Running head: DB FORUM 3 – THREAD 1
The first consideration is the business form Shania might choose as she considers this
new business opportunity. When advising clients on any topic that might be “long-lasting,” I
encourage them to consider what they want life to look like in six months, 12 months, 18
months. I then ask “what about three years, five years and ten years out? Where do you see
yourself? What are you doing; and, who is running the business?” Facing these questions now,
and even more such as have they thought of an exit-plan; or do they want this to be a long-term
passion project) are important questions because the answer might significantly change the
foundation laid including the form of the business.
A sole-proprietor and a partnership as well as an LLC choosing to file taxes as a
partnership, must all file individual tax forms via a Schedule C attached to their 1040, which, if
they have shown any profit requires them to file and pay taxes from the employer side and the
employee side, including the full contribution to social security and other employment-related
taxes. I almost never recommend that someone take up the mantle of sole-proprietorship
primarily for the heavy burden of taxes on top of the potential impact of personal liability.
Although I am aware of married business owners who tend to choose this form to show a loss,
offsetting some of their spouses earned income, showing a loss too many years in a row would
likely result in the tax return being flagged for audit and the IRS determining that the business is
a hobby. The repayment of back taxes in addition to fines and penalties are typically crushing.
Choosing to operate as a Limited Liability Company (LLC) allows small businesses to
operate as an entity separate from the person(s) who own(s) the company. In essence, they can
choose (or “elect”) to file their income/loss on line 21 of their 1040 “other income” which is not
subject to self-employment tax or as a partnership where the income would still be filed on the
Schedule C and be subject to the self-employment taxes.
DB FORUM 3 – THREAD 2
There are pros and cons to each of these but for small business whether operating
independently or as a franchise, organizing as an LLC electing the Sub-chapter S, or “S-Corp”
tax filing is my personal favorite because of the protection and flexibility it offers. Be aware that
once you choose the tax form for filing personally, there is no changing it in the future without
creating a new company.
Concerning franchises, since Shania wants the shop to be a “destination” neighborhood
coffee shop, choosing a franchise opportunity such as a Starbucks or Peet’s would not suit her
stated cultural objectives. While she could name her business anything she wants, for the public,
she would be required to use the trade name of the franchise. However, aligning herself with a
franchise such as Illy Coffee may be a better solution and one I would heartily recommend. The
reason is due to training which typically not only includes how to make great coffee, but also
best practices in all areas of the business to support the sale of their product as well as marketing
coop programs and other benefits. She would also be able to maintain the environment she
sought. A great local example is Common Grounds located in several areas of Denver. As an
independent operator, they have expanded even in an area dense with Starbucks and other
franchised coffee houses because of the local flair and special offerings such as a book exchange
for patrons.
The SBA (Small Business Administration) published Frequently Asked Questions that
includes the question “How does franchise survival compare with independent business
survival?”
Survival among independent businesses and franchises appears to
be similar, as they have similar age distributions. Of course each
potential business owner debating an independent business or
DB FORUM 3 – THREAD 3
franchise arrangement will have unique factors to weigh, such as
their managerial talent and sales abilities (September 2012).
They also note, “that about half of the franchises in the data were nonemployers, which
may not be the stereotypical franchise that individuals imagine.” This leads me to believe that the
benefit of the training and support from franchising will, as any other form of education, pay off.
In my own experience, while I didn’t operate a franchise, I did complete a six-week course
through the local community college in a state-funded program targeted to help young small
businesses create a business plan. In the exercises required to complete the task, we were assured
a greater chance at success and learned of many valuable resources at our disposal including a
conversation with a SCORE volunteer at the local SBA office.
So, should Shania operate a franchise? I think there are attractive benefits that will allow
her to tap into the best of both worlds. The facts and figures are compelling.
Franchise businesses are expected to grow and create more jobs at
a faster pace than the rest of the economy in 2015 for the fifth
consecutive year…. Franchising is an American success story.
Independently-owned and operated local franchise businesses are
growing faster, creating more jobs at a quicker pace and producing
higher sales growth than other businesses. Franchising is a vital
engine of economic expansion in the United States and 2015 looks
to be another strong year for franchise businesses (International
Franchise Association 2015).
Although “The Gathering Place” is available in Colorado, the Secretary of State site
alerts: “There may be similar, possibly confusing, names in the database. To check similar
DB FORUM 3 – THREAD 4
names, search the business database.” Upon running that search, there are indeed 31 records of
various filings that must be researched. My advice then is to specify “The Gathering Place
Coffee House” or a similar more focused name. It will not only protect her from confusion in
legal registries, but give new customers an instant recognition of the purpose of her business.
The name may also be available as a Trademark. Although the search “The Gathering
Place” did result in a few trademarks, including two live, one includes a typed drawing and the
other the standard character mark. Choosing to add to the name as recommended, “The
Gathering Place Coffee House” and including a drawn logo or special type will help ensure a
successful application for a trademark.
Now comes the really difficult decisions…people. It’s quite attractive to consider that
one’s spouse would be willing to fund the business. Still, Shania must consider her husband’s
expectations of what “a silent partner” means to him. I would clarify what “no interest in its
operations and management” really means and ask him to consider making the loan in
conjunction with a signed agreement that it is a loan only, much as she might obtain from a bank.
Terms and conditions would be spelled out so that tension should she experience a slow period or
have to make a decision after a conversation where he offers advice and be upset if she were to
make a different choice, would be addressed in advance. In addition, if he expect any repayment
or other form of consideration could be addressed logically before feelings enter the mix.
Kelsey is a solid, “Thank you but no.” Her first obligation is to her husband as, as he has
already indicated he is not in favor, going against his wishes is a clear violation of Kelsey’s
marriage agreement. Ephesians 5:22-23 is clear in its edict “Wives, be subject to your own
husbands, as to the Lord. For the husband is the head of the wife, as Christ also is the head of the
church, He Himself being the Savior of the body” (NAS). While this to me does not mean you
DB FORUM 3 – THREAD 5
must ‘obey’ your husband without question, the Bible here and elsewhere is certainly clear that
marriage is a partnership that must be fostered in goodwill and respect.
Carlos is an interesting case and while I am sure many of my classmates might deny him
a place at “The Gathering Place”, our prompt indicates only that he is interested “in participating
in the business as a way to earn extra income.” I would consider employing him part-time as it is
only “extra income” he seeks and I would first sit down with him in a quiet room where we
could speak in confidence. Carlos must understand that the marketing strategy and culture of the
business is Shania’s to decide and while she is open to hearing his suggestions, he must agree in
advance to allow her the freedom to disagree. As she wants the business to be not only a coffee
house, but also a personal ministry to allow Christians a place to find like-minded people, she
should explain to Carlos that “the ‘Christian thing’” does indeed have “potential with all the big
churches in the area.” However, she does not plan an outreach to the Mormon or Jehovah’s
Witnesses facilities. The reason is that they believe differently that she does about her Lord and
Savior Jesus Christ.
She might advise Carlos on her faith and why it is important to her and ask if he feels he
can work with her knowing how she feels about her faith. If he cannot, the answer is easily
decided. If he does, there is an opportunity to testify to Carlos and other non-believers who will
frequent the shop. 1 Peter 3:1 states, “Wives, in the same way submit yourselves to your own
husbands so that, if any of them do not believe the word, they may be won over without words
by the behavior of their wives…” and while this speaks specifically to the relationship of a
married couple unequally yoked, it applies in every area of our lives. It is through the testament
of our actions that people will believe our words or ask what is different. It always has been so
“easy” and yet so hard. I know many people who believe their mission field, their pastoral duties
DB FORUM 3 – THREAD 6
are to live out their faith in the marketplace, showing others the light of Christ through their
works. It is indeed a great mission to so live His calling.
DB FORUM 3 – THREAD 7
References
Colorado Secretary of State (2015). Retrieved from
http://www.sos.state.co.us/biz/BusinessEntityCriteriaExt.do
Internal Revenue Service (2015). Forms and publications. Retrieved from
http://www.irs.gov/Forms-&-Pubs
International Franchise Association (2015). Franchise businesses projected to again grow faster
than the rest of the economy in 2015. The Franchise Business Economic Outlook: 2015.
Retrieved from http://www.franchise.org/franchise-businesses-projected-to-again-grow-
faster-than-the-rest-of-the-economy-in-2015.
Kubasek, N. K., Brennan, B. A. & Browne, M. N. (2015). The legal environment of business: A
critical thinking approach (7th ed.). Upper Saddle River, NJ: Pearson.
Meiners, R.E., Ringleb, A.H., & Edwards, F.L. (2012). The legal environment of business (11th
ed.). Mason, Ohio: South-Western Cengage Learning.
US Patent and Trademark Office (2015). Trademark electronic search system. Retrieved from
http://tmsearch.uspto.gov/bin/showfield?
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