Make Money Online

I know that As a result of this episode, we’re going to put this episode out there, and it’s going to be wonderful, and you’re going to get a lot out of it, and it’s going to be super valuable, and you’re not going to know where to go next. And so you’re going to go to us. I know I’m going to get a million questions about how to do all of this stuff. I’m, just as Kai said, a designer by trade, and I really I do all of these things in my business, not because I want to, but because it’s required of me to be compliant with state and federal authorities. And I’m very grateful to be compliant with these people. And I know that this is not. Terribly well documented elsewhere. These sorts of questions are basically the number one thing we’ve gotten from our mailbags. So if you have questions for us, you know, ping us, but about anything, especially the the process of consulting and sales. We love talking about this sort of stuff. However, if you’re going to like start peppering us with questions about taxes and corporate compliance with unemployment insurance and all these things, Find an expert. The number one thing that you can do out of this episode is to find a qualified expert to help you. I can help you with that if you live within the city limits of Chicago, because Chicago, Cook County, and Illinois have their own specific laws. But if you’re Listening to this, and you live in like Virginia or Maine or another country, even I can’t help you Your best option is to talk to other independent colleagues in your jurisdiction and make sure that you’re getting somebody who’s qualified and professional that’s going to help you in the way that you need. So with that in mind, we are recording an episode that basically talks about all of the really dumb, boring things in running a business that involve incorporation, tax compliance, insurance. Please don’t take any of this as formal advice because, again, neither of us are lawyers or accountants. You need to find somebody else. But this should provide kind of the lay of the land. And again, these are personal anecdotes. From us. We’ve both run our businesses for multiple years. And honestly, I feel like my system is a well-oiled machine, and I don’t have to tweak it really at all anymore. And so, for somebody who’s been down this road, that advice might be valuable for you. Do you feel like your stuff is stable for you, Kai?

If you need a cocktail, I can make a really good one for you. But this business advice, I mean, you can pause the episode and end it if you don’t want to learn any of this. You can stay tuned. So the four things that you really, really need as far as advisors, And you should be doing this possibly even before you incorporate so that you can be protected in the long run. An accountant A lawyer, a bookkeeper, and any advisors that are necessary for your industry. These are important so that You can vet contracts and make sure that you’re protecting yourself legally. And then also, so that you make sure that you’re conducting your accounting in a way that is compliant with state and federal government regulations. and protecting yourself on that front, the bookkeeper and the accountant both factor into that. The bookkeeper goes through every one of your transactions and says, okay, File this here, file this here. You can possibly get back some tax income from this, etc. , etc. , etc. Is the person who files your taxes for you. That’s all they do. You give them all of the documentation that comes out of the bookkeeper and hopefully your payroll system. And then they spit back a bunch of forms. You sign those forms, you mail them to the government, hope that they received them, and you’re done. That’s it. I see my accountant once a year, and that’s really it. I pepper him with as many questions as I possibly can, and I hand it off. You don’t want your accountant to have to clean up disasters for you. So you should be finding an accountant and a lawyer before you even begin running an independent business. If you are a W-2 employee and listening to this podcast, do those things before you quit so that you can make sure your income gets filed in the right way. If you are not a W-2 employee and you’re an independent consultant and you don’t have an accountant or a lawyer, for the love of absolutely everything, pause this podcast. Do not do anything else. Cancel all your meetings for today and fucking find one. You have to have these in order to run a business. They help you negotiate in a way that’s adult. We’ve talked a lot about the process of negotiation in previous episodes, and you don’t want to end up audited. And up shit creek. I would like that to not happen to you. I don’t know you’re, you’re probably nice. You probably also mix a really good cocktail, and we’d be able to trade some recipes sometime. My partner makes an amazing Monte Carlo, and I would love to share that with you, but right now you need to get a fucking accountant and lawyer. Here are the best ways to go about doing that. Talk to other independent business owners who understand your issues. The number one thing for accountants is they need to be business accountants and not just personal accountants. They can’t just be helping you invest your money in a responsible way. They should be especially good at handling solo practices. You can have people that are business accountants, and they won’t give you the time of day, or they’ll charge $900 an hour because they expect you to be Northrop Grumman. And you’re not, and hopefully, you will never be Northrop Grumman, so you need to figure that sort of stuff out. Accountants and lawyers, just like you, they work on referral, and you need to write a few emails to other people and ask. This is a polite question. You may not even know them well, but if you know any like successful independent practitioners in your city, well, think of one in Chicago. There’s a really great guy named Adrian Holavatti. He invented Django with a couple other people and knows the Gypsy guitar better than I ever possibly could, and he’s friendly and kind. We’ve gone out for beers a couple of times. If I did not know Adrian Holovatti, I would still email him because I knew who he was and knew he had a solo business. And that’s those are the only criteria you need. You can reach out and be like, hey, I love your work. Thank you so much. Who do you have for an accountant or a lawyer? I’m looking to, and hopefully they have one. I mean, if not. Send them to this episode and convey that they need it and move on to the next person. But yeah, so for lawyer stuff, I think Kai’s probably the best person to talk to about that.

So. With lawyers, people just think the person is a lawyer, and you don’t realize this. Pro tip with lawyers, they have specialties, right? So they’re like doctors. You would not ask a urologist to operate brain surgery on you. And just as that is the case, you would not ask a like federal government I don’t know what would you a constitutional lawyer, right? Like some a maritime law lawyer. Yeah, somebody who knows really good semaphore, like really impressive. But not very helpful for your independent business, right? Yeah, maritime law is a terrific one, guy. So, like, Towards that end, find a lawyer who’s good in contract negotiations for small businesses.

Yeah, you don’t, just as you don’t want to hire me to clean up a UX disaster for your business because it will cost you an extra zero. You don’t want a lawyer to clean up your disaster. You don’t want an accountant. You don’t want the first time you ever talked to a CPA to be after you got audited. That is a very, very, very bad time to talk to a CPA. These are all preventative measures, and they are absolutely necessary to the ongoing viability of your business, and they keep you out of jail. They keep you out of bankruptcy court. So I think a common objection that I hear from a lot of people is, oh, I could just use Docracy for my contracts or LegalZoom for stuff. I’ll start with docracy. Number one, your jurisdiction probably has different contract issues. So you need to have things that are written for your jurisdiction. Because if you take a client to court, the court is in a given jurisdiction. So, you want to make sure you’re playing a home game. As a result, you need to make sure that your contract is written for your city. Not just your county. It may be that your city just punts to county laws, but Chicago doesn’t. It’s batshit insane, and your city may be batshit insane also. If you live in a nice city within that city limits, It’s very likely you’re going to have to deal with that sort of stuff. And honestly, they will find a turn of phrasing used against you. So you need to make sure that those contracts are absolutely bomb-proof. Also, they might not even be for the same type of work that you do. It may be for web design services or something terribly generic, but the more you get specifically positioned in your business, if you listen to any of the advice that we dish out on this podcast, where We talk about getting close to expensive business problems and niching down effectively. If you actually practice those things, You will be throwing docracy on a fire and then pouring kerosene on the fire and seeing how high you can make the kerosene go. You need specific bespoke contracts for your business. And I guarantee you, I guarantee you, this is less expensive and less terrifying than you think. My lawyer is a kind and warm and understanding human being whom I love dearly. And I’m sure that that same lawyer is Probably operating like a rabid dog to my clients. And I could not be more grateful for that because that is a very powerful person that you have on your side. I’ll also do LegalZoom. I had LegalZoom file a trademark application for me about a year and a half ago. I’ve never been spammed harder. And now that I know the process, I could have just filled out an online web form. It is a giant ripoff for the vast majority of services that you need in your business. And I guarantee you that there is Pretty much no substitute for actually finding a lawyer. And you can just say, but I’m just doing this one thing, and it’s specific. I guarantee you can’t find a thing. On earth, that would not be better substituted by a lawyer at about the same price and significantly less hassle to you?

Have the courage to end calls. Have the courage to end calls early because that’s how you’re going to nope out of a conversation with a lawyer or an accountant who’s not a good fit. How many people have done that with you as a consultant? It’s for me, it’s measured in scientific notation, and it’s fine. It’s no skin off my back.

The nice thing about doing this at the very beginning of you running a business Is it teaches you how to have these conversations very early on, and it puts you in many ways in the client’s shoes. And I really like that idea. I like the idea that you have to actually start It’s hard to negotiate like an adult. Nobody gives you the user manual for negotiating like an adult, but I do it. Kai does it. We’re both man children who have no idea what we’re doing in our careers, and you can do it too, you know? So, the next thing that happens when you get in a lawyer, let’s say you find a lawyer that’s a perfect fit and it’s completely awesome and you want to move ahead with them. What you do is you give them a retainer payment, and like Kai said, that they draw down on their hourly rate for that. And you may be wondering, oh my God. That’s so much money. It was $500 for me. Do you have $500? Great. Give it to your lawyer. Do you not have $500? Maybe you should not start an independent business at this time and work out the runway necessary to actually conduct that. I don’t really. think that, that is a significant issue for most people to get a lawyer on retainer. And they’re pretty thrilled to have you as part of the conversation.

Yeah, I mean, you’re vetting their personality, you’re vetting their professional approach, right? And one thing that my lawyer does, which is amazing, is Kind of constantly asks whether or not they can repurpose the work. And a lot of questions I get are like, okay, well, the contract came in and we’re offering our legal advice, but we don’t want to overlawyer it. And if I hear, but I don’t want to overlawyer it, then I know that I’m in the right, the right situation, right? Like the goal should be to not grind this into the pavement and extort me out of all of my money and to keep me out of court. And my lawyer does both of those things, and that’s wonderful. Let’s talk about incorporation. This is all U. S. I do not know anything about Zambia. Does that even exist as a country anymore? I don’t think it.

Yeah, I don’t know Indian law. I don’t know Canadian law. But there are kind of two major Structures you’re going to probably want to consider. I say probably because ask a lawyer and an accountant so know for sure. And they’re generally called an LLC or a liability limited company or an S Corporation. That is different from a C corporation, which are generally for Bigger companies. An S-corporation is a tax structure on a corporation that allows you to declare business expenses and write off a little bit more generously. An LLC is a type of company that allows you to limit your liability in case things go wrong. I have an S corporation. I think Kai has an LLC. Is that correct? Kai is nodding. Kai and I are in the same room together. This is the first IRL Make Money Online episode. We kind of bury the lead on that. It’s very exciting.

We’re making money offline. And so I am an S corporation, but I have liability limitation provisions in all of my contracts. And I absolutely refuse to back down on that. And that is because if I recommend a design for you and you launch it and your website burns down or you lose all your money, I would like you to not sue me for that. And so the liability and the honest on that is on you. You can also have what’s basically, I think it’s an LLC that’s taxed as if it were an escort. Kai is nodding. So there’s that. I do not know how that works. When I started out, I had my accountant tell me to do an S-Corp, and I had a lawyer tell me to do an LLC. Basically, the accountant won. Because you can get one or the other. And so I just have liability limitation provisions, and it’s fine. Nobody pushes back on that. No client who knows what they’re talking about does that. And you need to incorporate in order to protect yourself as a business.

It’s not even just that, though. There’s immediate benefits from it, too. you end up protecting yourself from a tax standpoint quite a bit, and you save an ungodly amount of money on taxes in this scenario. The reason is because you can actually calculate business deductions more effectively and figure out how much money is flowing from the company to you. I have a separate Checking, credit, and brokerage account for my business. And the brokerage account was 55 pages of paperwork across five overnight mailings on Vanguard. It was horrible to set up. And now I have it, and I can invest like draft can invest in like the SP 500 and do these other things if I have a ton of cash on hand. Which was a good problem to have a year and a half ago, and then I bought a house and spent it all. It also, having these different structures, shows a very clear delineation of when money flows from the business to you. So. If you’re taking money out of the business and then spending it on personal expenses, there’s no ambiguity as to what happens when it comes out of Nick DeSabato’s account. Once that money is given to me, Nobody cares. I can do whatever I want with it, right? I can spend it on booze. I can spend it on food. I can fly to. Wherever, you know, Zambia and the usual. And You can do whatever you want with it, right? So there’s the legal protections from it, because if somebody sues you, then they’re suing draft. And they’re probably a company suing draft. So it’s a company suing a company, not a person suing a person, or person suing a comp Company or company suing a person. You can also protect yourself from audit risk. And the rules that you can take for pulling money out are pretty strictly governed by the IRS. So with an S-Corp, I’ll just talk about that for a moment. And again, find an accountant who tells you this again. There are basically two ways that you can get money out of it for personal expenses, and that is either distributions. Which are money that you give to shareholders, aka yourself, or payroll. And we talked extensively about why you need payroll in the previous episode of Make Money Online about me buying a house. Which is basically to state that you have an employment record to the federal government and to banks and lenders. But the reason that you do both of those things is so that you can tax everything properly. Payroll, if you’re taking a paycheck, You also have to pay Medicare, Social Security, and state and unemployment taxes. If you’re taking distributions, those can come tax-free or they come taxed later. You take a lot of money out and it shows as personal expense, and then you have to pay taxes on it later. That tax passes through to shareholders of the S Corporation. So actually, draft itself does not pay any federal taxes. It pays What are called replacement taxes, which are a whole different class that you need to ask your accountant about and are complicated, and I don’t fully understand. But you are the one who pays taxes on the corporation because you’re the sole shareholder. There are a million good reasons to be doing this. Not even going to go into them because we’re already probably about a half hour deep on an episode that we haven’t even started talking about insurance. But it’s insanely valuable for you to be setting up these structures in separate sets of accounts. It costs effectively zero dollars to set up a separate set of accounts for this, right? It is free to get a checking account, free to get a business credit card. Go to nerdwallet. com if you want any credit card recommendations. They’re terrific for it and checking account recommendations. I just use Vanguard for brokerage. I would recommend Betterment or Wealthfront if they had business services in any capacity, which will all get on that. But yeah, so as far as bookkeepers are concerned, I’ll just nudge into that. I use bench. If you go to bench. co, I think they have a referral link and I’ll Post that in show notes, but they are basically a SaaS business that does bookkeeping for you. And there’s a real person that goes through all of your transactions every month and makes sure that you’re kosher. You can get a personal bookkeeper that’s an actual Human being that runs an independent business, and there are a lot of them. You just want somebody to be running through all your transactional histories and making sure that you’re kosher.

You might think, oh, I can do all my taxes myself. We, as a human race, are beautifully interconnected and can help each other out. And you shouldn’t do it alone. You shouldn’t. It’s so important for you to make sure that you’re finding professional experts for this. Do we want to talk about there’s a lot under the insurance section? Do we want to talk about this right now or health insurance?

It is time to discuss insurance. So we’re going to cover health insurance first because that’s almost the easier one. I pay $618 a month for me and Aaron for health insurance, which sounds like a comical amount of money. I don’t know if I can publicly disclose how much money I’m actually probably extracting from my insurance company, but I’m getting a good deal. At the moment, we’re fine. I’m fine. This is fine. Go on the health insurance marketplaces. Find the biggest providers around you. I will say, in the state of Illinois, the best hospitals are often very hard to nail down as far as insurance. Usually, they tend to be university hospitals, which do the most research and get the best doctors. And they have very specific and wonky and terrible health insurance needs, and they’re basically negotiating with terrorists all the time. That can be actually enormously problematic. There’s kind of a mutual exclusivity right now between one health insurance provider and the best hospital in the state. And so, if you want to go to that hospital, you have to either have a corporate plan or fuck off. And I had this hospital for 11 years and then fucked off. I now go to a different university hospital. It is less convenient and super shitty. I’ll be entirely honest about it. But I still think I get a pretty decent deal. I’ve taken the best set of compromises that I possibly can with my health insurance. I will now talk to you about business insurance. You should, pretty quickly after you start, get if you are on payroll, you have to get workers’ comp in the state of Illinois. It is a legal requirement. That one is beyond debate. You get sued by the state quite a bit, and they are vicious about workers’ comp, so you need to get workers’ comp insurance. I get mine I threw, I believe, foundershield. com, and they use the Hartford as a brokerage. So I use that. It’s either that or Hiscox. I forget which one is my errors and omissions. The other one is errors and omissions, which basically states you are inured against legal liability. So, this is another way of legally shielding yourself. Basically, if you get sued, they take care of it. And you hand it over to somebody, and the stress and like mental weight of that for months or years goes away. And you might have to pay. They’ll just tell you how much, and that’s it. And I can’t tell you how valuable that is for me. You need to make sure you’re getting the right kind of business insurance for yourself within your jurisdiction. And again, I am not a lawyer. Talk to your lawyer about that. They will have quite a few insights around that. I pay about $1,000 on business insurance every year and I get to sleep easy, and there’s no substitute for it. You need to make sure that you’re doing that and generating enough revenue for yourself and your business. I think that This is why it’s important to have a runway so that you can do this. They usually ask in annual installments, that sort of thing. You should. Carry personal health and dental insurance. You should carry auto insurance. You should carry renter’s or homeowners’ insurance. And you need to make sure that you’re getting the right kind of business insurance for yourself. And do not. Do not think it is optional. It is not optional. You have to do it. Or you’re screwed. You can, you know, criminals are optimists. They think they can get away with it. Don’t be an optimist.

Yeah, I actually did the exact same calculation for myself and for Aaron. And it’s not easy. It’s like an afternoon of shitty work. You’re going to hate it. And it’s what’s required as an independent business owner. Now. Let’s just talk about. I told this to my parents over Thanksgiving. And I’m sorry, I’m going to call my parents out on this because I know they listen to the podcast and I love them dearly. And they told me that this is why Obamacare is a failure and all this. Actually, I would have been paying an extra zero a month on my health insurance if this hadn’t happened. And the Affordable Care Act is how I’m able to actually stay insured. It sucks that you have to do this. Doing a little bit of upfront work will prevent sticker shock, or you having to switch doctors, or you having to switch therapists, which Kai, my God, how much effort does That take right, like to rebuild a relationship with a therapist. So make sure you’re doing all that. And I know that it’s hard, and I know that it’s like a weekend of work, and I know you would rather be outside because it’s June and it’s beautiful. It is worth it. It is worth taking the time to make sure that you’re protecting yourself and doing all of this stuff. It is part of being a cool adult with a credit card. And honestly, we should all be so lucky that we’re even able to. Go ahead and go through this Byzantine horror in the first place.

I got my laptop jacked from a coworking space once and They reimbursed the full cost of the laptop. And then one of my friends who works at Apple Corporate got me his like family discount. And so I ended up getting paid to have my laptop stolen and upgraded by like three years. Get renter’s insurance. If you are a human breathing and listening to this, get renter’s insurance. Homeowner’s insurance is likely a requirement for mortgages, it’s pretty much a legal thing. So you have to have it, and sorry, but get rent, like get renter’s insurance if you rent. Auto insurance is similarly required. Yeah. Get Get earthquake insurance, even if you live in like West Virginia, because it’s kind of hilarious. Get do they have like Like Godzilla insurance.

Opt out of any arbitration agreements. And have fun. Have fun with your business. You know, like none of this is. Is entertaining at all. And if you got all the way through this gigantic, I think this is the longest episode we’ve ever recorded. Thank you. And I’m sorry. And you need to do these things.

Remember that episode we recorded where I talked about going to Home Depot and cutting up my hands and spraying Thompson’s water seal on my face and doing all these things to build shelving and like put the blinds into my house and all this crap? Yes. Okay, you’re doing that, but for business. You’re barn raising your business. You’re doing all this crappy, thankless work, and you can find joy in it or slog through it. But you have to do it, or your roof is going to leak, and then your house is going to become reclaimed by nature, and that’s not fun.

Right. So just go and do that then.