(This post is mostly for college athletes. It may also serve some value for non-athletes, ie, fans, relative to the waters that college athletes will now need to navigate since they can monetize their names, images and likenesses without penalty from the NCAA.)
I have been an entrepreneur since 1999. I have built social media brands and communities. I am by no means the world’s leading expert on such topics, but I have put in my ten thousand hours in addition to currently owning and operating my own business. That doesn’t make me unique, it just gives me a perspective that I hope can be beneficial for you.
Here are some things I have learned/encountered from my time as an entrepreneur, brand building and small business owner that might be of interest to you as you begin to build and/or capitalize on your brand (which is you!) and monetize that brand. What follows is NOT FINANCIAL ADVICE. Please seek the assistance of tax and accounting professionals to insure that you are operating within the boundaries of federal and applicable state tax laws.
To start, you will need to set up a business entity as to maximize tax benefits and write offs. Any company or product that you choose to endorse, any appearances you make and receive compensation for, etc, should result in a counter-party issuing you a 1099 tax form at some point in time during the calendar year for which you rendered services or sold goods. This 1099 tax form will also be submitted to the IRS, because that counter-party will be able to deduct their expense from their business and not have to pay taxes on that. Their expense is your revenue, and you will pay taxes on your revenues. So before you accept any payment, you should look into setting up an LLC, which is a Limited Liability Company.
An LLC provides you the opportunity to maximize tax savings and also creates a legal barrier between your personal assets and your business dealings. I have used NOLO.com in the past to set up an LLC on my own, in addition to having used attorneys to set up more complex LLC’s and partnerships. At this early stage, you can likely go it your own route and use a service like NOLO.com. Here is a link to their LLC page.
Once you have established your LLC, you will want to get an Employer Identification Number, aka EIN. This is a unique identifier for your business, just as your social security number is a unique identifier for you personally. When you file taxes for your LLC, you would do so using your own EIN. Here is a link to how to apply for an EIN.
These two steps are prerequisites to set up a bank account for your business. Once you have set up your LLC and have established your EIN, you can print off copies of your LLC and EIN and take them to a bank of your choosing and open an account under the name of your LLC/business. Open a business checking account and order checks relative to that account. It would also be advisable to open a separate checking account where you deposit at least 25 percent of all monies received as a tax savings account, because you are required to pay taxes on earnings. This is a way that you don’t wind up spending money that will ultimately be required to pay for taxes. THIS IS INCREDIBLY IMPORTANT! Do NOT spend/invest ALL of the money you receive from sponsorships or other businesses, or you will incur a tax debt. Tax debts are not dismissible in bankruptcies; those debts will follow you forever until you take care of them. When you want to pay yourself out of your LLC, write a check from the LLC’s checking account to your personal name, then deposit that check into your personal checking or savings account. This keeps tidy records of your transactions for tax time and for your accountant to see.
When you receive payment from a counter-party, you will ask them to render payment to your LLC. You will then deposit checks or receive electronic payment into the LLC bank account. DO NOT CO-MINGLE accounts…as in, do not accept payments made in your name, request and insist that payments are made in the name of your LLC, and then deposit those funds into your LLC account.
It would also be advisable to open a Quickbooks account. You can go to Quickbooks.com to do this, or at the very least, keep a spreadsheet with monthly tabs that itemizes revenues received and from whom, alongside expenses you might incur from operating your business. Such expenses could be mileage, hotel lodging, etc. Many expenses are deductible, which will lower your tax obligations.
Depending on the amount of revenue you can generate, you may also consider classifying your LLC as an S-Corp, and set up a payroll aspect to your company, by which you pay a portion of your monthly earnings to yourself in wages classified as W2 wages, with the rest of your self payments being in the form of an ultimate 1099 that your LLC will issue to your personal name. There are tax advantages to doing it this way relative to lessening self employment tax implications, but this is an example of the importance of finding a tax and accounting professional to work with. I realize that this is an expense, but as a wise former business partner told me very early in my business career, the best money that you will ever spend is to a qualified and solid tax and accounting professional. Believe me, that statement is 100% accurate.
In the state of Iowa, I strongly recommend The Vroman Group, located in West Des Moines. Even if you do not live in West Des Moines, you can work with them. I know this because I have worked with them for over a decade myself relative to my various business ventures and I have lived in Oklahoma, Kansas and Iowa during that time. There are other qualified and quality companies in Iowa, or in the areas where you live. You need to find someone that is good, which is why I mentioned The Vroman Group, because I can personally attest for the quality of their operation. Also, this is not a paid endorsement for them; I have received no value for mentioning them and they are entirely unaware that I have mentioned them.
I want to be clear; you MUST get these parts right. Setting up your business in the right way, to begin with, is incredibly important. Do these things, seek out the advice of tax and accounting professionals. Lean on people in your life that you trust and know beyond a shadow of a doubt that they have your best interests at heart, and have them help you connect with the right people where you live to make sure you are set up correctly. The University you attend should also be able to provide resources for you along these lines, but even if they do recommend people, perform your own due diligence and research.
Here are a few other things to keep in mind:
-Be leery of accepting cash (or cash equivalent)
-Never sign a contract to enter into an ongoing business arrangement with another company or entity without having that contract reviewed by a legal professional of your choosing.
-Don’t be in a hurry; always investigate every business offer as best you can and there is wisdom in a multitude of counsel.
-If something sounds or seems too good to be true, it probably is or at the very least, it has hair on it that needs examining
-Your brand is your name. Your brand is your actions, your words, your interactions. Anything you do or take part in that could bring a negative mark to your character, reputation, eligibility, etc is something that can bring damage to your brand, ie your ability to generate maximum value off of your name, image and likeness.
-You are a business now. Protect your business as you would protect the most important things in your life.
-Not everyone has your best interests at heart, so be wary of who you associate with; if you lay around with pigs, you will ultimately smell like one.
-There are going to be people who look to create money off of YOUR name or YOUR association. Again, not every business idea or opportunity is a good one. And not every person who brings an idea has nefarious motives. There can be win-win opportunities for you; just be sure to investigate and take time before rushing into anything.
MOST IMPORTANTLY…do not be afraid to ask for help. Talk with your coaches, former teammates that are now in the professional realm, talk with your parents or guardians, talk with trusted mentors you have in your life. Seek their opinions and then form your own conclusions. Don’t make the mistake of just running ideas past ‘yes’ people in your life, or hangers on or jock sniffers. Seriously analyze everything, look for holes or negatives as aggressively if not more aggressively than focusing on the upside.
BE WARY OF JOCK SNIFFERS OR HANGERS ON: You have likely encountered folks like this. Now that there there money in the mix, you will undoubtedly encounter more. Not everyone has your best interests at heart. Frankly, most will not. They will have THEIR best interests at heart. There is nothing wrong with that when a business idea or opportunity is fair and equitable…but just be very, very wary here.
Also, try to realize what you are not, at this given time. So many entrepreneurs, me included, believe(d) they are CEO material, when in reality we all have shortcomings to our personalities or temperaments. Early on in my career, I believed I could handle the growth of the business, building the brand, monetizing the business as well as handle simple bookkeeping. What I learned quickly, and very, very painfully, is that I am NOT a CEO. I am horrible with accounting, not because I lack the intellect to do it, but I LACK THE DISCIPLINE to do the little, required things, consistently. Which is why I sought out partners in subsequent business relationships who were strong where I was weak and where my skill traits and temperament complimented their weaknesses.
Sone people do have the temperament to be a Jack or Jill of all trades, but most do not. This is why I strongly urge you to find a competent tax and accounting professional, first and foremost. Do this even before you set up your own LLC, because they will be able to provide you with a more detailed checklist than I have done here. You can’t get this part wrong, otherwise you are unwittingly creating significant obstacles for your future self and take it from someone who has literally paid that price, you don’t want to do that.
Lastly, this is hardly a comprehensive list and I will likely add to it as things come to mind. It’s a start, and I wish you all the best in your endeavors.