Contracting issues create a unique opportunity for Engineers (and similar professions) to use a Rollover Business Startup (ROBS) to land important contracts. Some of my clients leave firms to launch out on their own. Their goal is to work as a consultant. However, many of the more interesting, profitable, high level contracts require the consultant to be employed, not acting as an individual, necessary because of the numerous lawsuits over whether someone is an employee rather than a consultant and thus entitled to benefits. The ROBS strategy naturally solves this issue for you.
Solving the Engineers Employment Issue
A ROBS arrangement requires you to become an employee of the corporation that sponsors the 401K plan into which you are transferring your qualified funds. For a simple diagram of a proper Rollover Business Startup structure click <here>. Voila. Your corporation is your employer. Problem solved. You bid for the contracts you want as the corporation.
The contracting agency will pay your corporation, your corporation pays you. Your corporation provides your benefits, if you want it to. Many clients prefer to just take as much salary as possible. Your corporation is allowed deductions against its income that you are not allowed under our tax code, so please check with your account / CPA on the most tax advantaged strategy for the total income and benefit package you want to create for yourself.
Solving the Expensive Software Issue
Engineers often have a love / hate relationship with software. Sometimes it lets them do what they want, other times the software seems designed by non-engineers (well, software engineers but they are a different breed) who don’t understand the engineer’s field. Either way, launching on your own without your field’s type of software places you out of competition for many contracts. Most of my clients do not have the funds for the necessary software, sometimes upwards of $100,000, other than in their retirement plan.
In the ROBS setup, you invest your qualified funds into the corporation, a non-taxable event. The corporation then owns the funds necessary to buy and maintain the software and the proper computers to run it. Off you go to your first contract!
Solving the Engineers Personality Quirks
Sorry, a ROBS setup won’t solve this for you. I believe this is actually not an issue. You are an engineer because of your unique characteristics. Sure, when you say “Customer satisfaction is assured!” you really mean “We’re so far behind schedule that the customer will settle for anything”. Yes, you ask more questions than the national press corp attending a detail-lacking big political announcement. It is what makes you good at what you do.
I have a standing joke with my exec assistant – if the client is an engineer or from Manhattan, add 50% more time to any phone consult. I understand (or at least get along with) engineers. How did that happen? I have no idea. Maybe it is because engineering and tax law have something in common (in addition to the weird sense of humor) – anything practical we learn is obsolete before we use it, except complex math, which we will never use.
Here at Frank Selden Law we do not penalize engineers by charging more to create a ROBS plan. Well, neither does anyone else, but at least here you know we understand your way of thinking and the type of business you want to create. Are you ready to get started on your highly paid, adventure seeking, world traveling, consulting career? Dubai, for example. Give us a call or schedule a phone consult.