StudentDC Interactive

No matter what business legal form you choose, you will probably need an employer ID number.  One new DC found that the bank required her to have it before they would open an account.

I just walked someone through the process of getting her EIN (Employer ID) or “tax id” - online through the IRS website.  It’s easy.  Here’s how to do it:

1.  Go to the IRS website and on the left you’ll see a link to Form SS-4.  Download the page and print it out.

2.  Go through the form filling out all the information.  The NAICS code for chiropractors is 621310.

3.  You won’t find a box for “Limited Liability Company.”  If you are forming an LLC, you are either a single-member LLC - taxed as a sole proprietorship or a multi-member LLC - taxed as a partnership.

4.  Completing the form before you go online helps you get through the online questions more quickly and you won’t have to stop and make a decision or look something up.

5.  The online form is at the bottom of this link page: http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

6.  Carefully go through the questions, answering each one completely.

7.  At the end of the process, you will have an opportunity to cancel.  Once you hit the “submit” button, it will be a minute or so and you’ll receive your EIN.

See what I mean? If you have questions, comment here or email me directly at jean@dcpracticesuccess.com.  I’m always happy to help.

There are some changes coming for limited liability companies.  Two states (Iowa and Idaho) have already adopted these changes, and in the coming months more states may also follow suit.

The changes affect both the filing documents and the operating documents.

Formerly, you filed “Articles of Organization” for your LLC with the state.  Now, in Iowa and Idaho, you must file a “Certificate of Organization.”  The filing process is the same, it’s just the document that’s a little bit different.

After your LLC has been approved, you should prepare an Operating Agreement.  Even if you setting up as a single-member LLC, you still need to have this document.  And with the changes, it becomes very important to have an agreement for multi-member LLCs.  Among the changes is a “one person-one vote” rule which states that, unless the Operating Agreement says otherwise, each member of the LLC gets one vote.  So a member with a 10% share of the membership gets the same number of votes as a member with a 90% share of the membership.  To prevent this “minority rule,” you can specifically state in your Operating Agreement how members will vote (according to percentage, for example).

There are some other similar changes to distributions.  I’ll keep you advised if I hear of other states that are making changes.

Before you set up an LLC in either Iowa or Idaho, check on the state secretary of state’s website or talk with an attorney.

By the way, in some states (like Nebraska), you can file for an LLC online.

Sure, you know you need malpractice, but what else?  Many businesses neglect getting these insurances until it’s too late:

• Business interruption insurance, to help pay your bills and provide temporary facilities if your business is destroyed because of a disaster, like fire
• Key person life insurance to protect your family and your business if something happens to you (some banks require this anyway)
• Employment practices insurance to cover you if an employee sues you for harassment or wrongful dismissal
• If you have an office in your home, you will need separate property/casualty/liability insurance on your business equipment and the section of your home devoted to business (in other words, it’s not covered by your homeowner’s policy)

The National Association of Insurance Commissioners (the national organization of insurers that works with state insurance commissioners) has an informative website called InsureU for Business (http://www.insureuonline.org/smallbusiness/ )  that gives you information on different types of business insurance.  Before you start your practice, spend some time in this site learning about types of insurance, what it is used for, and the varieties of coverage.

I mentioned Google Sketchup a while back.  If you are not comfortable using their software, maybe you will find these tools from OfficeFinder.com more helpful. Here is what they have on their site:

• A planning checklist to use when you are looking for office space
• An office space calculator.  This one wasn’t quite as useful as I thought it would be.  It’s more for a typical office, not a chiropractic office.  Still, it’s free so you might want to give it a try.
• A lease-vs-buy discussion
• A good article on measuring office floor area, including the difference between usable space, rentable space, and common areas.  Note their chart on conversion factors.

If you have been to the bank and you were turned down, don’t despair.  There is another possibility for getting some of the “stuff” you need for startup.  The alternative is “trade credit.”  In a nutshell, trade credit is using vendors and suppliers to finance your purchase of their products.

For example, you will need office furniture for your startup, so you could head to Staples or Office Max and see if they will give you a credit card.  Or, better, go to your local office supply plaee.  You might be able to get credit from them without having to get a credit card.

Talk to chiropractic vendors, like table manufacturers and x-ray machine companies.  See what kind of credit they will give you for startup.

Yes, you may pay more in interest, but you will be establishing BUSINESS credit, which is separate from personal credit.  You could also open a credit card for your business, but be cautious about putting a lot of purchases on it until you are sure you can pay it back.

What I’m really saying is to consider other sources of credit before you go to a bank.  Once you have built up a reputation for paying your business bills, you can talk with a bank more confidently, and they feel more comfortable about giving you a loan when they see that you already have a business going and that you are a responsible business person.

I just heard of a young DC who graduated a few years ago.  He was in a terrible accident and sustained major injuries.  He may not be able to practice - ever.  He has no health insurance and no disability insurance.

If you are starting your practice and you think, “I’ll wait to buy health insurance and disability insurance until I can afford it,” THINK AGAIN.

You may be young and health and “well-adjusted,” but you never know what might happen.  Please, for the sake of your family, get health insurance and disability insurance.  If you think you can’t afford it, sacrifice something else (like that fancy couch in the reception area) and buy it.  At your age, it won’t be terribly expensive.

For health insurance, try Ehealthinsurance.com .  I’ll get back to you on where to get disability insurance.

There are many situations that may cause a new practice or an existing practice to have trouble paying its bills:

• Like many practices in the Midwest this spring, your business may have been hit by a storm or been flooded out
• You may have had a personal tragedy that caused you to neglect your practice
• You may have been a victim of theft or embezzlement
• You may have been served with a malpractice lawsuit or other legal action

In any of these situations, as well as the difficulties of practice startup, you may find yourself in the position of not being able to pay your business bills. 

SCORE (the Service Corps of Retired Executives - an SBA partner) has a new booklet that might help you with these bills.  Their brochure is titled Pay Business Debts You Can’t Afford. It’s worth a look.

The booklet takes you through the steps in debt restructuring, from categorizing creditors setting a monthly budget, sending out hardship letters and working with each creditor, and implementing your monthly budget.

The SBA (Small Business Administration) just announced two new courses to help small business owners learn more about how to get a loan.

I put a blog post on this subject on my About.com site (U.S. Business Law & Taxes).  The post links to the two SBA “courses” (really PowerPoints):  One on the basics of an SBA loan guarantee, and the second on how to prepare an SBA loan package. 

Please take a look at this site, and the 5 “Realities” of SBA loans.  This is important stuff, and it answers a lot of questions I get from students and grads about the SBA loan process.  For example:

1.  The SBA does not loan money.

2.  Your personal credit does matter.

3.  You can’t get a 100% loan.

4.  You can’t get a government grant for a chiropractic practice.

This new DC opened in November and closed in April. A record? Probably not.

If you’re asking “What does ‘undercapitalized’ mean?” let me explain.
I will be talking to her on Monday but here’s what I am guessing, based on what I see a lot these days:

1. She had grandiose ideas of what she wanted in her practice, so when she did her planning, she included all of the “nice to have” stuff as well as the “need to have” stuff. And she was able to get a loan for all this stuff, so she bought it.

2. She didn’t save enough money for “Working Capital” - the money you need to keep paying the bills until the patients start coming in.

3. I know she did some marketing (a direct mail campaign, for one thing), but the patients didn’t come in fast enough.

In other words, she didn’t have enough “capital” (CASH ON HAND) to keep her going while she brought in new patients.

So what is the “take home” message?

When you get your new practice loan, DSATM - Don’t Spend all the Money! Buy only what you absolutely need, and save as much as possible to pay bills. You can always buy stuff later, when the money is coming in. A little restraint now can mean the difference between a successful first year and closing your office.

I’m meeting with the DC on Monday; I’ll let you know what I find out.

The other day, I talked with someone who told me she had paid $1200 to someone to help prepare her SBA loan paperwork.  She said the bank told her they would only take the loan with an SBA guarantee and that they weren’t “comfortable” with doing the paperwork themselves.  So the recommended someone (probably the banker’s brother-in-law!) to help with the paperwork at a cost of $1,200. 

Now, I understand that SBA paperwork is a daunting thing.  Like any government paperwork, it’s full of nearly incomprehensible questions and ridiculous requirements.  But, doggone it, there’s just no reason to have to pay someone $1,200 for this work!!! 

Here’s what I would suggest in this case:

1. Find another bank.  There are plenty of banks who are SBA preferred and SBA certified lenders, who know how to help you with the paperwork.
2. Go to the SBA directly and ask for help.  Your local SBA person can help you walk through things.
3. Go to your local SCORE chapter and ask for help. Many SCORE chapters have weekly Q&A sessions where you can find answers.
4. Find a CPA (you will need one anyway) and have this person help you.  It will be a good way for you to test this CPA’s qualifications.  If he or she doesn’t know what an Income Statement is, for example, you have the wrong person!

For more information on obtaining a loan with an SBA guarantee, go to this StudentDC article.