• It’s the easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control of the business.
• Sole proprietors receive all income generated by the business.
• Profits from the business flow directly to the owner’s personal income tax return.
• The business is easy to dissolve when the time comes to do so.
Disadvantages of a sole proprietorship include:
• Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
• Raising funds may be a problem.
6. Recommended Company Structure
In the Internet research business you should not have too many concerns about being sued by a client. So the main advantage of a corporation, the limited liability, is not a factor for you. Also, the cost and effort of setting up a corporation is probably not worth it for your business.
If you are thinking of going into business with someone else, you may want to investigate a partnership structure. But if it is just you, you definitely do not need to go through the process of setting up a partnership.
This brings us to the sole proprietorship. As a one-person business, you should probably start with this structure. If your business grows, and you want to incorporate or team with somebody and create a partnership, you can do that later. But initially, the recommended business structure for your Internet research business is a sole proprietorship.
5
Pricing
1. Price Quotations
Pricing is a very important part of your Internet research business. It determines how much money you are going to make, and also affects how much business you will get. If you price yourself too high, you will get very little business, if any, and thus make little or no money. If you price yourself too low, you may have lots of business, but you could be making more money. So you have to establish a price for your services that is good for you. You might even want to set a price range, because you may decide to charge different clients different rates.
Potential clients will always want to know the price of your services. In some cases you will quote an overall project price to them, and in other cases you will quote an hourly rate because you and the client do not know exactly how much work will be involved. Also, if you get annual contracts, the hourly rate will have to be stated in the contract. (For an annual contract you may want to give the client a lower rate than for a one-time project, and this is why you may want to consider establishing a price range.)
2. Overhead Cost Factors
The first thing you need to do to set your price rate is to work out your overhead costs. You probably will not get this right the first time, and you will probably change some numbers after you work out your first year’s expenses for your income tax. However, you have to come up with some estimates now because they will determine your pricing.
Work out your overhead costs on an annual basis. Each person’s situation is a little different and costs will vary accordingly. The following list includes some costs for you to consider:
• Home office usage: You probably will not rent an office to start with, but you will use a spare room in your home, a corner of the basement, or even your kitchen table. There is a legitimate cost associated with this. For example, if you use a spare room in the house, you can assign a percentage of the household costs to your business. The percentage may be based on the square footage of the room compared to the overall house square footage, or if it is one of six rooms, you can simply say it takes up one sixth or 17 percent of the household costs. The following list includes household costs:
• Rent or mortgage interest
• Insurance
• Taxes
• Heating
• Electricity
• Telephone (if you do not have a company line)
• Water
• Maintenance
• Security (if you pay for a service)
• Cleaning (if you pay for a service)
• Office supplies: You will need all of the standard items you have in an office, and you will have to buy them yourself for your company. Some of the office supplies will include:
• Printer paper
• Printer cartridges
• Company stationery such as business cards, letterhead, envelopes
• Storage boxes
• Desk tools such as staplers, hole punches
• Telephone: You may want to have a separate company line in your house. You may even need two lines — one for the telephone and another for the fax. Some telephone companies offer these two services on one incoming line, but with two telephone numbers. The second telephone can be connected to the fax and it can be distinguished by two quick rings while the other line has the normal telephone ring.
• Cell phone: You may just use an ordinary cell phone, or go with more capability such as the BlackBerry® or equivalent messaging system.
• Postage and courier.
• Office furniture: Usually you charge a percentage, perhaps 20 percent, each year as depreciation.
• Computer and peripherals: These are usually depreciated on an annual basis, but at a higher rate such as 30 percent.
• Software.
• Internet service.
• Website: As explained in Chapter 7, there are a number of expenses associated with having a website. These include the monthly or annual hosting charges, the annual registration charges, as well as the developing and maintenance charges.
• Research material: You will sometimes have to do research through sources other than the Internet, such as in a book on a particular subject that you will have to purchase. Also, to keep up-to-date in your specialization you may subscribe to certain magazines or newspapers. These are part of your cost of doing business.
• Transportation: The main cost in this category will be your vehicle, especially now with vehicle costs running in excess of 60 cents a mile, or 40 cents a kilometer.
• Advertising and promotion: You may not spend much, if any, on advertising. However, you will spend money on promotion, such as taking clients to lunch or sending them season’s greetings. These are all business expenses, but sometimes only a portion can be claimed as income tax deductions.
• Miscellaneous: There will be unanticipated expenses that do not fall into any of the above categories. At this stage, just take an estimate of what these expenses will be.
3. Salary Expectations
Next you have to establish how much money you expect to make. You can base this on the annual salary you made in your last job or on what you would like to make. If you use your previous salary, don’t forget to add something for unpaid company benefits such as health insurance. But don’t be greedy. Make your expectation realistic, because you do not want to price yourself out of the market.
4. Billable Time, Company