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December 2005

You Don't Know What You Don't Know

Original Post 2-2-04 on Blogger, Reposted 7-18 to TypePad

When I started my business in 1997 I considered the structuring options. I decided to go with a sole proprietorship at the time, with the thought that I'd eventually structure as an limited liability corporation (LLC) for the limited liability benefit. At the time I hadn't read anything about significant tax benefits/downsides of any of the structures that I was considering.

As often happens, time flew and I never did switch to an LLC, which was okay because the protection an LLC affords is minimal anyway for my type of business.

Last week I had lunch with a consultant colleague. For no real reason, our conversation happened upon business structure. From that conversation came a nugget of information that will save me thousands of dollars annually in taxes. All you small business owners listen up! By switching to an S corporation, you only pay self-employment taxes on a predetermined salary the corporation pays to you instead of on net income (as a sole proprietorship and LLC do). And that 15.3% self-employment tax can add up. I've now met with an accountant and will be securing s corporation status ASAP. (March 2004 update: I am now an s-corp!)

Now, I consider myself a pretty knowledgeable and responsible professional. Yet, I as the business owner was not aware of this potential savings. So, my point: You don't know what you don't know!

My lesson learned is to get a professional opinion (or two)- on all matters for which you are not an expert. In what matters should you consider seeking outside expertise, either in your personal or professional life?

The concept certainly applies to PD and credentialing...
Let's consider certification, as an example. An organization could develop a certification program without any outside expertise. However, doing so could place the organization at quite a disadvantage for several reasons:
1) Inefficiency. Without guidance an organization can flounder about trying to determine the proper steps, methods, etc. And, of course, they may not even be aware of some of the steps/methods available or recommended as best practice. A consultant could efficiently set out all the options and advantages/disadvantages of each. (Sorry, that's not meant to be a plug!)
2) Liability. Certification can add much legal liability to an organization. It is essential that an organization consult with an attorney (ideally early on and at various stages in the development process - but at minimum, before the program is implemented) and consult with its insurance company to ensure it has adequate coverage. Not consulting with these professionals could expose your association to much legal risk...but, of course, you wouldn't know it...

Bottom line, we can't know everything, so when we venture into a new area, we need to turn to the experts for advice.