Why Incorporate?• Make money for shareholders• Do warm and fuzzy stuff• Make money for shareholders• Limit liability
Type of Maryland Corporations• www.dat.state.md.us/sdatweb/ sdatforms.html• Limited Liability Corporation (LLC)• Stock Corporation• Nonstock Corporation• Some others, but who cares
S Corp vs. C Corp?• Taxed once • Taxed at corporate level• Pass-through income • Dividends get taxed again (K1) • Can’t easily convert to S• Can convert to C Corp Corp relatively easily • No practical restrictions• < 100 shareholders on shareholders• One class of • Multiple classes of shareholders shareholders are okay
Form 2553• States don’t care if you’re S corp or C corp• The IRS does! File Form 2553 ASAP if you’re going S corp!
Section 83(b)• Applicable to stock corporations• Send to IRS• Protects you from recognizing income on stock that is vesting and increasing in value• Send it w/in 30 days of incorporation or you are screwed
Make Tax Filing Easy• But please don’t prepare your own corporate returns
Make Informed Decisions• How many more development sprints do I have?• How will hiring this person affect my monthly burn? I.e. can I hire this person.• Based off my runway, how urgently do I need to do the horse and pony show?
Make Informed Decisions• How will increasing marketing spend to $XXX affect my runway?• How urgently and aggressively do I need to collect on debts?• How much do I owe to creditors?
How to Keep the Books in Order?• Simple, repeatable, deterministic processes• Or pay someone
A/R Statement• Money owed to you by your clients• If recording on accrual basis A/R is an asset
A/R Questions• How much is my company owed?• How much credit have I extended to my clients?• How good am I at collecting debts owed to me?• How much money can I expect to come in soon?
A/R Questions• Is this client dissatisﬁed? They’re late on an invoice, which is not a good sign.• Did they lose my invoice?• Are they incompetent?• Do they jerk around their vendors?
A/R Questions• Who do I need to sue (or at least threaten legal action against)?• Is this client a deadbeat?• Is this client running out of cash?Is my client ﬁnancially distressed? Do I need to stop doing business with this client?
A/R Statement for Services Companies• Grouped by client• Further grouped by job
A/R Statements for Product Companies• Not sure they make much sense if you’re not issuing many invoices• 37signals isn’t looking at A/R statements• Create your own reports
Related A/R Statements• A/R Aging Summary• Collections Report
A/P Statement• Debts owed by you to vendors in exchange for goods or services rendered by the vendor to your business• You record a debt to A/P when you get an invoice• If recording on an accrual basis A/P is a Liability on the balance sheet
A/P Questions• How much do I owe vendors?• When do I need to pay the vendors?• Can I cut some of these expenses?• Can I negotiate different payment terms?
Check out an A/P Statement? Nah, pretty much the same as A/R
T-Accounts / Assets• Debits INCREASE asset accounts• Credits DECREASE assets accounts• When cash hits your bank (an asset), add a Debit entry to an asset account• When you write a check from your bank, add a Credit entry to an asset account
T-Accounts / Liabilities or Equities• Debits DECREASE the value of liabilities and equities accounts• Credits INCREASE the value of liabilities and equities accounts
T-Accounts / Liabilities or Equities• When you run up your credit card (i.e. use your credit card to buy something), you are adding a Credit entry to a liability account• When you pay down your line of credit you are adding a Debit entry to a liability account
T-Accounts / Liabilities or Equities• When you put in personal money, e.g. when you formed your company, you are adding a Credit entry to an equity account• When you issue a dividend to stockholders you are adding a Debit entry to an equity account
Nifty Things Happen• Sum of all credits = Sum of all debits• Credits - Debits = 0• Sum up everything and it equals 0!!!• Corollary: if you sum up all your accounts and it’s not 0, you messed something up
Let’s do Some Examples• Invest $10k into your company• Invoice a client for $2,400• Collect $2,000 of that in cash• Buy a fancy iPad for $500• Lawyers invoice you $300• You pay that invoice by check