How Marketing Agencies Structure Finances: C Corp vs. Pass-Through LLC

0:28All right, so we have a little treat for you. no man's post on school and I kind of have same question it's I was wondering how people run marketing agency what's the structure of the market marketing is because I know that in the companies in the the entities in the US would be different with the entities that I have in my country there are different laws and different tax tax legal works are totally different but I was wondering what how do you guys keep your finances how do you guys pay yourself is it by uh distribution or is it by the monthly salary or yeah that's that was that was a kind of uh question that i had i think no man has more to say on that he has i think more in-depth question but yeah no man if you want us to say if you want to add on something yeah no man i i had the same thing i think i've been operating an agency and I've been kind of like using the, like a, like a salary based model, but I was just kind of curious of like how other people do it.

1:33So I can put my two cents worth there. So we're, we're, we're C Corp in the States and the C Corp is basically we pay ourselves a salary and then, you know, you can choose to pay. So it's a salary, then if you disburse or profit to the owners at the end of the year, there is taxes on that. So it's like double tax, right? So what we do is we actually basically have a minimum salary for us that basically goes into our 401k and maximizes that and maximizes profit share. And at the end of the year, we just bonus ourselves a huge amount, whatever we need. Then whatever we left is we put into and keep it to the business, knowing that if we pull that out, that will be taxed again.

2:30The reason why we did this was, you know, we structured as a C-corp at the start so that maybe if we sell, it'll be much easier. But I do know like other companies, marketing agencies are structured as a pass-through LLC, which basically means whatever profit the company is making is basically taxed as it was part of your income tax and basically maximize that way. So it's up to you and how you want to structure that. That challenge there is that if you decide to sell that pass-through LLC, then you'll have to convert it to a C-corp and you'll have to go through the hoops there. What country are you in, Aliyah?

3:07I'm in Japan So in Japan, usually the companies are structured on Majority of them are on C-Corp in the US terms Not really a lot of LLCs I noticed that a lot of the American companies are structured on LLCs So yeah, that was kind of a different outlook But yeah, Kevin has something I think I would love to hear his thoughts. Sure. Yeah, I mean, definitely crawl, walk, run. I think David's got a great point. If you're looking at the outset to build something, it's like a house. If you're looking to build a house that's going to be three stories, you want to make sure the foundation can hold three stories.

3:54You don't want to go back and kind of build the foundation. So if you know you're going to sell eventually and everything you do is structured in that way as you grow and as you bring people on, then you want to set up a C-corp right away. I usually don't like – I get this asked from a lot of my customers who are setting up corporate entities. I'm not a lawyer. I've got five startups under my belt. I've done this all the different ways. And what I try to tell people is don't focus on the minutia. Just get the business going. and get some revenues in the door so that you have money to pay lawyers.

4:30Because sometimes you can spend all your money setting everything up, and then you're starving trying to get going. So if you're – and most everybody here is six-figure, seven-figure, so they're beyond that. But it sounds like you're in startup, you know, trying to think this through. If I was to do this over again, and it's kind of the way I structured every social, is I do a past three LLC. You have a year, I think, to convert it to an S-Corp. So you can determine if you know that when you're starting out and you think you're going to be needing that corporate protection, then then convert it to an S-Corp and you're going to be double taxed.

5:10C-Corp is great for structure of shares and share based distribution. And, you know, it's very, you know, a lot of companies, acquiring companies like that clarity. For me, I have a pass through LLC on this one because I like to put all my expenses through the company. So I if I'm traveling, I'm going to Europe next three weeks. You know, that's a conference I'm going to for, I think, half a day. And then I'm going to I'm going out elsewhere with my mom, taking my mom. and it's all company, you know, it's going through the company, you know, just it probably technically you're not supposed to do that, but as much as possible, I put it through the company.

5:54I'm just giving you the Kevinology here. So don't take it as legal advice, but, um, but I found that doing it that way. Now, if I'm buying my groceries and stuff on my company credit card, that's not good, you know, kind of thing. But as much as that there's duplication of could be business could be things. This is just transparency. I push it towards the business. I have a credit card for my personal stuff, but I do put stuff on the company credit card. And sometimes that does get attributed to me. But at the end of the year, my accountant will look at it and go, we need to give you some more income because it'll look too lopsided.

6:32So we're going to move that over to shareholder loan or whatever. So I could go into this offline, Alian, and give you a lot of practical stuff, but I'm just saying structurally, I would say crawl, walk, run, get some revenues going. Don't like, I didn't have a business license in my local area for a year, you know, kind of thing. Cause it was just another expense that I would have to spend. And when I needed it, I went and got it cause I want to deal where they needed it. So I went and spent it cause I had money to pay for it. That's my philosophy in the scrappy startup part of it. Once you're operating, you have employees and stuff, you might want to take a smaller salary and then take those distributions as a way to know, because you got to pay, you know, a lot of times it's always, you're always behind the eight ball and you're going to be paying yourself last.

7:26I got to take a minute to tell you about the Agency Owners Association. This is a peer group for agency owners, think YPO or EO, but for agency owners. And I just wanted to read you a couple of testimonials. So this first one comes from Carrie and we asked her, what do you like most about the group? She said, having a group of people to discuss and bounce ideas. The leads are great too. Yes, we share leads in this group as well. This one from Alian, he says, the ability to really post whatever I want and need and the group responds. Great experience members, getting a lot of insights from conversations with other members, getting a lot of value from sessions from Eric, getting advice from others as well.

7:59And so if you want to grow your agency faster and you want a peer group to do so just go to marketing school.io slash agency this is a group that both neil and i created and our hope here is to create a vibrant community of agency owners and do a lot more with it in the future so again marketing school.io slash agency and we'll see you inside uh let me ask alian where where are you at in terms of revenue right now or in terms of number of employees or like just where are you at uh still in the six figures phase I do have three full time employees and six contractors so yeah but I don't have that much expenses frankly because I think relative to the people because I have a lot of contractors my profit is quite good and I pay myself quite well i think uh but yeah i i think kevin what kevin was saying was quite practical what do you buy what uh no man what do you think i think you you had that question no that's so okay uh yeah my question so i'm with kevin a bit on this um like i've had a pretty good tax advisor who's like very aggressive in working in my favor, in my family's favor.

9:27So the way he puts it is like, hey, just operate your business as close to break even as you can, especially the early days. We're six figures right now. And then he's saying that, look, you can use those if you're operating as a loss, then you're not, you're passed through taxations, but lower and you get a bunch of other benefits. And so that's why just doing more things at close to break even is a good thing in the early days. But like I'm with Kevin, I pay out my employees first. I pay myself last. So if hopefully we do well and we continue to grow, then, you know, we get I can that operating at break even becomes a bit more beneficial in my favor.

10:14but I mean expenses like he said you know like if you got a car and you're gonna or you know you're buying something put it on under the uh the the company you know don't put it under yourself like this uh if you got um cell phone bills put that under the under the company um if you use like a home office like I do you know put part of your uh all the you know like utilities and build and mortgage, put that partially underneath the company. So yeah, I'm learning too, but that's my accountant's, that's the way he's been directing me and advising me. Japanese version of IRA is very strict. They don't let me do that.

11:06oh he also said uh if like you make 401 if you so to do a self-directed 401k so you put whatever is excess into that self-directed 401k and then if you want to make investments out of that you can you can direct those investments you can back to your own company or to other places it's it's i don't know i'm just learning like this is all just like really new to me and i'm just trying to like figure out you know what the other people do so i'm not an american but i'm curious about how you in america borrowing power increases or decreases depending on how you pay yourself like in canada if we pay dividends your borrowing power for a mortgage is lower than if you pay yourself a salary but then the salary contributes to your pension fund which i don't want to contribute to because i don't believe in government so to sustain that fund so like is there the same thing in a mortgage uh is the same in the united States?

12:03You guys exactly the same situation? Same situation. Yeah. If you wanted to, sorry, no, man. Yeah. But if you wanted to use your income, like you have to be able to compete like for a mortgage, you're going to have to play with everybody else and show a W-2 or self-employment you can do, but it's a lot harder. And usually you're not getting traditional funding. You're getting more riskier type fund or you know people who fund those riskier uh type of mortgages so you got a longer time frames they want like two three years of income shown as self self-employed someone who's self-employed and has to be substantially higher than what he would make as a salary from a full-time job so yeah yeah they're looking for that stability you know just think of it that way they're the more stable you are in the eyes of the lender the more easier it's going to be so um you got to you got to pick that I hate paying taxes.

13:00I mean, I'll pay my taxes, but, uh, like I operate at a loss or slight loss or break even as much as possible. Um, I get like, if I do work for somebody, I get a big tax receipt. Like usually like whatever the work I did, I ask them for double, you know, for nonprofits and stuff like that. That helps a lot. You know, I just got a$50 ,000. It was$25 ,000 worth of work. Um, I, they paid me 10 and then I got them to double the amount they owed me in a tax receipt, I got like$40 ,000 tax receipt, you know, from that nonprofit. So they have a little bit more flexibility nonprofits due to what the value you offered, you know, kind of thing.

13:41If they were to go to the top level agencies, they would have, that's what they would have paid, you know, kind of thing. So I don't know. I lived in Canada. It is a little bit stricter there. And it's like, not as bad as Japan, but, you know, America has got so many tax loopholes, you know, that's where you need an accountant. So that's my opinion. I don't want to take up the whole time, but anybody else had some stuff? Nathan, I don't know if you heard Adam. The number one challenge for businesses is hiring. And more specifically, the number one thing I get asked for all the time is, Eric, where can I go find an amazing marketer?

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14:47You can fill out the form there and we're going to place you with the best marketing hires that we can help you find. we went through the same thing trying to buy a home recently and yeah it was painful i kept telling my wife was like no i'm making money i'm not we're not poor but uh yeah it's it was painful because you guys had three years of tax returns and um like your your business is actually you know like earning money but uh yeah it's a bit more of a root canal that way but um it's doable you know you just gotta i think in the u.s we just got we have to just you know it's it's more business friendly yeah i'll give you a quick scenario i i got a loan like uh they were lending money to small businesses i was able to get at a very low interest rate fifty thousand dollars i took that and i gave myself 40 grand to use for a down payment as a shareholder loan and now I owe the company the 40 grand, but I might write that off.

15:50I might forgive that loan down the road. So those are legal paths, but I can also pay that back and be neutral. But if I'm going to sell, I want that clean. So those are things you got to also consider. So anyways, these are just Wawa West stuff, but you got to be aggressive to survive when you're growing a business. The Black Friday Cyber Monday weekend is where systems get stress tested. Traffic surges, inventory moves fast, and every second counts. You need a platform built for the moment. That's Shopify, the commerce platform behind millions of businesses and 10 % of all US e-commerce. With Shopify, you can launch fast with thousands of templates and tools that make your site not just beautiful, but conversion ready.

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17:07Go to shopify.com slash marketing school and make this Black Friday one to remember. As we like to say in the family, we're asset rich. That's how most of the businesses are, asset rich. Rich on paper. Yeah. So thanks for your input there, guys. David had a question. How do you find new clients online, cold, outbounds, et cetera? Let's see. I can give content. Yeah, yeah. So yeah, so we're a lead generator, right? So we sell more or less product as an agency. And most of our clients come from conferences, right? So like people we meet when we're at the shows. And, you know, in those shows, people are very conducive to meeting and basically cutting deals.

17:57And it's easy to cut the deals because basically you are paying for product, right? You're paying for lead. You're not paying for services that are a bit omnious and, you know, has a big down payment to see like, well, what's the output, right? that said like you know we try to expand and do and find new customers beyond these shows um and you know we use tools such as linkedin or even cold calling uh people in big companies but i'm not sure it's as easy or successful and would love to understand like how other people are doing it beyond you know like a face-to-face conference or show who's your icp what's an icp ideal customer profile so um partner marketer on a uh large enterprise company yeah so basically we do lead generation lead generation usually works best for like products which are a bit complicated cannot transact online insurance home services legal right so you can find these people you can actually transact and buy auto insurance online or even health insurance but they're so complicated that they prefer to speak to an agent.

19:04So we are targeting marketing directors who are in these large companies which have call centers that they actually allocate a percentage of their marketing dollars on third-party lead generators.