Contract engineering is a rewarding career for most who pursue it. It's certainly challenging - from both a technical and personal perspective. My experience in contracting has taught me one very important lesson: In order to do the fun, enjoyable work, one must be prepared for it, in terms of both technical and business readiness. Technical readiness includes having a working knowledge of broadcast equipment and systems, plus having proper test equipment and skill in its use. Business readiness involves being prepared to transact normal business as well as planning for when those transactions go awry.
There are two key areas of business readiness that contract engineers need to explore and review periodically. What form of company or organization should your business assume? And, what types of business insurance are prudent to purchase?
You've likely already chosen an organizational business form. However, it's wise to review your business model every few years to see if it still makes good sense. Your legal counsel can help you change your business organizational setup to suit your current or future priorities.
The way your business is organized is important because it affects every aspect of your operation, from what you pay in taxes to the extent of your liability and your ability to raise capital. Your options for business organization include sole proprietorship, incorporation, partnership and limited liability corporations.
Sole proprietorship is the quickest and easiest business structure to adopt. If you don't incorporate and don't have a partner, you are automatically a sole proprietor. Legally, you and your business are the same. As a sole proprietor, your profit is taxed as personal income tax, and you personally are liable for any debts or losses.
Being a sole proprietor contract engineer may not be the best choice due to the potential for liability. What if you back up over a guy anchor and bring down a 500-foot tower? What if that tower holds two FMs, one TV and some business repeaters? Even good insurance may not cover you entirely from lawsuits. As a sole proprietor, you and your company are the same, making you personally liable for mistakes and accidents.
A sole proprietorship business may need to be registered with local or state licensing departments. Business licensing differs from state to state. Some states, like California, require nearly all businesses to register. Other states have relatively few requirements. If, however, you are doing business as a sole proprietor under a trade name rather than your personal name (Real Loud Radio Engineering, as opposed to R. F. Burns, Radio Engineer), you will likely need to get a business certificate or register as a doing business as (DBA) company. This lets your clients, your suppliers, the government, and anyone else your business deals with, know the real owner of the business.
While incorporation requires more paperwork, expense and maintenance than sole proprietorship, it gives you one critical benefit - protection from liability. A corporation is a separate legal entity from the person or people that own it. It's the corporation, not the owner, that enters into business deals, owns property, borrows money, and conducts business activity. Because the corporation is involved in these business deals, you and your personal assets will, in many cases, be protected from liability if something goes wrong.
For businesses with more than one owner, incorporating can often protect you from the misdeeds of the other owners. This differs from a partnership, where each partner is personally liable for the business-related actions of the other partners.
There are other benefits to incorporating. You can gain access to various benefit plans only available to corporations. It also creates a positive image for your company and can help when raising capital, getting credit card merchant status, or doing business in a foreign country.
This status gives you the liability protection of a corporation, and allows you to pay taxes on the same basis as a sole proprietor or partnership (i.e., you pay tax at the personal rate, and your profits are your salary). Many tax and legal experts recommend S Corporation status for smaller entities and start-ups.
This status is another option for contract engineers. A C Corporation files and pays corporate income taxes directly, so it is considered a separate entity from its shareholders and must pay taxes on income left after business expenses.
Another business structure option is a hybrid of the corporation and the partnership - the limited liability company. An LLC has the liability protection of a corporation but the tax status of a partnership. While you get liability safeguards similar to those of a corporate shareholder, you pay taxes at the personal rate on your share of the profits or use the loss to offset other income.
This is one of the most neglected small-business responsibilities. Not having the right insurance for your contracting firm is a mistake. An accident, theft or disaster can shut down your company permanently, or at least wreak havoc on your assets.
Business Owner's Policy.
A standard business owner's policy (BOP) provides coverage for property, liability, business interruption, and, in some cases, workers' compensation. The components of each BOP are different, so be sure that your policy contains all the components your business requires. BOPs were originally designed for small retail businesses, but now are available for a variety of other businesses.
Contract Engineers' Insurance.
The Society of Broadcast Engineers (SBE) provides insurance coverage appropriate for many contract engineers. Its recommended Business Owner's Policy contains coverage and options most needed by active contractors, including test equipment coverage. The policies endorsed by SBE were designed specifically for contract engineers and are worth consideration.
The Insurance Information Institute in New York estimates that about 40 percent of small business owners have no insurance at all, because many believe they can't afford coverage. The truth is a contract engineer can't afford not to have adequate insurance. Without it, you're unnecessarily putting your business and income at risk.
properly is important to staying in business. The necessary "overhead" may take away valuable time that could be spent on billing clients but is just as important. Set aside some time now to discuss your business organization model and insurance coverage with the requisite professionals.