Author Topic: Never considered entrepreneurship, opportunity fell in my lap  (Read 1095 times)

FIRE 20/20

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Never considered entrepreneurship, opportunity fell in my lap
« on: November 03, 2018, 10:10:31 AM »
I tried to keep this introduction as short as possible, but I felt all the detail was necessary.  I'm sorry for starting with a novel. 

I am about ready to FIRE (26x expenses), but after discussing this with a mentor a few levels up the chain at Megacorp, I was contacted by a very small but well-connected consulting company.  My mentor recommended me and suggested the consultant contact me.  Despite being just under a 4% withdrawal rate I'm worried because my industry requires difficult to obtain certifications, and if I'm not regularly working they will expire with no opportunity to renew.  Once they're gone, my golden ticket turns to lead.  While I'm highly respected in my narrow and well-paying field, I have zero skills in anything else.  The consulting opportunity would pay pretty well (I estimate ~$30-50k for 6 weeks of work), and I could just put in one to three 6-week stints each year to cover expenses, keep my certificates valid, maintain my skills, and maintain and build my contacts.  This will help me sleep at night through the first few years of "FIRE" if the sequence of return risk materializes for the FIRE classes of 2019, 2020, 2021.  Once I'm past the sequence of return risk window I would plan to FIRE completely. 

I have read lots of threads on this forum including @Axecleaver 's thread (https://forum.mrmoneymustache.com/entrepreneurship/axecleaver's-steps-for-starting-your-own-services-business/) as well as a number of "how to start a business" articles.  However, much of this doesn't apply to me.  I don't need to find a business idea, I don't need financing, I don't need to build a client base, I don't need office space, and I don't need to advertise. 

There's one other factor that may be relevant.  I am prohibited from working directly for Megacorp for 1 year after I leave.  However I can come back as a subcontractor to someone who contracts with them.  That aligns with how the consulting company works.  They only have two employees (husband and wife) and they find work, bring in individual people who have their own LLC, and they take a % off the top because they maintain the certificates (has to work that way), write up and manage the contracts, take care of billing, etc.  I'm 100% ok with this arrangement - it's typical in my field and because I'm not really doing this for money but to keep my certificates active and get past the SoRR it's a great arrangement.  It's also the only way it can work for the first year, and my certificates will expire in December 2019, about 6 months after I FIRE.  Bottom line - there are tremendous benefits to working under this arrangement so I'm not looking for suggestions to strike out on my own.  I am willing to give them a hefty % so I can mostly ignore the business and have occasional work fall in my lap with the details already sorted out. 

I'm not sure what questions I should be asking, but I think my main question is - are the following the right things for me to research?  Or am I missing something?
I'm not really asking for answers to these questions although I would welcome any answers - I should be able to research them myself.  I am asking if these are the right questions to ask.

1.  Do I need to set up an LLC (this was recommended by the consultant, so I am leaning towards "yes")? 
2.  How do I set up an LLC (I can read-up and answer this - so far it appears to be easy)?
3.  Should I register as an S-Corp for tax benefits?
4.  How can I set up a 401(k), or is there another tax minimizing avenue I should take?  Remember I have enough to FIRE now so I don't need any immediate income from this.
5.  How should I handle health care?  Should I just sign up for the pretty good ACA plans we have locally or should I look into a small business plan?
6.  Do I need business insurance, and if so where do I get business insurance? Can I just go with my current insurance agent who covers my home, cars, etc.?
7.  Do I need a business plan?  I don't think that given my situation I do.
8.  Right now I plan for this to be just me, but my long-term girlfriend is in the same field and is far more capable than I am at dealing with detail-oriented tasks like dealing with paperwork.  If she helps with filing forms for the LLC or helps with the taxes, does that change any of the answers above?  Or should I just do it all myself and keep her out of it?  She doesn't want to work at all after FIRE, and I'm absolutely ok with that, but she's willing to help with some of the details as long as she doesn't have to do the 6-week stints.

Basically, do you think I have covered everything I need to research?  I'd definitely welcome any answers to the questions above but what I'm really looking for is - have you thought about <insert thing I missed>?

Thanks in advance.  I'll keep reading this forum to pick up what I can. 
« Last Edit: November 03, 2018, 10:19:00 AM by FIRE 20/20 »

ditheca

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #1 on: November 05, 2018, 09:13:49 AM »
Look for a local small business development center in your area to get answers to most of those questions. 

https://www.nase.org/business-help/SBDC.aspx

They typically employ former serial entrepreneurs to answer questions like these and help people get started.

Setting up an LLC is easy.  If you have someone looking over your shoulder to make sure you don't screw anything up, you get through the whole process in an hour or two.

SeattleCPA

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #2 on: November 06, 2018, 11:55:17 AM »
This seems like a no-brainer "yes" to me.

It might make sense to operate as an LLC (if only for reasons of becoming approved as a vendor providing services to Megacorp).

However, though I love S corporations, in your situation, it may be difficult to make the S corporation angle work:

https://evergreensmallbusiness.com/should-you-use-an-s-corporation-for-a-sideline-or-part-time-business/

FIRE 20/20

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #3 on: November 07, 2018, 08:15:51 PM »
Thank you both.  I have two friends who have started small businesses locally, so I plan to connect with them and see if they go to any local small business meetings.  If not I can attend on my own.  I really appreciate the information on the amount of work S-Corp taxation will entail.  If I can avoid the $2k hit that the article you posted refers to that would definitely be preferable. 

One question - do you think I'm asking the right questions above or am I missing something important?  I'm confident I can figure out the answers to each question, but what I'm really worried about is that there's some major thing that I'm just not even aware of that I should be researching. 

Thanks again, both of your input has been helpful. 

feelingroovy

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #4 on: November 07, 2018, 08:53:09 PM »
I will answer just a few as the LLC/S Corp questions I would defer to your CPA. I think the procedure to do so varies by state.

4. Just call Vanguard. They will totally set you up with the solo 401k.

5. You can't get a small business group health insurance plan without a non-related employee being on your plan. So I think your options are ACA plan or COBRA.

6. Call your insurance agent. In my experience agents will have a different division or even a different staff member to handle business accounts. But all the ones I have worked with have both personal and business policies.

But you may not need insurance. There are different types. I only got general liability as a consultant in a technical field once I had employees.

7. You don't need a business plan.

Good luck! It sounds like a plum deal.

SeattleCPA

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #5 on: November 08, 2018, 08:08:08 AM »
...You can't get a small business group health insurance plan without a non-related employee being on your plan. So I think your options are ACA plan or COBRA.


Just to address this point: What we see most S corps do is get an individual policy for S corp shareholder-employee and then have S corp reimburse shareholder-employee for this.

Note: These reimbursements count as W-2 wages but aren't subject to payroll taxes. And as long as you pay at least as much additional W-2 wages that ARE subject to payroll taxes you get the self-employed health insurance deduction.

E.g., you give the shareholder-employee $20K of health insurance and HSA... as long as you also pay the shareholder-employee another $20K of "subject to payroll taxes" wages, you get $20K of self-employed health insurance deduction. In this case, box 1 on the W-2 shows $40K as wages but boxes 3 and 5 show only $20K as subject to FICA and Medicare.


FIRE 20/20

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #6 on: November 09, 2018, 08:08:08 AM »
I will answer just a few as the LLC/S Corp questions I would defer to your CPA. I think the procedure to do so varies by state.


That assumes I have a CPA.  :)  I had hoped I could do this on my own, but if a CPA is necessary then I'll look into finding one.  I prefer to DIY where I can, but I also try to recognize when I'm in over my head.  I have a few months before I need to do anything, so I'll keep studying and make that determination in a couple of months.  The earliest I expect this to start is March - May of next year so I think I have time. 

BicycleB

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #7 on: November 09, 2018, 05:48:48 PM »
I think you're asking excellent questions.

There are times a good CPA is well worth what they're paid. Starting a business can be one of those times. Assuring you the right ground has been covered and that your choices are optimized re tax consequences are reasonable things to ask. You're not wasting money on irrelevant things for a farfetched pipe dream - you're making decisions that can affect you for a substantial percentage of a six figure sum, based on what you described. One or two thousand dollars to get it right is well worthwhile.

Fwiw, I like the idea of balancing out the paperwork and other tasks by who likes it and does it best. It sounds like you and her might both be happy with that. Anyway, good luck with FIRE - sounds like a great opportunity.

CowboyAndIndian

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #8 on: November 09, 2018, 06:42:48 PM »
1.  Do I need to set up an LLC (this was recommended by the consultant, so I am leaning towards "yes")? 
Yes. Much less onerous filing taxes for an LLC compared to an S-corp. You just file with your personal taxes. With an S-corp, there are quarterly filings. I first had an S-Corp when I first started consulting and closed it down when I became an employee for a year or so. Next time around, LLC's were recommended by my CPA and I found it to be much less work than an S-corp.
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2.  How do I set up an LLC (I can read-up and answer this - so far it appears to be easy)?
Your CPA should be able to set one up for about $500. I was so busy during this time, that for me it was worth it. If you are ready to spend a few hours in learning the process, it should be quite easy to do yourself.

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3.  Should I register as an S-Corp for tax benefits?
Don't let the tax tail wag the dog. The simplicity which you will have with an LLC is worth any potential tax benefits.

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4.  How can I set up a 401(k), or is there another tax minimizing avenue I should take?  Remember I have enough to FIRE now so I don't need any immediate income from this.
I got a self-directed solo 401k from Schwab. It was trivial to set it up. I could put in $53k (may be off by 1k or so) including the company match.

Quote
5.  How should I handle health care?  Should I just sign up for the pretty good ACA plans we have locally or should I look into a small business plan?
You should price out both. Sometime since I did this.
Quote
6.  Do I need business insurance, and if so where do I get business insurance? Can I just go with my current insurance agent who covers my home, cars, etc.?
Some expect an E&OE insurance. These are usually sold by separate companies, not the guy who sells your car or life insurance.
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7.  Do I need a business plan?  I don't think that given my situation I do.
Looks like what you are doing right here is the basis of a plan.
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8.  Right now I plan for this to be just me, but my long-term girlfriend is in the same field and is far more capable than I am at
You could potentially have an employee or a partner in an LLC (not 100% sure, I did mine alone). Ask your CPA.

Best of luck

FIRE 20/20

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Re: Never considered entrepreneurship, opportunity fell in my lap
« Reply #9 on: November 11, 2018, 01:01:02 PM »
Thanks to everyone who has posted!  I truly appreciate all of you taking time to write a reply, and I'll take your advice - starting with asking around to find a CPA who can help.