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Apex Training

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Submitted By robinb
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Business Basics
Apex Training Company

As the sole proprietor of Apex, Martha has had the full responsibility of running all aspects of her company for the past six years. At the time of initial start up, the company was small and was easily managed by one person. Martha worked numerous hours as she developed her training company to structure a strategic plan that addressed her short and long term business goals. Martha, as the sole proprietor, did not have to share Apex’s earnings with anyone else. She was able to turn her profits immediately back into the company. Martha also paid lower taxes due to the fact that Apex earnings are considered her personal income. She played all roles within the company. For example, she was able to fill in when Rose, her one employee, called in sick, and still monitor all business operations.
Based upon her four years experience as the vice president of marketing for a training company and the financial success she had in the position, Martha felt very comfortable stepping into the presidency of her own company. However, as her company’s revenues grow and her training requests expand, Martha is re-evaluating her business plan as well as her form of business ownership.
As Martha’s accountant, I am concerned that she has reached several limitations of sole proprietorship. Marth had to take a loss the first year Apex was in business. She had to ensure that she had enough money to pay Rose, as well as the operating costs of Apex, and yet add more resources and training that customers had requested. She had to borrow money from the bank to do so. Once she overextended, it was difficult for Martha to overcome the liability she had incurred as the sole proprietor.
Additionally, while Martha has excellent leadership skills and communicates well with Rose (employee), Martha does not possess the technical skills necessary to run a multi-million dollar company. Her limited skill set has become more evident as the company expands. The company requires web based Informational technology to meet the needs of the customers. Apex’s specific software is adequate for their current operations. However, it will need to be assessed and upgraded periodically as training company continues to grow. It has been acceptable to maintain what technology is in place rather than strive for implementing new, cutting edge technology.
My growing concerns regarding the feasibility of sole proprietorship led me to meet with Martha to review her initial business plan for Apex. Apex’s short term goal was to generate sufficient revenue to support herself, one employee and the fiscal aspect of the business. Martha also wanted to be able to avoid having her employee working in a company where decisions are made in response to immediate issues. With a strategic view of the organization’s direction, Martha was able to develop a long term goals and make the kinds of decisions that lead to success.
By restructuring Apex as a Limited Liability Company, she would have the benefit of not having to worry about assuming all business debts if Apex went bankrupt. At this point, the debts incurred by Apex are considered her debts. Creditors can go after her personal assets in order to be repaid the debts that are owed them. Having LLC behind the Apex Training Company communicates permanence and credibility; it also indicates that Apex is officially registered at the State level; rather than registered at the city or county level as a sole proprietorship. As a LLC, there are several avenues for Martha to raise capital that were not available to her as the sole proprietor of Apex. She can admit new members by selling membership interests, and she can create new classes of membership interests with different voting or profit characteristics. Martha is able to solicit an additional owner who shares her interest in taking Apex Training Company to a larger scale. However, there are additional costs to setting up and running an LLC than a sole proprietorship or partnership. There are the initial formation fees, filing fees and annual state fees. These costs are partially offset by lower insurance costs, but are still significantly more than what Martha has been paying. Also, there is more paperwork involved as an LLC than as a sole proprietorship. A sole proprietorship can open and operate without any formal organizing procedures. The limited liability company owners must carefully maintain separate records and keep personal affairs separate from the LLC's business. Even more importantly, Martha must keep the LLC's money completely separate from her personal money.
As the business expands and the requests for training increase, Apex will have to make significant changes to keep up with the demand. While it is certainly feasible for Martha to continue to maintain sole proprietorship of Apex, the reality is that an LLC is a more appropriate structure for the company. The LLC provides many of the benefits of a corporation (limited liability, separate entity, etc.), without the extra work of issuing and tracking stock, holding formal board and shareholder meetings and writing numerous resolutions and minutes. Once Apex is established as a LLC, Martha will be able delineate specific roles and expectations under Apex’s operating agreement. it will be extremely helpful for Martha to be able to collaborate with the other owner on business decisions. It will also be beneficial to Martha to ensure the other owner is skilled in areas that she is not; specifically in the area of technology so she is able to learn from their professional experiences.

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