Samuel Knowlton

1. The Great Entrepreneurial Adventure
(What I Wish Somebody Had Told Me in 2002)
Samuel W. Knowlton
sam@inleague.org / @MordantWastrel / @SKnowlton (CFML Slack)
inLeague LLC
Austin, TX

2. Professional Dilettante Generalist
Technical Background
• Bachelor of Arts in English Literature
• Particular focus on 17th-19th century
British Drama
• Austin/San Antonio Liaison for the
Actors’ Equity Association, the union
of live theatre actors/stage managers
• Fixed computers for Best Buy back
when Packard Bell made computers
(and they needed a lot of fixing)
• Several semesters of Computer
Science, mostly Java
• Started web development for Cornell
University with CF 5 in 2000 (CF MX
Certified Advanced Developer!)
• Started inLeague in 2004
• *Box convert in 2016

3. inLeague: The Development Vehicle
 A Sole Member Delaware Limited Liability Company from 2010 on; Sole
Proprietorship before that. S-Corp election in 2012.
 Usually 2-3 Employees, 2-3 contract as-needed
 Volunteer youth soccer league management for around 15 individual leagues
of the American Youth Soccer Organization – around 7% of their players
 Admissions and lottery for the Success Academy Charter Schools, a New York
City network of 45+ public schools that admit by lottery (2011-)
 2017 Gross revenue over 7x 2008; Net is over 4x

4. Self-Employment: Why?

5. Self-Employment: Pros and Cons
Pros: Not Working for the Man
 Finally, You’re the Boss!
 Work whenever you want
 Can’t be fired
 Work from home
 Don’t have to put up with
from management
 Straightforward link between the
success of your work and your pay
Cons: You Are the Man
 @!#!$#, You’re the Boss!
 Actually whenever your clients want
 Can lose your house
 Self-discipline is hard
 Turns out flows uphill after all. In
a small shop, everything is your fault
 It could all be gone tomorrow

6. Legal Structure: What’s YOUR Formation?
(Don’t be like Mr. Mackey)

7. Legal Structure: Know Your Jurisdictions
 Three levels of government you may interact with: Local (city/county), State,
and Federal.
 Requirements will depend on your entity type (incorporated or not), where
you live, business activity (e.g. do you have employees), and sometimes gross
revenue
 Frequently Encountered Government Offices: State Division of Corporations,
Secretary of State, State Revenue/Tax Office, State Department of Insurance,
State Unemployment Office or Workforce Office, and of course, the IRS
 Some States make these interactions online and easy; others are Pennsylvania
or New York
 Higher levels of business organization have higher paperwork and fee/tax
requirements but provide (some) liability protection, legitimacy, and access
to business perks (401(k), healthcare)

8. Legal Structure: Sole Proprietor vs. Company
Sole Proprietor
 Your default status whether or not you
have a “d/b/a”
 No paperwork other than a Schedule C on
your personal tax returns
 You can (and should) distinguish between
“your” assets and finances but legally
everything belongs to you as an
individual
 Anything you own is at risk, whether used
by the business or not
 You can protect yourself with liability
insurance (usually “Errors & Omissions”)
even as a Sole Proprietor
 Can’t raise money from investors
LLC or LLP (and C-Corp)
 Legal and operational distinction
between “your stuff” and “company
stuff” (assets, liabilities, revenue)
 Benefits are organizational and legal
but liability protection is not
automatic and may be “pierced”
 Annual paperwork and tax
requirements
 These are state-level formations whose
costs and requirements vary by state
 Candidates: Delaware and Your State
 Can issue shares and/or raise money

9. Protecting Yourself: Liability Insurance
 Available regardless of entity structure (Sole Proprietor, LLC, LLP, etc.)
 Premiums based on a combination of your gross revenue, number of
employees, business practices, and the type of work you do – youth sports
scheduling is a little easier to insure than NASA
 Providers include Hiscox, The Hartford, Philadelphia Indemnity Insurance Co.,
and many others. We like https://www.insureon.com/ for a broker
 Expect to pay between $30 - $90/mo for $500,000 to $1,00,000 of coverage

10. How Do I LLC: Formations & Registered Agents
 You will need: 1) A Registered Agent; 2) A state-level formation; 3) an
Employer Identification Number (EIN) with the IRS
 Easiest: Use a service like Legalzoom and pay (both up front and annually) for
registered agents, EINs, and (optionally) taxes, legal/HR, attorney
consultations, compliance and payroll setup … but this gets expensive.
 If you do use a “robo-attorney” like LegalZoom, go a la carte and don’t pay
for them to set up an EIN or do payroll; EIN is easy and you’ll want to control
Payroll
 Most states require a Registered Agent first: I recommend a service like
InCorp ($67-$99/yr) but there are plenty out there. You can be your own
registered agent if you are forming an entity in your own state but you should
not be
 EIN: Once your formation is processed, you can easily get one online:
https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-
an-employer-identification-number-ein-online

11.  Nexus: Where workers (particularly owners/managers) are, as distinct from
where the entity is formed. You don’t get to pick where you have a Nexus
unless you’re willing to pack up and move
 Reasons to prefer one State over another: Initial formation fee; annual
Franchise tax; legal system (ease of us as much as content of the law); ease
of navigation and interaction. Consider your home State and Delaware:
https://corp.delaware.gov/howtoform.shtml
 State franchise tax is incurred on the Company level, but State income tax is
assessed on revenue “passed through” to the owner(s) whether or not they
pocket it and tax is usually based on where they live. Or it doesn’t exist, like
in Texas
 Still, be on the lookout for State- or Local-level business taxes that apply
even to passthroughs (e.g. gross receipts taxes, municipal business taxes)
 If your state has a web site from 1998 and hold times of 35 minutes, that’s
telling you something
How Do I LLC: Nexuses and States

12. S-Corporations: Where’s My TrumpMoney?
 Unlike LLCs or LLPs, S-Corporations are NOT a legal structure but a boolean
status any domestic corporation (LLC, LLP, C – but not Sole Proprietors) can
have with the IRS
 Because it’s a Federal “election,” it has little/no effect on your legal
structure. YourCorp is still whatever entity type it was before, and
ADDITIONALLY an S-Corp for tax purposes
 If your net income is $100,000, as a sole proprietor you would pay self
employment taxes of about $14,581 on Schedule C of your personal return; as
an LLC (non- S-Corp) $11,664 from the 20% reduction;
 With an S-Corp election, YourCorp files an 1120-S and gives each owner a K-1.
You must pay yourself a reasonable salary (and therefore have payroll and
make all payroll tax filings) but your marginal tax bill on $100,000 income
assuming a $50,000 salary is $7,650: $6,931 in savings
 S-Corps have several restrictions – it’s not just about tax rates
 Don’t try to cheat on “Reasonable Salary”

13. Sole Proprietor/
Schedule C
S Corporation Salary
Income Tax $13,745 on $100k
Net Revenue**
$6,125 on $50k
salary*
$17,401 on $100k
salary*
SE / Dividend
Tax
$14,581 on $100k
dividend**
$7,650 on $50k
dividend**
$0
Payroll Tax $0 $3,825 on $50k
salary*
$7,650 on $100k
salary*
TOTAL TAX: $28,326 $17,600 $25,051
Tax Rate: 28.33% 17.6% 25.05%
AMATEUR HOUR CHART FOR ILLUSTRATION PURPOSES ONLY
Sample Federal Tax Situation (2018) of a Single filer earning
$100k from a business and No Other Income; S-Corporation
assumes $50k salary/$50k dividend.
* https://www.paycheckcity.com/calculator/salary/
** https://www.incfile.com/s-corporation-tax-calculator/
Real-world scenarios will almost certainly include exemptions,
phase-outs, other deductions, state taxes, and anything that
impacts your personal tax situation!

14. Legal: Contracts & Trademarks
 Get templates for Employment Agreements and Service / Operating
Agreements
 Employment agreements should cover access to proprietary information,
nondisclosure, ownership of work product, noncompete (within your field
only), use of company assets (physical or IP)
 Operating agreements should include Statements of Work, fees, invoicing and
payment schedules (including late fees), warranties, exclusion of warranties
for 3rd party services, termination clauses, ownership of work product,
applicable law and venue (always fight for yours)
 Fee schedules and late fees should always be agreed upon in writing up front,
but waive late fees liberally unless clients are taking advantage of you
 Trademark your company name and any flagship products once they are
launched

15. Announcing: The Cold Box ™

16. The Care and Feeding of Minions

17. Minions 101: Contracting vs. Employing

18. Minions 101: Contracting vs. Employing
 Contracting is easy and straightforward and provides the biggest pool…
 …but be sure you have an enforceable contract for any non-trivial job
 Developers and designers can often fit either definition but the designation
affects how you interact with them based on IRS Rules (and DOL)
 Contractors can be anywhere and their market rates will be different than
yours
 Employees can be anywhere but every jurisdiction (state or city) may have
its own administrative, tax, and insurance requirements.
 Contractors get paid per contract terms and you issue them a 1099-MISC
 Employees must be paid via payroll (with payroll taxes and State/Federal
Unemployment filings) but this has gone from agonizing and expensive to
cheap & manageable for small businesses
 S-Corp owners must be employees, so you’re doing this for yourself anyway

19. Minions 101: Payroll Filings (Employees)

21. Minions 101: Why Employ Anybody?
 Loyalty: Contractors are dating and employees are marriage.
Planning your life around the freedom to cut and run will eventually
bottleneck growth
 Stability: Employment is a longer-term investment on both sides. Your
contractor might be juggling other contracts along with yours. If you
want the same people on your team five years from now, employ
them
 Legitimacy: Clients want to know that your company is bigger than
just you. Company identity is more difficult (but not impossible) with
contractors
 Fringe Benefits: Health, retirement, and paid leave attract talent
 Marginal Cost: Once you have payroll, adding (within State) is easy
 If employment isn’t practical (e.g. geographic spread) much of the
above can be achieved for contractors with effort

22. Infrastructure: Software (Development)
 Starting from scratch today: No excuse not to learn (H)MVC
Frameworks
 Supporting a pile of legacy code? Get a hybrid solution going until you
can refactor everything and get the slides for Brad’s session on
Integrating MVC into Legacy
 Check Forgebox.io and CFML Slack for solutions to common problems:
don’t invent wheels (but do submit pull requests on existing wheels)
 Failure to leverage industry best practices will make it difficult to
grow your company. Be good, not special
 No excuses, management, or clients to blame: it’s not “the client
won’t pay for the change,” it’s for you to insist upon or be overtaken
by those who do
 Don’t fall into the trap of “it’s been working like this for years”

23. Infrastructure: Small Business IT Department

24.  If your team has a competent server administrator, go for low
margins: DigitalOcean, Vultr, AWS
 If it doesn’t (or if you need ACF but aren’t yet ready to buy a license)
start somewhere with CF Expertise or else a host that can fill in
whatever gaps you have: Hostek, Vivio, media3
 If you have legacy clients that need older engines (<= ACF 11 or
Lucee/Railo 4.5) isolate those on their own instance – don’t let
current client requirements dictate the development environment for
new work
 RDBMS: Whatever you’re comfortable with (remember MSSQL 2017
now runs on Linux)
 CONTAINERS: Invest up-front in CF containerization. See Sam’s
Awesome Guide in a couple months
Infrastructure: Hosting and App Servers

25. Infrastrucutre: Customer Support
 Limit your exposure to a small number of client contacts, but give them
complete access to you and your team
 Responsiveness is an easy way to distinguish yourself early on. Even if the fix
takes a day, letting them know within 5-10 minutes gives them warm fuzzies
 Require in your operating agreements that clients anoint one person with
sign-off authority on all development requests; avoids he said/she said
 Use something, anything for ticket management that isn’t just your email
inbox
 We like JIRA, and if you have to accept support requests from a large user
base, JEMH is a worthwhile plugin that will turn a support mailbox into a
pipeline for tickets

26. Infrastructure: Accounting & Payroll
 A basic understanding of Double Entry accounting is vital even if you pay
someone to manage your books, but especially if you keep them yourself
 For Sole Proprietors, it’s a nice perk; for LLCs/LLPs, it’s important; for S-
Corporations, it’s essential
 Changing accounting or payroll software is cumbersome, so if you aren’t sure,
take advantage of free trials to pilot for a month
 But you should be sure because Xero is easy and inexpensive ($30/month for
accounting, invoicing, and payroll for up to 5 people).
 Features to look for: Templates for payment reminders; Federal AND State tax
filings; 1099-MISC optional but a nice bonus (otherwise easy to do separately)
 Accounting alternative: Freshbooks
 Payroll alternative: Gusto

27. Owners & Equity
 Initial owners / partners should be people with indispensable skills
 Once established, new partners should only be brought in if they’re
bringing significant business
 Equity should not be used to pay for services unless those services are
truly unique, and most aren’t
 Give employees a stake in business success through profit-sharing;
ownership in a small business is equal parts burden and reward
 If you are establishing an LLP or adding a member to what was
originally a sole-member LLC, you must have an operating agreement

28. Infrastructure: Perks
 Retirement (IRA): Easiest, cheapest option; limits to how much you
can contribute tax-free. Honest Dollar is an accessible entry point
that was started in Austin and bought by Goldman Sachs
 Retirement (401(k)): Betterment has a $1,000 startup cost that can be
offset by a $500 tax credit (Form 8881) and all you need is one
employee.
 Health is difficult for small employers but eHealthInsurance had more
options than Healthcare.gov, at least in Texas
 Vacation: Offer lots of PTO (or even mandatory PTO)
 Buy everybody tickets to Into The Box
 If you aren’t paying for an office, pay for other things

29. Small Business Tools & Benefit Providers
• Accounting: Xero or Freshbooks (don’t get sucked into Quickbooks)
• Company Handbook / Internal Documents: Confluence
• Development & Client Support: JIRA (possibly with JEMH)
• Health: eHealthInsurance.com (probably not Healthcare.gov)
• Hosting: DigitalOcean, Vultr (Windows options), AWS / Lightsail, Google Cloud
• Payroll: Xero or Gusto
• Registered Agent Service: Incorp
• Retirement Plans: Honest Dollar (IRA) or Betterment (401(k))
• Source Control / CI: Bitbucket or Gitlab
• Taxes: TurboTax, but TaxAct is also good for 1120S (S-Corporation filings).
Tax1099 is easy if you just need to send 1099-MISC to contractors; also
EFTPS.gov for making your quarterly tax payments (for a passthrough, under
your SSN, not the EIN)
• Trademarks: USPTO (or Trademarkia to Robo-lawyer it)