How to Set Up and Leverage an Infrastructure For a Small Business

It takes more than just an idea, some money and an office to get a business up and running. You need an infrastructure. Just what does it mean to set up a business infrastructure? It takes some planning and making a few key decisions before you sign any legal paperwork. For example, on a small scale, you are going to need someone to help you with the bookkeeping and someone to help you with payroll. But there are many more considerations.

First, you need to decide what type of company you want to become. As important as it was in determining the culture of your company, you will want to consider your business’ structure, keeping in mind who is in charge, how big you want the company to grow, how many employees the business will have and how you want to handle day-to-day operations. There are many business structures in the United States. Most states have information online covering the type of structure available.

Here are six types of business structures, each with its own legal, tax and business ramifications:

1. A Sole Proprietorship is when an individual owns and operates a business by him/herself.

2. A Corporation, of which there are many types, is a legal entity that exists separately from its owners. There are many benefits to incorporation, including limiting the owners from personal liability and separating taxes from the owners and the company. Offering stocks or bonds can generate additional capital for a corporation and a corporation can live on, well past the death or retirement of the owners.

3. A Limited Liability Company (LLC) offers liability protection similar to that of a corporation but is taxed differently. One or more managers or one or more members may manage LLCs.

4. In a Limited Partnership, there must be at least one general partner that acts as the controlling partner while the liability of limited partners is normally limited to the amount of control or participation they have engaged in.

5. General Partnership is when two or more people form an association for profit.

6. A Limited Liability Partnership is designed for accountants, lawyers and architects or companies with services related to those professional areas. A limited liability partnership is required to maintain certain levels of insurance as required by law.

The next two components to setting up the nuts and bolts of your business involve people and processes.

It’s important to line up your advisor relationships. Think of your key relationships as a group of advisors, whether that’s an official board or some of the people you work with on a daily basis.

Assemble a board.

You may not have one, but I highly recommend it. I found that one of the most important things in building both of my companies was having a board of directors. When establishing and growing a company, it's helpful to have people you respect and whose opinions you respect giving advice about business issues. But the most important thing I have found is that a board is critical for my accountability. Having a board of directors forces me to prioritize and have discussions I wouldn’t otherwise have. In short, it sets aside time for me to get out of the weeds and think more strategically about building my business.

Pick an odd number total of people for the board. (If you ever have a vote, you need an odd number.) Three is a good place to start. Hold regular recurring meetings to get the most benefit. Also, use the board for your network effect since they are tied into a wider network and can help with hiring and any kind of support you might need.

Make friends with the landlord.

It’s very important to build a relationship with this person. I think of my father and his businesses: every time he needs more space, he calls the landlord and they work on it together. This has been true for me as well. Consider your landlord as part of your advisor circle. As you grow, you will rely on him or her to help with the physical aspects of the business.

Hire an attorney.

This depends on the type of business you are running. Does your company have special needs, like a product that requires patents and/or trademarks? Or, you may just need to have an attorney guide you through the process of becoming incorporated, or whatever your business structure is. I have always been fortunate to work with great attorneys that not only protect the legal interest of the business but also can provide valuable insight into growing the business. Think about it, a good attorney touches hundreds of businesses in his/her career and all that experience can be at your fingertips.

Work closely with an insurance agent.

Find an insurance agent to help you set up the company benefits. Once you have found that person, work together to set up your plans. Keep in mind that the decisions you make about benefits have long-term repercussions. For example, if you want complete health coverage for yourself and your family, when you have one employee will you offer the same to them? When you have 10 employees, will you offer it to them? If your company is only going to be five to 10 employees, which is the size of the majority of small businesses out there, you might not be as concerned about paying vastly different amounts (based on the family and ages of the insured) for the same benefits across all employees. But if you plan on growing bigger, then you might be concerned, for example, that those employees with families may have to pay significantly more. If so, you may then have to compromise on a plan that works for everyone.

Hire a bookkeeper and an IT guy.

I would argue that the two most critical pieces of your business operations are keeping your finances and your technical operations running smoothly.

For IT help, turn to any number of resources, including Geek Squad on a national basis, or any number of smaller, regionally-based software and hardware support companies.

Equip the office.

You don’t have to spend a lot of money to have a nice office. You can buy inexpensive furniture from IKEA or Costco, and keep décor to a bare minimum. I have done this at both of my companies and I think it reinforces some important values for our customers and our employees. And we have managed to still make it nice.

For my most recent venture, we went for an open environment, no cubes, just desks and phones. We really lucked out because we got all the furniture in our office for free and at an enormous discount from a company that was going out of business. In addition, we got $150,000 worth of servers for $15,000. You have to be prepared for moving fast on some of these things.

Other key decisions in setting up your business infrastructure include incorporating the tools that will manage day-to-day operations and deciding what the company benefits and policies are.

Line up your tools.

Leverage technology whenever you can. I know from experience that the Web is the best way to do business. It is the driving force of my current and former businesses and has driven many of my business decisions. All of my advisers need to connect to the Web. Most of our tools—from our phones to our financial information—are accessed online. For me, the web allows me to work from anywhere. This is one of the key advantages of starting and running my own business. As they say, “the noose is looser and the leash is longer.” As a result of Web tools, I am able to run a 25 person business with limited infrastructure, (one day a week of outside accounting/bookkeeping help) and one day a month of IT.

For our phone system, we use Voice over Internet Protocol (or Voice Over IP). I choose VOIP for a couple of reasons but mostly because it is simpler to set up and cheaper than working with the phone company. One Internet connection can get you as many lines as you need. I had a hard time investing in phone lines for all employees since we will most likely move and most employees don’t use a phone to get their job done.

Determine your Policies.

In terms of other company policies, it’s best to have a framework or, better yet, a written policy before things come up. Figuring out policies on the fly is awkward for you and your employees. I know this from experience. So take a little time to decide what you want to do about maternity leave or vacation time. You and your employees will be glad to know what the policy is.

I think it’s really important to provide stock to all employees, so that everyone is an owner. We spend most of our lives at work and all of us want to belong. Giving stock to employees is one way of telling them that they belong. You of course get the added benefit of employees knowing that they are an integral part of the growth and success of the company.

Another policy to mull over before making a decision is whether you want to offer the more traditional vacation time and sick leave versus an overall Paid Time Off (PTO). PTO is like having a bank account of time for your employees to draw from for vacation time, as well as sick leave, a mental health day, or an emergency. After experiencing traditional vacation policies for the last 20 years, I switched to PTO. The main reason is that I wanted to give the same benefit to all employees. My experience shows that some employees never get sick while others use all of their sick time immediately. It just wasn’t fair to the folks that didn’t get sick. With a PTO policy, all time off is the same. If you are not sick you get more time for vacation. This seems like a better message to send to employees.

When I started my first company, our health insurance covered the employee but not the dependent. As the company grew, I saw how much people were paying for their dependents. I wanted to do more for employees but wanted to be fair to employees without dependents. When I started my next business, I made a decision to go with a Health Savings Account (HSA) High Deductible Insurance plan. The key to the HSA is that once you offer and contribute to the HSA, the employer is required to use a high deductible health insurance plan. The HSA is an employee account that employees and employers can invest money into to save for future medical expenses,. Most contributions and all earnings are tax free. Employees then use the funds in the HSA to cover medical expenses not covered by the deductible of the health insurance plan. The funds contributed by the employee and employer are vested immediately and are available to the employees to use today or in the future. I made a decision to contribute all of the savings from the higher deductible health insurance premiums and then some more to the employee accounts. Ultimately, I increased the contributions so that I felt that employees' dependents were getting some coverage. The HSA allows me to contribute equally to those without dependents to use at some future date.