Last Sunday, I was fortunate to attend a round table discussion featuring Laura Gray with the Colorado Office of Film Television and Media and hosted by Sal Steels and the Colorado Film Forum. The event was well attended, even beyond the expectations of the organizers. The Colorado Office of Film is fervent support of the industry, as I’m sure is not a surprise, but they are a governmental body. They can provide this industry with support and present their questions to the rest of the state government. However, they cannot directly influence legislation. They cannot lobby the Governor’s office (he’s their boss). They can compile the data the industry provides them and present that to the state to show this industry’s activity. How can the industry help?

Get your projects counted. No matter the size or purpose, fill out the Production Inquiry form. Even if you have no questions or need no help, even if you’ve already filmed, fill this form out. This is the best way to make sure your products get counted. Include every dollar spent putting your film together. Gas money, food, miscellaneous, everything. Your individual project may not seem like much, but local communities care a great deal about even small projects, and the aggregate of the hundreds of tiny projects can equate to significant dollars. Additionally, find out who your representatives are and contact them to find out if they know how much revenue and how many jobs are created in the film industry. Attend those representatives’ town hall meetings.

My take away? Don’t sit around and wait for someone else to do what you could be doing to help your industry.

I talk with new or recently new business owners everyday regarding their new company, their new product, their new service, etc. These people recognize a potential issue, have a specific question or face a real issue that needs attention now. The last possibility is the most common and always the most expensive to fix. However, there is one issue that business people need to be aware of upfront: protect your name before you start conducting business.

I completely understand why this can be a difficult undertaking. You don’t know if your business going to succeed when you are first establishing you name. You have a limited budget and that needs to go into marketing, advertising, product development, office space, furniture, inventory, insurance, employees, technology, and much more. Those dollars have to stretch. But they don’t go very far when you have to duplicate your efforts because your name is already in use, or it’s too common, or it’s offensive, or it’s can’t be protected for some other reason.

Here are a few steps you can take when initially naming your company and before calling a business attorney:
1) Check the appropriate Secretary of State for any registered names like yours. For Colorado: http://www.sos.state.co.us/biz/BusinessEntityCriteriaExt.do
2) Check the Trademark Electronic Search System.
http://www.uspto.gov/ebc/tess/index.html
3) Check the United States Copyright Office’s records: http://www.copyright.gov/records/
4) Use your favorite internet search tool and perform a search on your intended name.

Will you be guaranteed that your name is available and exclusive if you do the above? Nope. There are scores of unregistered companies in business and that have been in business for years. There’s no economically feasible way to uncover all of these companies. However, you should have a good idea of if you will encounter any problems, what those problems may be and if they are going to be an issue.

Now that you’ve done the heavy lifting, finish the job. File your formation documents, or statement of tradename with the appropriate state. Register your copyright(s). File for your trademark or servicemark. Register your domain name. This puts others on notice that you are claiming this name and they need to head back to the drawing board.

You can avoid some business lawyer fees if you’re comfortable with the process and the instructions for doing the above. That said, you’ll still want to bring in a business attorney to complete the remaining formalities, explain or answer specifics for you and to double check what you are doing. It is also a lot more expensive to fix a problem after it becomes a real issue.

Example: I was contacted by someone last week looking for some ideas. As you may know, my practice is founded on the idea of getting things done and sometimes that takes ideas. They are trying to buy a business. Both sides have hired attorneys for the due diligence and everything checks out. Sweet. Let’s close. Wait, hold on. What’s this? The seller signed a long-term lease for the business space. Everything in the lease was normal except a provision in the agreement that requires the seller to pay the property owner 10% of the selling price if the seller sells the business during the lease period. Seriously. Hey, kudos for the landlord for going for this provision in the lease. Changing tenants can cause problems for landlords. I get this. But I have to ask how the seller did not see this in the contract, and how did multiple attorneys miss this during due diligence? The seller found his selling point without this 10% payment and the buyer isn’t going to tack on an additional 10% to their offer. This deal may be dead in the water. I do have some ideas but this post isn’t about that. This is about reading!

Why don’t people take the time to read? I don’t know. I suspect that there are several reasons. One could be that contracts can be hard to read. There are business attorneys who like to overwork their language. Plain English (or whatever the appropriate native tongue should be) works better my friends. Always. No exceptions. Contracts almost always repeat themselves several times. I don’t mean that they literally repeat the words, but that they can repeat the same restriction or clause and then have a new modification to it. This invites the reader to see the repetition, skim it and miss the new bit. This practice has good intentions. They want the reader to see the clause again so as not to miss it. In practice, it can backfire.

Another could be because people are afraid to ask questions and embarrass themselves. Have you heard the expression that it is better to keep one’s mouth shut and be thought the fool than to open one’s mouth and remove all doubt? This adage never applies to contracts, negotiations or any communication with a prospective business relationship. Ever. I know that it can be a blow to the ego to ask a question. It can be a far worse blow if you have to weather an unnecessary storm because you didn’t understand the agreement. I ask questions all the time. All. The. Time. I do this because I don’t want to assume that I know what the other party thinks a certain provision means. It may seem straightforward to me, and it probably does to them too. That doesn’t mean we take away the same meaning. Meanings can be expensive. In addition, if the contract is ambiguous, you may need these specific statements later.

I’m sure there are many other reasons, but I couldn’t possible come up with a comprehensive list. How do you protect yourself? Read and understand the contract. Ask questions. Hire an attorney, preferably me. Just saying. Whatever you do, do not leave the proverbial table without knowing that every party to the agreement is in complete agreement as to the terms and conditions of the contract. Heck, even then you may still have a dispute, but hopefully you will have a good basis for resolving any disputes without the need for more business lawyers. Except me, of course.

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1. The IRS uses three characteristics to determine the relationship between businesses and workers:

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

3. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.

4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

5. Workers can avoid higher tax bills and lost benefits if they know their proper status.

6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:

Publication 15-A, Employer’s Supplemental Tax Guide (PDF)
Publication 1779, Independent Contractor or Employee (PDF)
Publication 1976, Do You Qualify for Relief under Section 530? (PDF)
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF)

A common Colorado reason for not backing a film incentive program is that some view Colorado as a “destination” location. I think this means that Colorado is so gosh darn neat that people will flock here regardless of the cost. The people who make these statements must assume that filmmakers are completely incompetent. Some are. No doubt. They do hire smart people though. It doesn’t take much of a smart person to understand that if you receive a base 20% tax credit on your money spent, you have a lot more money to spend.

So here comes Florida doing math. It’s crazy right? Florida is at least as desirable a “destination” as Colorado. They know there will be interest in filming Florida and now they sweeten the pot. Wanna guess how many applicants applied for the incentive? Go find out. Now take that number and think about how much money is not being spent in Colorado.

Is anyone in Colorado paying attention? Hickenlooper? Maes? McInnis? You can win votes by finding a way to create jobs. This will create jobs. This will increase the State’s coffers. This will improve the State’s economy.

IRS Summertime Tax Tip 2010-05

Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.

First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.

The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.

Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

Years ago many people went to work for a single company for the duration of their working lives. They believed in the company, they supported the company and they were loyal to the company. This is not the case today. Employees are often cited as believing that they should take what they can get from the company. Employee theft, turnover, dissatisfaction and intentional acts against the employer are big, real problems that face employers today.

During the days of employee loyalty, employers were just as loyal to their employees. Pensions, vacation, job training, promotions, bonuses, family outings and other perks were the norm. Those perks are not as prevalent today. I understand that the economic climate makes it very difficult for employers to continue those practices. Increased wages, rising costs of doing business, enhanced benefits packages and more have taken away many discretionary dollars.

Where did this loyalty go? Is this a chicken and an egg thing, or can one point at a specific event or trend that changed this loyalty structure? In the case of LeBron, I have heard many people say that the Cavaliers failed to give him the supporting cast to win and that his loyalty was abused. Maybe so. Look at the retention of places like Google. Google pays a decent wage, but provides a host of non-economic benefits (this does not mean they are without cost) to improve the quality of life for their employees. There’s no question that employee turnover costs an employer money and that makes loyalty the employer’s problem.

Are you fostering employee loyalty? What could you do to improve their work lives? How can you show appreciation? How can you give your employees a sense of ownership in what they are doing? Can you make them share in the success of the company? Answer those questions and see if you can’t see a relationship to your turnover rates.

In sum, Disney was engaged in self-dealing practices with affiliates and sweetheart deals with power partners to keep the costs artificial down. Celador would have been entitled to receive more money had these costs not be kept in check and below market. The case interesting for many reasons, but one of the most interesting was the microscope that was directed on TV accounting. I can’t think of another instance where production costs and fees were so closely examined. Remember, entertainment accounting may not equal traditional accounting.

The entire country is giving a 20% production incentive for films that spend at least $720k in country. This is in direct response to the increasing costs of filming in a country that has continuously improved its level of services and talent. Why wouldn’t every government want to provide tangible incentives to capture some of the billions spent in film production?

How many of us have felt like things were out of our control? We respond to pain (lack of sales, lack of collections, increased employer costs, etc.), fear (poor economic indicators, customers going out of business, credit sources disappearing, etc.) and other external stimuli. In those situations, it is common to lock onto anything you can grasp in a death grip. However, that is generally not the right solution. Your business cannot control the flow of the economy, but it can, and must, find the currents and exploit those natural movements to reach its greatest potential. It is during these times of strife where it is critical that a business work with their trusted advisors to examine the strengths of the business and where its strength can be improved. Can we improve our collections on our accounts receivable? Do we have any leverage regarding our outstanding debt? Are we insulated from our partners and joint ventures? This process is easier and quicker if you already have a trusted advisor network in place, but it still must be done. Every business needs to have someone they know who will spend the time necessary to understand the business, the objectives, and the specific challenges the business faces. This advisor can help you see the strengths and areas of improvement and help you cope with external stimuli. This advisor will help you unclench your fist.