NOTE: This blog post was developed from my notes for a recent presentation to the Public Relations Society of America International Conference titled “Keys to Agency Management.”  The presentation included a number of back to back Ignite style presentations.  This portion focused on legal concerns.

“You don’t want the truth because deep down in places you don’t talk about at parties, you want me on that wall, you need me on that wall. You want the truth about the legal aspect of running a business?” – Colonel Nathan Jessup (as played by Jack Nicholson)

The movie “A Few Good Men” gives us insight to the legal realm.  While Tom Cruise is an actor playing attorney.  I am Tom Garrity, a public relations firm owner who is not an attorney.  My late grandfather, whom I am named after was a very successful attorney, judge and an admitted lawyer to the United States Supreme Court.

If he was alive today, he would discourage me from giving this presentation, asking that I leave it to an attorney.  However, in his spirit, let me reiterate that I am a public relations firm owner and NOT an attorney.

In that same vein, I am also not an accountant.  However, I have attorneys and accountants on retainer.  I also have a core group of advisors providing me insight and counsel.  You should do the same.

How should you set up your company?  Sole practitioner, LLC, S-Corp, C-Corp… it all depends how much legal protection you want and how you want to be taxed.  I started as an S-Corp and am now an LLC.

When I talk about “level of legal protection” I am talking about what attorneys call a  “veil” that protects you personally from what happens in your work/professional life.  Only the sole proprietor does not provide that protection.

What an LLC, S-Corp and C-Corp provides is a “veil” of protection between your business and your person.  You have to protect that veil by keeping your business and personal affairs separate.

That means getting a business credit card, business checking account, business savings account, etc. There are ways to set up your company and you should consult an attorney and accountant who has experience.  Again, I am not an attorney or an accountant only someone who has run their business for the past 16 years.

Once you decide, you want to set up a business, register with your City, County, State and Federal Government.  Where I live I need a city business license, a state identification number and a federal tax-ID number.

Other key documents you will need include a “Letter of agreement” with clients.  This will include their contact information, term of agreement, services you will provide, how much and how you will charge for services.

The letter of agreement will identify what happens when they are late paying or don’t pay.  It also should provide indemnification if you are relying on them for information. And yes, be sure they sign it!

On the employee side, the I-9 immigration form and W-4 wage and information form are two documents that are mandated by the federal government.  Include it as a part of your process bringing on a new employee.

On the topics of new employees, a letter of offer that states the date of hire, wage, exempt or non exempt, salary, vacation and other items like “at will” employment. This provides peace of mind to everyone.

Exempt vs Non-exempt.  This is a classification by the Labor Department that identifies what jobs are available for overtime and which ones are “exempt” from paying overtime. Exempt = Salaried, Nonexempt = Hourly

Have an employee policy manual that includes information about conduct, benefits, employment practices like timekeeping, overtime, reviews.  Lots of things to include here; resist the temptation to use cookie cutter manuals.

Finally, educate yourself about all of these things but don’t self diagnose.  Choose an accountant a tax attorney and a business advisor to provide insight and counsel and have conversations with other PR firm owners.  A safe place for these types of conversations includes the Counselors Academy annual spring conference this May 4-6, 2013 in Key West, Florida.  Peer discussions, best practices and details behind the numbers.

NOTE: This blog post was developed from my notes for a recent presentation to the Public Relations Society of America International Conference titled “Keys to Agency Management.”  The presentation included a number of back to back Ignite  style presentations.  This portion focused on financial concerns.

“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.” – Gordon Gekko

Fictional character Gordon Gekko is one of those people that has ice cold water running through his veins.  He is positioned as a “master financier” who knows the right moves because he watches the bottom line.

When you start a business, there are several financial items you need to keep in mind.  I will only be able to touch on a number of these.  One thing I will not be able to provide in the context of this blog post is depth.

During this “financial” discussion, I’ll be addressing “clients”, what do you charge, how do you determine what to pay employees, what do you determine to pay yourself and what are other considerations and questions.

The first thing you should do, is find a good accountant, someone you trust.  You are good at public relations, you are great in a crisis, awesome with clients and can woo the media.  Running a business… not so much.

First, lets start with the basics.  You will have expenses and you will have income.  The goal is to have more income than expenses.  However, there might be some months, years that scenario doesn’t pan out.

In the beginning, there were expenses.  They take the form of computers, printers, software, smartphone, paper, pens, logo, business cards, stationary… In QuickBooks, these are known as office equipment, office supplies.

Eventually you will have income.  Your “income” is provided by organizations and individuals who will pay you to provide public relations counsel, develop of a news release or provide connections to media leaders.

Some refer to that group of organizations and individuals as clients.  Clients are great! They provide you status, provide you tasking and they will fill up your day.  In the beginning there are clients.

As you build your practice, you will look for clients that pay.  The “client that pays” helps you to cover expenses and provides great peace of mind to you, your accountant and employees.

So now you are aware of two of the three types of clients.  There are clients, clients that pay and the third is clients that provide a profit.  This last class of “client” is the preferred client.

Next, I am going to review a basic principal of running a business.  It focuses on time, money and the rule of thirds.  The rule of thirds helps you to manage staff and profitability.

How much do you charge? Here’s how you find out. There are 365 days a year, take out weekends, you have 260 days.  This is equal to 2,080 hours. Take out holidays and vacation you have 1,400 hours available.

But you can’t work 100% of the time.  If your public relations account team bills 85% of time, or 1,200 hours a year, that’s pretty good.  Some say that business owners shouldn’t be billing more than 50% (or 700 hours) of your time.

Taking an example of hiring an account executive staff member for $50,000 a year, working 1200 hours a year, their rate should be $42 an hour.  That is their salary. But how do you pay for their computer, office and supplies?  And where do you build in profit?

That is where the rule of thirds comes in take the rate of $42 per hours and multiply it by three. The billable rate should be 1/3 salary, 1/3 overhead and 1/3 profit or in this example $126 an hour.

You can adjust this based on expenses and the amount of profit you want to take. Overhead can be adjusted if the person works out of home or is a contractor with his or her own equipment.

Other rules of thumb to consider are you develop your business includes having a business checking and savings account.  You need to set a budget, have at least one line of credit as well as securing insurance for you and your business.  You should also set accountability standards and secure advisors.

How do you learn these and other principals?  Here are some “must reads” as you develop your business and service clients.  One is Tom Gable’s PR Service Manual (available through PRSA).  The other is Managing a Public Relations Firm for Growth and Profit by A.C. Croft.  These are two great resources

Of course the best way is through the Counselors Academy annual spring conference this May 4-6, 2013 in Key West, Florida.  Peer discussions, best practices and details behind the numbers.