Business/Self-Employment

Handle Your Business . . . License

November 24, 2019 by tanya

When you start cleaning up, you’re bound to unleash some dirt.

As part of the process of me taking control of my finances, I’m also getting more organized in all of my affairs. This includes an assessment of my physical space, my physical fitness and health, and, quite importantly, my business.

My law firm serves as my main source of income. I’ve earned income through my real estate sales side hustle (If you missed that, click here), but the revenue from my practice is – by far – what I rely upon to live. I need it to continue to produce income; in fact, I need it to produce an increased amount of income. Moving into 2020, my foremost concern for my company is to generate significantly higher revenue on a consistent and reliable basis. Doing that requires that I really streamline our processes, learn more about and implement effective marketing strategies, and make sure that the affairs of the business, generally, are in good order.

I stay on top of my annual registration of the firm (it’s a limited liability company) with the Secretary of State, and I file the business taxes on the state and Federal levels. I also make sure to complete all requirements necessary to keep my professional licenses (i.e. my license to practice law in 2 states) in good standing, including the completion of annual continuing education courses and the payment of my annual license fees.

Though I’ve been on top of some things, I fell short in one particular area.

Like I said, when you start cleaning up, you’re bound to unleash some dirt. In my business, my big mess was my business license.

The Bad News For Me

This week I made a payment to the city for $4,047.08. I was told last month that I’d need to pay it and was given only 30 days to do it. If I didn’t pay it within the 30-day period, I’d have to pay additional funds in penalties. Four thousand dollars may not be a lot of money to some, but is a lot of money to me. Not paying attention and not being diligent in getting this handled earlier cost me heavily.

In my city, every business that operates within the city limits is required to have a business license. There may be some additional requirements (e.g., permits or professional licenses), but, at a minimum, the business should have a general business license.

I’ve known that businesses with storefronts needed business licenses (as they are usually prominently posted in the entry or near the cash wrap of retail operations). But, I didn’t come to that same conclusion for home-based based businesses and professional services businesses that didn’t require an office or storefront location that was not open to the public.

Several years ago, I was prompted to look into a business license because I was considering getting into government contracting (i.e., bidding to provide legal services to government entities). In order to be listed as a potential government contractor with the procurement departments of government agencies, a business must satisfy several requirements and provide certain documentation. Of course, evidence that the business exists (i.e., through formation with the Secretary of State) is an important one. Beyond that, there are a number of requirements, including the provision of a business license.

I began the process of obtaining the business license, but got held up at one part. When I reached out to one of the government agencies to get answers to my questions, I didn’t get much help. Because I wasn’t particularly pressed to pursue the government contracting route at that time, I let that little road block derail me. As time passed, I kept telling myself that I needed to resume that process, but I kept putting it off. Years went by and I continued to procrastinate.

It wasn’t until recently, when a client needed me to handle the business licenses for all of his businesses, that I got serious about the process again. Though it was still a bit cumbersome (in some other cities, it isn’t as complicated), the steps were clearer than I remembered them being years ago when I first attempted to get the business license.

The news for me was bad. Because I didn’t get the business license right after I originally started doing business in my city, I would have to not only pay the license fees owed based on the business’ revenues, but I’d also have to pay penalties. The penalty for failing to file each year is $500. I got lucky that the statute of limitations prevents the city from going back more than 3 years. But, even with the benefit of the 3-year limitation, my bill still ended up being over $4,000.

I got lucky that the statute of limitations prevents the city from going back more than 3 years. But, even with the benefit of the 3-year limitation, my bill still ended up being over $4,000.
~ Single Girl

How Can This Be?

How can a business owner not realize that they need to have a business license? I think that main reason is a lack of association of the physical, visible hanging license with businesses that are operated on computers and in Starbucks cafes. We’re all familiar with the slew of licenses and permits we see framed and hanging in the restaurants, stores, and entertainment facilities that we patronize. If the business doesn’t have a storefront or office, one wouldn’t readily know whether or not the business has or does not have a license. As lame as this sounds, maybe it was an “out of sight, out of mind” kind of thing. And, add the fact that, unlike businesses that have patrons coming in and out of them, a business that doesn’t have foot traffic isn’t faced with the threat that someone will call the city questioning the absence of a posted license or permit. When you don’t have a physical location for your business, the connection between those hanging, visible certificates and the legal status of the business is more tenuous. I guess. I’m not saying that’s a legitimate excuse.

With my firm, I’ve always worked either out of a home office or out of a shared office space. The office company providing the office space had a business license (again, framed and visible on the wall), but all of the businesses housed within the shared office space (including mine) did not similarly display the license. Once I experienced the hiccup in the license process years ago, I guess I just didn’t see it as a high priority.

It’s a wonder that no other client has ever needed us to handle this for them. We’ve formed countless limited liability companies and corporations, but have not, up until recently, really considered the business license process as part of our offerings. What I’ve found lately is that many people who do not run storefronts or businesses that are open to the public don’t realize that they need to have the business license.

The Bad News For You

The bad news for you is this: you probably need a business license, too. And, if you’re like many of the folks running home-based businesses and side-hustles, you probably don’t have one. You might very well be as non-compliant as I was.

For any business entity, there are a handful of critical elements:

Entity formation on the State level
The obtaining of a Federal Employer Identification Number (this should be done after the State has approved of the entity registration)
Business license on the local level (may be for the city and/or for the county)
Business permit (required for some businesses, but not all)
Professional license (required for some businesses, but not all)

To be clear: it’s not enough to register the business with the state (e.g., Jane Doe Productions, LLC). It’s also not enough to get an EIN for the business. To be fully compliant under the law, a business owner needs to take additional steps. For certain businesses, there can be a number of additional steps.

Though I don’t like it, it does make some sense. The business license requirement is, effectively, a tax – a tax based on the revenues generated by the business. The Feds get their share of income taxes. Almost all of the states (except certain states like Nevada, Washington, and Wyoming) get their share of income taxes. Additionally the states get income from annual corporate entity registrations.

Does Your City Require A Business License? Probably.

I’ve done some quick, high-level research on some major cities around the country. I found that, like my city, these cities require that any business operating within their city limits have a business license – even those that are operated out of a home. Even those that don’t have employees. Even those that don’t make any money. If you have a business, you’re probably included in this mix.

CHICAGO, ILLINOIS:

A business license is required to “conduct, engage in, maintain, operate, or manage” a business in the city. Some types of businesses are exempt from the city licensure requirement because they are regulated by the Illinois Department of Financial & Professional Regulation (IDFPR). These exempt activities appear to be those primarily engaged in by people who are separately licensed (e.g., marriage and family therapists, dentists, real estate brokers, architects, chiropractors, etc.).

If your business does not fall within the exempt category, you need a business license. Even those who are self-employed or operate home-based businesses in their residence, need to obtain a Regulated Business License – Home Occupation.

WASHINGTON, D.C.

All businesses in Washington, D.C. must be properly licensed. The license will be issued by either the DCRA’s Business Licensing Division (most businesses) or by another D.C, licensing agency. This link might be helpful.

LOS ANGELES, CALIFORNIA

To do business inside the city of Los Angeles, one needs to apply for a business tax registration certificate. This link might be helpful.

CHARLOTTE, NORTH CAROLINA

In Charlotte/Mecklenburg County, all businesses need a business license (aka a “Privilege License”) – even those that are home-based. This link might be helpful.

Though the cities require that the business get the license or certificate, not all of these cities require that a business owner actually pay the tax. Since the tax is typically based on gross revenues, for business that make below a certain amount, a payment exemption may apply.

It Hurts, But It Needed to Be Done

Paying this damn $4,000 bill with only 30 days’ notice really put a dent in my business bank account. I’m so not fired up. Where I went wrong was in not filing for the license earlier – as soon as I started doing business in the City. If I had done it that way, I would have been paying this tax for a longer period of time, but I wouldn’t have had the shock of the lump-sum $4,000 payment.

Frankly, if I hadn’t affirmatively reached out to the city to go through the licensing process, there’s a chance that the city may not have ever said anything to me and I may not have ever had to pay the bill (or the annual bills that I will continue to pay, moving forward). But when you want to have your affairs in order . . . you need to get your affairs in order. Not having the license was the missing piece to being able to say that my business is fully legal and is operating in full compliance with the law. I’m glad that I can say that now.

One more business mistake down . . . more to go.

I Used to Have a Job

September 29, 2019 by tanya

I used to have a job. I hated it.

Many employees believe getting a job is the safest and most secure way to support themselves.

Morons.
~ Steve Pavlina, 10 Reasons You Should Never Get a Job, StevePavlina.com

Audio version of this blog, read by the author.

I started my attorney career as an Associate at a large law firm. In Lawyerland, we call this a “Big Law” job. A Big Law firm typically has at least 100 attorneys, has offices in many different cities, and carries a name that is prestigious. They recruit from the top schools and most top school students are competing for jobs at these firms. An Associate job at one of these firms is a position that is characterized by extremely long hours (an Associate is often expected to bill – not just work – between a minimum of 2,000 hours up to 2,300 hours per year), and assignments designed to be completed by the lowest rungs on the totem pole. Though the hours are long and the expectations are high, it pays well. When I was an Associate, my annual salary was in the low $100,000s. As far as Big Law went, it was a nice place to work. I had a supervisor that was a smart and kind man. I also considered the office to be a collegial environment. Nonetheless, it was still Big Law. I felt like I was supposed to be working all of the time, so even my down time wasn’t peaceful or restful because I felt that I should be in the office. I also felt the pressure of trying to navigate the balance necessary to advance at the firm. In addition to the billable hour requirement, I needed to do pro bono work and participate in company initiatives. I was there for only a year, which was long enough to not be considered derelict, but no longer than I was willing to tolerate.

I then went to a technology company, where I stayed for a number of years. This is the job I hated. Aside from being grateful that it put food on my table, I . . . HATED . . . IT. This was not some sexy, flip-flop-wearing, nap pod having kind of technology company. It was headed by a middle- aged guy who wore slacks, dress shoes and a button down every day. Though some of the lower-ranked employees damn near wore pajamas to work, it wasn’t because they were brilliant and cool; it was because they were content with being mediocre. Though I had high hopes when I first started in the position, I quickly learned that the culture of the company had an underlying toxicity and that the values of my department head weren’t aligned with mine. This is a place where I was told by my supervisor the following:

Single Girl . . . We know that where you come from, you’re used to producing Cadillac level work. But, we are in the business of producing Hondas.

Nuff said. That’s when it became a job – just a job – and nothing more.

Single Girl . . . We know that where you come from, you’re used to producing Cadillac level work. But, we are in the business of producing Hondas.
~ Supervisor I Couldn’t Stand

I worked there, unhappy for several years. Of course, that is no one’s fault but my own. I often ate lunch at my desk where I would peruse the Internet. One article that I came across and read many , many times while at the job was Steve Pavlina’s, “Ten Reasons to Never Get a Job” (at that time I naively believed that an incognito window was truly incognito in the workplace). I could relate to all of the reasons in his list. It all made so much sense to me. He wrote about how having a job is “dumb” because it only allows a person to earn money while actively working. He noted that employees only get a fraction of the real value they generate because so much money needs to go to company overhead and owner and investor returns. Most importantly, he pointed out how silly it is to put yourself in a situation where one person can, literally, turn off all of your income immediately. It all made so much sense to me. Not only did I despise doing what I was doing where I was doing it; I also thought I was being the fool about which Steve wrote because I had so little control over my income.

At work, I would walk by the windows (because, unlike my Big Law job, this one didn’t provide me with a window office of my own), watching the cars that would drive by in the middle of the day. I would wonder what those people did that would allow them to be traveling the freeway at 2 p.m., merrily going about their day. I fantasized about what it would be like to be able to be somewhere else, besides in my cubicle on a random, sunny weekday afternoon. For all I knew, those people could have all be disgruntled sales people or cable installers, exhausted by driving around in their car all day. But, when I romanticized about their lives, they were entrepreneurs. Or stay-at-home moms. Or, independently wealthy folks who simply had time on their hands. The bottom line was that they were people who, unlike me, were in control of their time. Since they were in control of their time, they could be on the freeway driving about in the middle of the day! They were taking long lunches at cloth napkin restaurants. They were doing early afternoon yoga classes. They were getting to drink alcohol during business hours – all things that I couldn’t do.

I wanted to be one of those people. Free. Moving about, not being a “manager” who sat in a cubicle.

Then, one day, a miracle of God occurred. The company had been going through an extremely slow period and I and the only other attorney at the company could see the writing on the wall. Our department couldn’t last indefinitely with there being no work. Things were so slow that employees were allowed to openly read a book at their desk or be on social media sites. The other attorney and I weren’t willing to sit by idly for the place to fall apart. So, we came up with an idea for a side hustle service business – one that we, as licensed attorneys, could do, but that the company did not or could not. We had no clients, we weren’t making any money. We just had the thing ready to go, in the event that we lost our jobs due to a lack of work.

One morning, I was called into a conference room before I began my usual day at work. I was advised by my supervisor that the company would be terminating me on account of this other business that we had created – this non-income-producing, no client-having business – and that the termination was effective immediately. Though I assured them that there was no legitimate conflict of interest, that was the end of the road. I was terminated.

After I gathered my things (of which there weren’t many because I never felt attached to the place and, therefore, didn’t have much there by way of personal belongings), and got into the car, I called the other attorney.

“Did you just get fired?!” she asked.

“Yes, girl!” I responded.

“Me, too!” She replied.

“Meet me at our usual Starbucks,” I said.

We’ve never looked back. Prior to this, I had not ever been fired from a job. For the one time I was fired to be due to me being a hustler . . . I’ll take it, unapologetically. We later learned that the department wanted to move to lower-cost contract labor. Did I and my attorney friend have any recourse? Nope. Not in my state. Were we both happy to be out of that place? Fo’ sho. Did we need to, literally, be pushed out? Unfortunately, yes.

I now have my own law firm. It is my main source of income and has been so since 2012. This has given me the gift of having control over my time and my income. Though I’m so glad that I work for myself, it is no easy task. It has been a hustle – an eat what you kill kind of hustle. Yes, it is a full-time hustle, but it is a hustle nonetheless. There is no guaranteed salary check every 2 weeks. No 401k contribution match. No paid vacation. I’m responsible for the handling of all of these things.

Some of what has made this a hustle are my practice areas. I don’t practice in any of those areas of law that produce major income windfalls, like personal injury or workers’ compensation. In those areas, a lawyer generally gets 30 to 33% of whatever is recovered. So, if a client is seriously injured in an accident and receives a $1.5M settlement, the lawyer can expect to receive around $450,000 of that. My practice doesn’t work at all like that. There are no major windfalls. Clients pay for the particular service they need.

The other part that makes this a hustle for me is that I didn’t know how to run a business or how to be full-time self employed person. I’ve made a ton of mistakes. Obviously. And I’m still trying to figure this thing out. Frankly, since my business isn’t at the point at which it can continue to operate in my absence, I’ve basically, created a job for myself. Though me being the boss of me is better than someone else being the boss of me, it’s not the end game. It’s a step in the right direction, but the girl has a long way to go.

I’ve learned a lot and am constantly learning. I will share those lessons in future posts. In case you’re wondering, the other attorney from my former job is delighted that she was fired. She makes a strong part-time income working for herself. She is married to a high-income-producing man and had some well-ingrained solid financial principles under which she’s been operating for years. She doesn’t have to work and she and her husband have made smart decisions that have put them in an extraordinary financial position.

We know that I’m in no such position. At least I can take a midday drive or have an afternoon martini if I’d like.