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Create and Run a Virtual Office

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This article describes how to convert your business from the normal "brick-and-mortar" office into one in which you and all of all of your employees work from home.

Stories of small business failures are common in today's economic climate.  Quite often, it comes down to "permanent," "unchangeable" overhead costs: To wit: "We need a certain number of offices and cubicles (at $x per square foot), we need a secretary to answer the phone (and look good for visitors), we need a phone system and multiple incoming landlines to handle sales and support calls." ...and... "Our payroll is $y, we can't cut that." ... and the, sad but inevitable math as stated by the owner... "So our company's monthly 'nut' is $z and my savings account can no longer sustain any more months of covering the shortfall.   So, sorry one and all, but we'll be ceasing operations as of..."

This is a scary situation.  But here's a scarier one:  The owner tells you "There are assets here: intellectual property, a customer base, a modest Internet presence, a bit of recurring income, and potential for new income.  How would you like to take that and run with it?  On your own?"

A big opportunity... to rebuild the business and get rich!  Or a chance to fail miserably after mortgaging your home and running your credit cards to the limit.  What the heck, let's give it a go!

Checklist:

Get a mailing address
Form the company -- incorporate
Open a checking account
Get a phone system
Accounting software
Get an accountant to handle taxes
Miscellany:  Business cards, little details
What about the offices and cubicles and the receptionist?  We're going to cut all of that overhead right out of the equation. Do some math...  How many employees do you really need in order to handle the support and sales calls?  If you slash the overhead to the bone, can the expected income cover the (much smaller) 'nut'?  If the numbers are right -- and if your business can actually run without a physical office (and many types of information/technology businesses can) -- then you might be able to make a Virtual Office work for you and your company.

This article cannot be a comprehensive guide to starting or running a small business.  I'm going to hit on a few of the key issues.  This is more to reassure you that it can be done than to tell you exactly how to do it.

1. Get a Mailing Address

You can't entirely hide the fact that you are running a virtual office, but you don't need to advertise it.  You will probably decide that you don't want a residential address (your house or apartment) as your main corporate office.  For one thing, a customer might use Google maps and see a house.  It's simple and cheap to get a mailing address.  Find one that is near your house, because you will be driving down there nearly every day.  I've had good luck with

   The UPS Store
   http://www.theupsstore.com/Pages/index.aspx

Your address will be a "suite number" (so it looks more like you are in a large building) in a business district.  Get a small box (if a big package comes in, they'll accept it anyway).  They will sign for incoming mail when necessary, and even e-mail you when you get an important package.  You'll get to know the people there... John is kind of gruff, but Christie is sweet and has a cute smile.

2. Incorporating

This sounds frightening if you have never done it, but it turns out to be not so bad.  There are do-it-yourself books in the library that include all of the forms and so forth, but my recommendation is to just use...
   
   Legal Zoom
   http://www.legalzoom.com/

Browse their site; there is a great section on getting educated about starting your business.  You might choose to go the S-corp route or LLC.  Do a little research to see what's best in your situation.  The key is that LegalZoom maps out everything and includes step-by-step guidance.  The "scary" things like getting an EIN (Federal Tax ID) just become another item in a checklist that they handle for you.  I suggest the "middle" package that costs less than $250 and includes the cool faux-leather binder and the corporate seal embossing tool.  When that arrives, you really feel like you have a company.

You need to decide on corporate officers.  Somebody gets to be called "President" ... no big deal.  Whenever you need to sign your name and print your title, just print "Officer."

3. Open a Business Checking Account

There are a number of banks that provide "free business checking" and some versions of free are less costly than others.  Shop around.  You can get a business debit card that looks and works just like a credit card.  You can use it to pay most bills.  It is especially useful for recurring expenses.  

Again, find a bank that is local to your house.  You don't want to drive a lot to make a deposit.  I actually suggest that you request a "bank by mail kit" -- a set of pre-addressed envelopes and deposit slips -- so you can avoid driving, but I know that many people will want to do all of their banking in person.

When you open the account, the bank will access your (and the other corporate officers') credit information.  We tried to use the maildrop address, but they needed a "real" address of one of the officers for one of the line items in one of the forms.  Don't feel like you are hiding anything:  That is your official corporate address; you are doing nothing that is not totally legitimate.

BTW:  You will need your EIN (Federal Tax ID) here (part of the incorporation step).  It's possible to get an EIN over the phone while you are at the bank, but if you do that, you will end up with two of them.  So avoid that.

4. Get a Phone System

This is actually the key to running a virtual office.  It's the one thing that really frightened me because in the old office, we spent $600 per month and had dedicated PBX hardware, ... and the whole rigmarole.  And it's the one thing that turned out to be simplicity itself.  I understand that there are a number of reliable companies that provide this service, but I can personally vouch 100% for:

   OneBox
   http://www.onebox.com/
 
For an unbelievably small fee ($50 per month), you get a toll-free phone number (actually a set of toll-free numbers) and a system that handles everything -- entirely offsite.  To your customers, your system is just like that of the big guys. They will hear an automated attendant and they can use a voice menu or send a fax.  The call is routed to you or any employee.  If you are not home, it goes to voice mail and you then get an e-mail with an attached WAV file of the message (even voice-to-text if you want it).  The system is flexible... For instance, the "attendant" will try your land-line, your cell phone, and then your partner's cell before it sends the caller to voice mail.

You can use your toll-free minutes for outgoing long-distance calls.  You can set up conference calls.  I continue to be amazed at how much you get for that one low fee.

5. Accounting Software

I just noticed that Legal Zoom's recent packages include a free copy of Peachtree accounting software.  That might be a good choice... I don't know.  But I can recommend:

    Intuit's QuickBooks Pro
    http://quickbooks.intuit.com/

You might never need to use the fancy features.  Record income and outgo by simply filling in the checkbook ledger.  It's easy to record recurring (debit-card) expenses manually from the checking account statement or even automatically (if your bank provides that service at its website).  Remember, your overhead is minimal, so you won't be writing that many checks.  You'll need the end-of-year summary data for the accountant.  It's a bit scary if you've never done it, but I'm here to tell you:  It's not rocket science.

6. Get an Accountant/Bookkeeper

For many, this would be the first (and absolutely-required) step.  But I've done my personal taxes ever since I was 14 years old, so I thought I could handle a set of corporate taxes easily enough.  

After some study, I decided that the anxiety was not worth it.  I found a local guy who specializes in small businesses and handles QuickBooks data format.  It's worth his fees just to be able to call him up when I have a question.  I once overpaid some taxes (I'd gotten an alarming bill from the state) and he saw the entry in the books and when I had explained, he sent out the right paperwork and I ended up getting the entire $1,200 back from the state ("Always, always, always run these by me, Dan!").  

The point is, you need a real person -- one who specializes in these things -- to take a load off of your mind so that you can spend time doing your business.

7. Very Little Else

You will want to print up business cards with your new address and phone number.  Printing used to be a big expense, but Internet printing shops make this sort of thing dirt cheap these days.  You probably don't need pre-printed letterhead -- just put some sort of logo in the top-right corner of your invoices and correspondence.   Print the envelopes (include a logo if you want).  Why bother with laser-printed checks?  Just write them by hand (unless you think you need your vendors to continue to think you are a large company -- in my experience, you earn vendor respect by paying on time, not by the look and feel of your checks.)
 
Employees and payroll:  The logic is simple:  You no longer commute, so you have two extra hours every day... you need fewer employees.  What's more, they are now working from home, and they save on commuting expenses, too...you can pay them less.  You can find part-time workers cheaply.

Payroll taxes seemed like it would be difficult, but my accountant worked out a way to do it quarterly.  We converted some employees to independent contractors (consult your accountant about this, though, it can be tricky to keep within the letter of the law).

Lost Sales

Expect to lose out on some of the sales or consulting deals that you might have made if you were in a fixed location.  Accept that, and move one.  Make more effort to get the other deals.   There are  places that will provide you with a rented conference room, and I suppose that you could keep up the facade of being a larger business if you try that.  But I don't recommend it.  Another trick is to meet at a restaurant at the airport or a midway point between your two "locations".  If it gets down to "I need to visit your office," then you are best off to have never spoken an outright lie.

When the time comes, just state that you have a virtual office.  Own it.  Be proud of it.

Technical Stuff

I guess I have taken this for granted, but I realize it needs to be mentioned -- at the very least.  As a virtual office, you need to share documents.  A team of programmers will need to use a source-control system.  You certainly should do centralized off-site (off all sites) backups in case of fire or natural disaster.   Somebody needs to maintain the web sites and be able to set up a VPN or at least an FTP login when needed.  I have frankly assumed that if you are reading this, these sorts of issues are not your key problems; that is, I assume that one or more of your group can handle these things.

However, a lot of this may not be all that critical.  A surprising amount of inter- and intra-company business can be handled entirely via e-mail.  Members of your virtual team need core competencies in that and in computers in general.  There is no place on the team for somebody who can't set up and maintain his own computer, keep his anti-virus software up-to-date, and handle day-to-day computer emergencies.  That is, be his own "help desk."

What about human contact?

What is missing in a virtual office?  Employee camaraderie; the synergy of rubbing shoulders with peers.  We all need human contact.  Are you capable of spending the whole day alone at your desk, never seeing a co-worker's face?  If not, forget about this route.  But you might try taking up yoga or joining a book-discussion club, or maybe even a church group or other volunteer organization.  We so often make the workplace the center of our lives, but life offers many options.  Just look around you.

Set up company conference calls on a schedule.  You need to keep in contact.  You won't "bump into" anyone at the water cooler, so make notes and make phone calls.  CC or BCC e-mails that affect co-workers, and have them do the same, so that everybody is always "in the loop."

Have some scheduled company events -- Christmas party, whatever -- at a centrally-located restaurant or rotating through the company officers' homes.  Invite the families.  Make it fun (do business on the phone, not at the party).

Conclusion

Not all businesses can "go virtual" but some can.  It is a logical extension of what many larger companies already do: Farm out some operations; send overhead-costly operations offsite.  Just take it one step further -- make everything offsite!   Instead of "death by 1000 papercuts" take one big slash with a Katana.  If the business can possibly survive that way, then I assure you that you can make it survive.  And even thrive.

Good luck!
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Author:DanRollins
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8 Comments
 
LVL 60

Expert Comment

by:Kevin Cross
Very nice, Dan!  You have my personal Yes vote above.

I have a sole proprietorship EIN and did some 1099 work previously, but often wondered (1) if I should go back to that full time instead of my 9-5 and (2) if it is better to incorporate.  Therefore, that bullet was the one that hit home the most.

With contracting, I found that a lot of companies were getting major contracts $300-500/hour for technical work they had no clue how to do, but they were great at Marketing and sub-contracting.  They would pay me a fraction of that to do the actual programming.  What I found the difference was aside from the Project Manager provided was they were "a company" with "liability insurance" and I was just an individual -- this rang home when I was asked to do some consulting for a company I used to work for following this sub-contract and, though I got the opportunity on my own, the had me go through a local temp service as they couldn't do individual contracts. *laughing*

So you can definitely get business with everyone knowing you work in your pajamas and a coconut bra, but you need to be part of Coconut Bra LLC to be somebody.  So as Dan said, just own it! *smile*

On the accounting software, I used Peachtree in 2004 and it was pretty good, but I also, currently, support a small business that is a Marketing partner of my current employer who has used QuickBooks for the last 5+ years very successfully; therefore, those are two good packages to recommend.  Having seen the size of our tax returns for small business, though, I have to whole heartedly agree that having a trustworthy accountant is invaluable.

Thanks, Dan, and good luck to all you small or not so small companies that venture to the virtual office concept.

Regards,
Kevin
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LVL 70

Expert Comment

by:Jason C. Levine
Hi Dan,

Excellent article and a lot of good tidbits in there.  How much of incorporating applies to a solo consultant?  I've thought about doing it for years but never could find a compelling enough reason to go through the paperwork.  A Schedule C is not the hardest thing in the world to do for taxes...
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Author Comment

by:DanRollins
As Kevin pointed out, a "freelance IT guy" often ends up as a subcontractor, getting a smallish wedge of the pie that is dished out to main contractor.  One has to ask oneself: How hard is it to be the "main contractor" and get the whole pie?

But for a solo consultant, there is also much to say for the simplicity of just being a "sole-proprietor" and keeping it simple with a Schedule-C.   The advantages of the "virtual office" come into play when you start to "think bigger" and you band together with several other consultants.

In fact, most of what I said in this article is not aimed directly at the "ITPro/Consultant" (it's actually something of an accident that the article is in this Zone).  

My goal was to show readers that the whole frightening concept of starting a corporation can be broken down into smallish pieces, each of which is "doable."   And that the real key is cutting overhead to the bone.  

By going virtual, you can minimize or avoid bringing in a "money partner" who drains the profits and ends up with half the business when things take off.  Not just that -- the virtual office is scalable...  you can grow slowly, build up your own capital, until the time comes to open an office.

-- Dan
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by:Jason C. Levine
Dan,

Thank you.  That clarifies things a great deal.
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Expert Comment

by:bmarvin2
This is how we've run our business for the last 10 years.  I completely agree with your thoughts on going "virtual". It's totally do-able up until the point where you need warehouse space for wide-scale implementations.  At some point you no longer want people storing company parts and warranty items for clients at home in their garage.  We've used cheap self-storage in key locations as we have clients spread out through the US where our people can have access to the things they need.
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by:DanRollins
Brilliant!
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Expert Comment

by:Bob Stone
The hitch I have run into on following this is the first step. I am sure in big cities mailbox services are as numerous as Starbucks and McDonalds, but I can't find one closer than 40 miles from me.
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Expert Comment

by:victorguillen
This article is very helpful, it has helped me to understand some things I was afraid of. I've been working full time for the a long time, but since I was laid off, I've found that many companies are moving to hire contractors; and I feel it's difficult to find a full time nowadays. With this information I will try to incorporate myself and try to obtain more for what I do.
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