Agave Mountain

As I write this, American Airlines has just announced that they will be reducing their 2008 flight schedule, and implementing drastic capacity reductions. Further, they have introduced a $15 fee for the first checked bag (in addition to the $25 for the second bag), given the increased cost of transporting checked baggage. 

So far this year, the other airlines have levied charges on checked luggage, increased phone and in person booking fees, increased change fees, added fuel charges, and increased ticket fares.

While most of our clients do not require travel to a client's facilities, we will continue to monitor the situation and will be modifying our travel and billing policies to clearly communicate our airline choices, preferences, and strategies to save our clients money. 

Labels: Announcements, business travel, Consulting

Posted by Joe Turner at 1:37 PM | Permalink | Comments

Rich Dad Advisor's Series: Own Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad's Advisors) by Garrett Sutton, Robert T. Kiyosaki, Ann Blackman Read more about this book...

When you start a business you are faced with a flood of decisions, some of which will have long lasting ramifications.  Will your business be a sole proprietorship, partnership, corporation, or limited liability company?  Which one is best?  S Corp or C Corp? 

First of all, this book validates the old adage that you just can't judge a book by its cover for two reasons: 1) it doesn't only just cover corporations and 2) it is a book with Kiyosaki's name branded on the cover that actually contains good solid advice inside.  I'm serious-- this is the only Kiyosaki book that I would actually recommend (but only to a very small audience). 

This book is a perfect primer on legal entities for entrepreneurs. 

Once you disregard Kiyosaki's ramblings about childish fantasies, treasure hunting and ships, you get a book written primarily by Garrett Sutton, wherein he carefully presents a high level overview of the various legal entities, and their pros and cons.  Sutton carefully steps through the intricacies of each of the legal entities (S and C Corp, LLC, Limited Partnership, General Partnership, sole proprietorship, and more).  Salted in the chapters are fictional examples that illustrate the disastrous consequences of choosing poorly (or acting on bad advice) and common problems.

Perhaps most surprisingly, is that this book even touches on some tax issues like what happens when consultants opt for C corporations (hint: they become deemed Personal Service Corporation and you get slammed with a 35% tax rate).  Personal Holding Corporations (PHC) are also touched on and perhaps most surprisingly of all, Sutton delves in to the legalities and hurdles with offering securities, SEC registration, angel investors, and more. 

My distaste for Kiyosaki's writing aside, I'm happy to recommend this book, because I rarely come across a book on the nuts and bolts of business entities that is readable. 

Labels: Business, Personal Finance, Reviews, Startup

Posted by Joe Turner at 10:34 PM | Permalink | Comments

I noticed that Hyundai has stopped airing the car ads for their "Dollars and Sense" campaign, in which they offered a "cash back" promotion on newly purchased Hyundai vehicles.  In the commercials, Hyundai paid off various financial gurus to give financial advice to prospective car buyers. 

If you have no idea of what I'm talking about, below is a version of the commercial with Larry Winget (author of the best selling book You're Broke Because You Want to Be) telling the driver to "take the money you'll save and pay down your credit card debt."

Each of the financial gurus had exactly the same thing to say -- run out an purchase a brand new car and take the "cash back" money you save and invest it (or pay down your credit card debt). 

Each of these authors deserves heaps of scorn and I have permanently blacklisted them from my reading list:

• Larry Winget author of You're Broke Because You Want to Be.
• Ray Lucia - author of Buckets of Money.
• Adam Smith - author of The Money Game.

Bah.  I can't believe a financial guru would actually guide people to purchase a new car, much less take the $3k and invest it rather than pay down the 6+% financing most normal people are going to get.  In most cases, if the car is less than $20,000, it is MUCH better to take cash back than 0% financing.  Given that most people will be financing, lopping $3k of the price of the car is a much better deal than investing it in a 3-4% CD. 

Really, I'm shocked that these hucksters have conned enough people into purchasing their books to make them best selling authors.  Moreover, I'm shocked that they would damage their credibility by doing these commercials.  If my accountant gave me the advice that these guys are spouting, I would seriously think about letting him go.

Labels: Personal Finance

Posted by Joe Turner at 9:37 PM | Permalink | Comments

Today Agave Mountain, Inc. celebrates it's first anniversary.  I would like to thank everyone who supported us.  Today marks the one year anniversary of the incorporation of Agave Mountain, Inc., and represents thousands of hours of blood, sweat, and tears-- and I find myself one year older and hopefully one year wiser.

One thing I have learned that bootstrapping an mISV by consulting is a difficult thing to accomplish.  I now found that my consulting is successful.  I am now turning work away, and I struggle to to find the time to devote to product development.

Back to the grind.  :)

Labels: Announcements

Posted by Joe Turner at 5:26 PM | Permalink | Comments

Hi,

first of all, sorry if I'm not emailing the correct person. But reading your reply to this topic, I think you can counsel me a little bit.

I'm an international student (I have been here for 1 year) and I have a relative, not yet a US resident, but one who said he can help me create a uISV. He somehow owns his how company, but not a uISV. It's not like I don't trust him, but I don't want to be taken advantage of. I'm a proficient programmer but I know nothing in this matters.

My idea is to re-buy the company from him when I will be capable of doing so. 

Do you think it's possible (he lives in Nebraska)? Should I be careful? I mean I don't even know anybody to talk to about this. So I will greatly appreciate your help.

Thanks a lot.

Sorry for the delay in answering your questions.  My e-mail tends to stack up until I scratch out enough time in my schedule to respond.  Besides, your question was interesting enough I actually starting researching H1Bs, F1s, 1099s, etc.,  Here is a summary:

Keep in mind, I am not an attorney or CPA, and the standard disclaimer should apply -- you should seek qualified legal opinions (mine isn't). Unfortunately, you might have trouble locating an attorney to help because this isn't a run-of-the-mill immigration issue.

There aren't any easy, common ways to for a person on a non-immigrant visa to start a company in the US.  Your relative seems to be violating the terms of his non-immigrant visa, but likely the government will never pursue revoking your relative's visa.   

Ok, lets keep going.  I will cover three separate topics:

1. What the law says (in layman's terms)
2. What H1-Bs and F-1s do in reality
3. What I would do

What the Law Says

You say you are an international student, so I will make the assumption that you are currently attending a school in the U.S, on F-1 visa.  You probably already know:

• Self-employment on F-1 or H1-B  is not allowed.
• You cannot start an S-Corporation; All shareholders have to be U.S. citizens or Permanent Residents (green card holders).
• You can invest passively in U.S. enterprises or securities. 
• You can start a company such as an LLC (Limited Liability Company), but you can not work for it -- your involvement has to be passive.  Ownership of an LLC or any other business presumptively suggests that you have management responsibilities...is working for the company which will put your visa in jeopardy.  
• From the standpoint of tax law, there is nothing that prohibits a non-immigrant from operating a sole proprietorship.  However, a sole proprietorship operated by an F-1 (or H1-B) visa holder is a gray area, which constitutes unauthorized employment and provide grounds for revocation of F-1 (or H1-B) status.  However, in practice, CIS seems to be uninterested in this issue.

You probably already figured this out, which is why you are looking at a relative to help.  But if he or she isn't on an immigrant visa (green card holder), they may not be in a better legal position to start the company.  More importantly, your relative seems to be openly violating the conditions of his visa. 

Interestingly enough, you might be able to work around the situation with a creative lawyer:

... Often the issue is resolved by having a straw person own the shares, or be the member of the LLC, and the alien visa holder having an option to buy.  LLCs are so flexible, however, that it may be that a creative attorney can resolve this for you quite easily.  (source).

I think this is what your relative is hinting at. 

What H1Bs and F1s Really Do

While most people on non-immigrant visas follow the letter of the law, I could not find one case where an F-1 (or H1-B) visa was revoked because of working outside the conditions of their visa.  Quite the contrary, I found many postings on the Internet relating to filing tax returns and dealing with W2 and 1099s received from consulting (most were small amounts of income). 

Of course, you have to be cautious here.  Most of the advice is given out by CPAs (accountants) who have studied tax law, not immigration law.  The IRS is only concerned that you file and pay your taxes.  They will not report you to the immigration authorities (which is one of the reasons why so many illegal aliens are able to overstay their visas and work for so long without any adverse problems).  

Keep in mind, that this would most likely come to haunt you when you applied for residency or H1-B -- and you really, really need to talk to a qualified immigration attorney. 

What I Would Do (If I Were in Your Shoes...)

First let me digress for a moment. 

You want to start a mISV.  I would give you the same advice I would give anyone who wanted to start an mISV -- don't waste the time and effort trying to register a legal entity until you have a product.  Work on creating a working product first.

How long is it going to take you to write the software?  Six months?  A year?  Why pay $300-$500 for registering your business up front, having to maintain a bank account, filing tax returns, state tax returns, and don't forget telemarketers who sift through government databases... 

Secondly, most mISVs don't make lots of money when they first start to sell a product.  When adjusted for the time spent producing, supporting and marketing the product, most mISVs make income that is usually less that minimum wage.    

My advice:

If I were you, I would work on the product idea.  Get it up to a saleable point and then just sell it directly through a payment service.  They will send you a 1099 at the end of the year. 

Then, if it looked like the product was going to make a significant amount of money, I would suggest that you then form an LLC with at least one member (U.S. citizen or permanent resident) in addition to yourself and designate the other member as managing member ( so you will simply be a passive investor ).  Then you can elect to pay taxes as a partnership and have partnership's profits and losses flow to you.

On the other hand, if you do decide to partner with your relative, I would definitely seek legal advice.  I would only proceed if the the contracts were iron-clad and addressed who has ownership of the product, source code, etc.,

In any event, good luck with your venture. 

Labels: Business, mISV, Startup

Posted by Joe Turner at 8:15 PM | Permalink | Comments

Howdy,

Some questions about billing in a scenario where the customer has hired the contractor for full-time work (37.5 / 40 hours per week).

If the customer requires you to use their systems (e.g. laptop, software) and you have to setup appropriate development environment, do you bill for that time?

There are some initial hiccups in the first days of contracting on the customer's premises such as getting authorization for physical / network access, licenses for software (again, the customer wants the contractor to use their systems), etc. Do you bill the customer for the idle hours (e.g. waiting for authorizations to be approved)?

Do you bill the customer if nothing can be done due to their fault (e.g. network downtime) while you're at their premises or if you leave their premises (i.e. go home)?

Say, you work the 37.7 or 40 or similar amount of hours per week on the customer's premises. How much are you billing on average?

Any other things I should be aware of?

If the client requires you to be there for 37+ hours a week, you are a contractor, not a consultant.  In essence, you are supplemental staff and will usually be required to fill out a time sheet.  

For a customer that requires me to be onsite full time, I bill for time I am at the office (available to do work).  The clock starts ticking when I arrive in the morning, and doesn't stop until I leave for the evening.  I subtract time taken for lunch and/or breaks.  On Monday, I submit a timecard for the previous week for customer signature.

This is pretty much standard across the industry.   Some recruiters have asked me to bill for lunch as well, but I don't.  I feel that is just crossing the line.  I usually put down a minimum of 30 minutes for lunch even when I scarf down a sandwich at my desk.

Meetings, reading specifications, writing documentation, coding, talking to people -- all of this is billable.  If the network is down, or you are setting up your own development environment -- it is billable. 

When I telecommute (or work small side projects), I only bill for actual time worked on post it notes.  Prep time, research, coding,  and phone time are billed in 15 minute increments.

When it is time to generate the invoices, I sweep the post it notes together and generate the invoices.  So far this system works pretty well.

Labels: Business, Consulting, Startup

Posted by Joe Turner at 5:29 PM | Permalink | Comments

While getting ready to start your own company or freelancing full time doesn't require any financial planning -- making good financial decisions will ultimately position you for a better chance at success.

This is especially important for consultants, who in recessionary times, will see consulting rates trend downwards as former corporate employees struggle to find employment and take consulting gigs out of desperation.

Yes, I'm going to tell you that you need to save some money, and by "some" I mean lots and lots of it.  But sometimes that isn't the always best decision.  Assuming that you have built up an emergency fund of six months of post tax monthly expenses, you need to decide what to do next.  Do you continue to save, or invest, or put it in a retirement account, or pay off debt.

Not surprisingly, this is one of the most commonly asked questions of financial planners, something like:

I have $5,000 in my hand.  I am trying to decide if I'm better off paying off part of my credit card debt, auto loan, or investing it.  What should I do?

Today, the answer is simple.  Treasuries are paying astonishingly low interest rates, and large commercial savings accounts are paying a whopping 0.20% APY.  Conversely, most credit cards are charging 18, 19, 23, and up to 28% interest. 

I think you can see where I am going here.  You are far better off paying off your unsecured debt, followed by secured debt (and your student loan and mortgage dead last).

This year I will be following my own advice and will be totally, absolutely 100% debt free.

Why do I mention this now? 

Last year, I purchased a used pickup truck and financed the transaction through Wells Fargo auto loans.  At the time, I didn't want to pull any money out of savings to purchase the vehicle outright, so I financed with the intention of an early payoff later (and that day has arrived).

I was surprised when they tried to bill me for "Collateral Protection Insurance", effectively adding $635 to the loan per year.  It took two calls, plus a conference call with my insurance agent to prove to Wells Fargo that I really did have insurance on the truck.

Today, roughly six months later, I received another letter from Wells Fargo threatening me that if I don't prove (within 15 days) that I still have insurance, they will simply add $635.00 to the loan and force place the insurance on my vehicle.

Enough already.  Personally I think this is a sleazy way to do business, force your customers to buy insurance through a company you have a financial interest in, and roll that into the loan (and collect more in interest).  Additionally, it appears as if you pay any money towards the loan, it is is automatically credited towards the compulsory insurance.  So if you don't pay it in full in addition to the regular loan payment, you get hit with late fees and quickly start getting harassed by bill collectors.

Frankly, I don't want to ambushed every six months and having to submit faxes, make calls, just to prove I have insurance again.  I was steaming mad, but my anger soon melted into chagrin when I recalled that the Wells Fargo is costing me 8.69% APR (because of the age of the vehicle), while the high interest savings account I have has been putting my money into ratcheted down to 2.75% APY. 

D'oph.  I'm much better off simply paying off the loan and saying goodbye to these jokers.  I would save roughly $1,793.26.  On the other hand, if I let the money languish in the savings account and watch the bank reduce the interest rate again in response to the Fed's newest rate cut, I would only earn $806.40 on the same timeframe.

Labels: Personal Finance

Posted by Joe Turner at 1:01 AM | Permalink | Comments