a successful brewery in Ann Arbor for almost 20 years now, so not only is there still hope for success, but there’s hope for a lot of success.

On knowing your strengths (and weaknesses)

It’s okay that you don’t know everything. Running a business requires a lot of different skills, and at times it might feel overwhelming. If you’re willing to take the time to learn how to handle accounting, marketing, and legal paperwork on top of everything else, that’s awesome. But if you have the resources to, there is nothing wrong with delegating. Julie Lepper, founder of Julie S. Lepper Accounting & Tax Service, LLC, talks about working with a team:

“You need to know what you’re good at and what you’re not good at, and find the people around you who are good at the things you’re not good at. Be willing to understand that you don’t know everything. If you’re the big-picture person, you need someone who understands detail. And so having a team of people around you is a huge part of it. Understand what part you’re best at, and what part you like and get joy out of, because if you’re doing the pieces you don’t get joy out of, it won’t work for you. “

And Raul Perdomo, founder of Michigan Draft Solutions and current owner of Apples & Oranges, echoes the same sentiment:

“There are certain things that as the owner of a business, I know is not my forte, and it’s worthwhile for me to allow somebody who can do that to help me.”

Starting a company may be daunting, but if it’s something you’re truly passionate about, there are a million ways to make it work. Don’t let the little things keep you from dreaming big!