What Business Relationships are Best for Your Business?
~by Christine Schoaff~
There are important steps you need to take to create a functional business. Usually, these activities are lumped together under the name of operations. This includes things such as setting up business relationships, paying employees, receiving phone calls from customers, billing customers for services or goods, and ordering and tracking inventory.
In this post, I’ll give you some background of purchasing services. When you arrange to have someone provide services to your company, you can set up the relationship in one of three ways:
Business & Business: When the other party is part of another company, the relationship is business to business. This means that your company is purchasing services from another company. The people who provide the services are employed by the other company, not yours. For example, if you purchase telephone answering services, the people who answer the phone on behalf of your company are hired, trained and employed by the other company. Payment is made to the company, not to the individuals providing services.
Business & Independent Contractor (1099): An independent contractor provides services as an individual. When your company hires people in a 1099 arrangement, the contractors are generally responsible for equipment, licenses, taxes and insurance appropriate to their services. In order to be appropriately classified as 1099, the position must be truly independent — the contractor decides the time, place and manner of the work. In other words, the contractor agrees to results and then decides how, when, where and with what equipment to provide the services. Contractors are often hired for a specific project or time limited work. They may provide services to more than one company at the same time. Because of the employment law and tax implications, it is important to use 1099 arrangements in the right circumstances.
Business & Employee (W2): An employee provides services to the company in a position where the company defines the parameters of how, when, where and with what tools the job will be accomplished. The company is generally responsible for the equipment, taxes, insurance and overall licensing. The company may also provide benefits such as training and paid time off. The position is generally on-going and exclusive. The employee will work for only one company at a time. Again, there are substantial tax and employment laws that apply to W2 positions.
Overall, you have options for getting the right services from good people. You should become familiar with the options and reach out to trusted sources to learn more.
Meet the Author: Christine Schoaff
Christine Schoaff has been an entrepreneur and intrapreneur in opportunities from start-up to mid-size to Fortune 500. She has worked extensively with family run businesses in a variety of industries.