Four Business Fundamentals Every Entrepreneur and Leader Should Know

When I left my full-time job at Glossier and started consulting years ago, I had no idea how to actually do that. I didn't know how to set my rates, whether or not I should use my own standard MSA for consulting agreements or sign someone else's, if I should get paid as a contractor or start a company to route invoices through. I certainly didn't know how to market myself, I didn't know what my legal rights were as a consultant, and I definitely didn't have a good understanding of my own boundaries and how to work sustainably as a consultant.

A quick Google search plus some phone calls with friends who were great at Business with a capital B pointed me in the direction of setting up an LLC, a few other consultants told me what my rates should be, and I decided on my own to not bother with creating my own standard contracts, I'd just use whatever a company sent to me. All of this happened in a matter of days because after my last day on a Friday, I had to send out three different proposals by Wednesday of the following week. (A good problem to have.)

Then, when I started my publishing business, I had to make other consequential decisions--entity type, state of incorporation, equity split, what big ticket items to invest in and which to save for later, figure out where to allocate marketing spend, and so much more--without a lot of guidance.

In hindsight, after doing this for many years and advising countless other entrepreneurs, I cringe a little when I tell you that I could have saved hundreds of thousands of dollars in taxes and expenses, successfully fought a very strange legal battle, and earned at least 30% more than I did if I had just had a little more information. I left money on the table all over the place, and although it worked out in the end, it could have worked better.

Now, coaching dozens of people on a regular basis, I can say that it's not just me. Founders and creators face the exact same challenges: they don't have a firm grasp on their finances or a good understanding of how they can best work within the tax system, they don't always use legal contracts to manage their business relationships, and when it comes to building a community and ultimately generating revenue, it's really hard to do this consistently, successfully, and sustainably! I summarize these four fundamentals as Creative Capital: finance, legal, content, and expertise offer.

Did you know...

It wasn't all that long ago that I learned that my LLC status was hurting me. (I want to be very clear that I am not an accountant, lawyer, or financial advisor so this is not financial or legal advice, nor is it necessarily applicable to everyone, it's just me sharing my own experience with you.) This will be a gross oversimplification, but as I understand it, when I was a single-member LLC I was basically getting double taxed--I paid self-employment taxes and income tax. However, when I started working with a new accountant, he changed my status with the IRS to an S-Corp and set my reported salary at a low rate, so my taxes owed ended up being much lower. Again, please know that I am NOT advising everyone with an LLC to change their entity type, I'm simply sharing that this was never explained to me when I first started out. In my specific instance, I paid far higher taxes than I needed to for many years.

I also only realized after working on a tricky hiring spree that if you hire contractors but treat them as employees (you tell them which hours they have to work, expect them to respond whenever you need them to, their projects or responsibilities aren't neatly scoped) and you get audited, you have to pay back taxes as if they were employees.

When it comes to content, I can't tell you that it's essential to be active on the internet, creating content and building your presence. You can build a business without needing to do this; however, if it's something you can commit to and you're excited to do it, you'll need to get really clear on your unique leadership values, your guiding principles, your content pillars, and how you think about providing true value to your community.

And then, of course, there's the mentality shift of moving from a full-time employee to a consultant or business owner and figuring out how to price and package whatever you're selling. If you're a consultant, you have to remember that you're offering skilled labor so if you charge an hourly rate, it should take into account the deep expertise that you bring. In many cases, you aren't being paid for your time, you're being paid for your experience. Charge appropriately! And remember--your consulting rate should not be your salary divided by the number of hours you work in a work year. As a consultant you don't get paid time off, health benefits, or anything else that a salaried employee receives; plus, you'll likely owe more in taxes. You also should think about whether you're charging hourly or a flat retainer rate. This is entirely dependent on the work you're doing. If you're a business owner, you have to shift from thinking just about you and your own growth and compensation and instead think about your business as an investment, something you need to nurture and dedicate a lot of time to. You have to understand when you're going through periods of stability vs. periods of growth. (Hint: a really good bookkeeper will help you with this!)

What challenges do you face?

I'd love to know if these challenges sound familiar to you. Does any one in particular resonate? Are there other major fundamentals that you think are worth discussing?

PS: Next week I'm going to kick off a new series featuring deep dives on how work works around the world (the first issue will focus on Seychelles, where I'm writing this newsletter now). Stay tuned, I'm so excited for this one!