I recently started working with a client in Philadelphia who is interested in expanding her event planning business. Working on her own, she’s been very successful, but she’d like to be able to book more events than she can handle by herself.
She has slowly been taking on more than one event a day, sending someone else she trusts to work the extra event. Since she thinks she can’t afford to pay an hourly wage to that worker, she has been paying her a high percentage of the gross revenue from each event she works. When the business owner started looking at the bottom line, she realized that the company wasn’t as profitable as it needed to be to justify the extra effort put into having multiple events at once.
This isn’t an uncommon situation. In fact, I experienced it myself, and it cost me dearly in time, money and frustration. Here are some things to keep in mind before you expand your business:
- Independent Contractor or Employee? The term “independent contractor” is often used incorrectly. In many states, an independent contractor is someone who has his own business license, doesn’t take direction or training from the employer, doesn’t do any work that an employee of the company does and is someone whose work is temporary. It is critical to know whether or not you have an employee or an independent contractor on staff, or you may face fines (and a big hassle) if your worker’s status ever comes into question.
- Policies and Procedures. Do you have written policies and procedures? If not, you may have a staff member representing your company poorly, or not in a manner that you would like. Also, this may leave you vulnerable to liability later if someone accuses you of deferential treatment and/or inconsistent handling of company practices. Be sure your policies and procedures include at minimum all practices required of employers by law.
- Insurance. If you have workers’ compensation insurance or liability insurance, it will cover your employees, but most likely not independent contractors. Make sure you are aware of how your coverage works.
- Non-compete and non-disclosure agreements. If you’ve worked hard over the years to create a business model and methodology, you don’t want any of your workers to take that information and open their own businesses or give your secrets to a competitor. Make sure to protect yourself.
- Is it profitable? Before you go through the effort of training someone and giving them some of your hard-earned money, make sure you understand how much you need to profit as a company to make it worthwhile. Develop a strong business plan that outlines cash flow and plans for the ebb and flow of the economy.
Expanding is an exciting part about being an entrepreneur, but you shouldn’t just jump in. In addition to considering these tips, I suggest that you consult an attorney (preferably one trained in labor law) and a CPA for advice. Doing things correctly from the start will save you a lot of headaches later on!