November 2025

There is a vast number of resources available to review before you consider starting a new company. Most are all free such as the Small Business Administration (SBA), The Service Corps of Retired Executives (SCORE), or the Small Business Guidance Washington, Small Business Guide, just to name a few. Although, these resources will state that you need an Operating Agreement and all suggest that you consult with an attorney, and or accountant. Why is an Operating Agreement so Important? It is the legal document that creates the protections of owners and operators from being personally liable for the conduct and operations of their businesses. The primary purpose of any operating agreement is to define how the business operates and who is responsible. The basic only difference between an LLC Operating Agreement and the Articles of Incorporation or Articles of Organization is that Operating Agreements does not just cover opening the business, but how and the conditions to close the business. Similar to Articles of Incorporation or Organization is it is the document that separates the owners, members, managers, interest holders, agents, or officers from the liability of being sewed while in the process of operating a business. Your operating agreement should basically include what is know as company bylaws that details out how you run your company. A lot of new small company’s overlook the requirement to prepare an operating agreement. While others view the document as a legal requirement to meet and do not follow up in speaking to an accountant. It is always best to follow up with both, although there is no real requirement to hire either an attorney or an accountant to draft your document. In which case, the best resources are with the SBA or Score if you are considering drafting your own documents. Each state is different with different laws and requirements. It is imperative to at least have an understanding in your state’s laws and requirements. Why because some state will require you to submit your document to the appropriate state agency, usually the Secretary of State, others will not. Some require you have it by law, others do not, but will recommend that you have one. Such is the case in Washington State. Why does Washington State not mention certain relevant facts? In Washington State an operating agreement is only recommended and is not required by law. Why because the state has default clauses for how to handle cases where there is not an operating agreement. I personally, would never allow the State to determine if I am personally liable for the operations of my business! Because there is no requirement to submit an operating agreement to the Secretary of State of Washington is another contributing factor as to why it is overlooked. Similar, the State Resource are not necessarily correct either. Where the one member LLC is typically taxed as an individual, known as a sole proprietor, and more than one member is typically taxed as a partnership. It leaves out the fact of Washington State being a mutual property state and that husband and wife can be considered as one or a sole proprietor to be taxed as an individual under joint returns. Why else is the operating agreement so important. What if you and your spouse are operating your business and the spouse is on a job site helping you. You did not or forgot to put your spouse on the ownership or “Governor” application with the Secretary of State. The Department of Labor and Industries inspector sees you both working on the job site. They will question you as to the employment status and if you are both owners. The State Auditor will review your Secretary of State, Labor and Industries, and License filings. When they see your spouse is not on the filings, you are liable for them being what is considered a “Covered Worker” nicely redefined as employee. Unless they are designated on the Operating Agreement as a contributing owner with rights, voting and ownership, you will not be able to get out of the fines and penalties imposed for them helping on the job site. In other words, the document is the evidence that the missing name on the registration was an administrative mistake. Author: Fred Pugaczewski, BC&FS

Starting a Washington State Small Business Why Limited Liability Companies   The important fact is to decide on a business structure that is going to meet your near current needs as well as your future needs at the lowest possible costs to you and the least amount of personal liability to you. Since I reside in Washington State and understand the ins and outs, I would always recommend starting a Limited Liability Company if you are out to make money and are starting out on a tight budget to gets the doors open for business. Here is why, the initial expenses are more costly, but the benefits of protecting your personal assets from legal claims far outweighs the initial costs. The Internal Revenue Service (IRS) allows you to make an election of how you desire your new business to be taxed. The election is first made when you apply for your Employers Identification Number (EIN). You can select to be taxed as a “Sole Proprietor” also referenced as a Disregarded Entity. You can choose to be taxed as either a “Partnership”, S-Corp, or C-Corp. Why is the selection critical? It depends on your circumstance and the State you are located. Is it just you and you are the only owner? Are you married? Do you reside in a mutual property State? Are there any other people that own a percentage of the company that is not your wife or reside in a state that does not consider mutual property between husband and wife. If you reside in Washington State and are the only owner and expect to remain that way for some time, or you are married, I would strongly recommend selecting the Sole Proprietor option also known as Disregarded Entity. Why the strong recommendations you may ask? Because a Partnership, S-Corporation or C-Corporation is going to cost you way more in tax preparation services and or payroll services then you truly need. Single Owner or Married Owners who have selected to be taxed as a Sole Proprietor (Disregarded Entity) can pay themselves without payroll. They only need to have tax preparation services for they individual Federal 1040. In mutual property states such as Washington, the IRS has regulations to allocate year end self-employment taxes between spousal owners based on the operating agreements percentages of ownership or what could be considered participation levels of labor. Why the operating agreement is always at least recommended if not required by law. As you can see without an operating agreement that would break out the percentages of ownership between spouses, you would be liable if you were ever audited by the government. There simply is no legal document that justifies the allocations or how self-employment taxes are to be distributed. As the company grows, there will become a time to consider when to change the tax elections from Sole Proprietor or Disregarded Entity with the IRS to usually a S-Corporation. When and why change the tax election, When the cost of running payroll, cost of tax preparation services for a business or partnership returns and your individual Federal 1040 return become less than your combined total self-employment taxes you pay. The remainder of any excess profits can be distributed out not as pay, but similar to dividends with preferential tax treatment or much lower tax rate in regards to your personal reportable income. Author: Fred Pugaczewski, BC&FS

The two most common methods of accounting are the Cash method and the Accrual method. For most bookkeepers, accountants, and tax professionals, the easiest is always the Cash method. However, that is not always in the best interest of the business owner or fits both the short and long-term business goals and needs. The Cash method is related to there is no time in between the change of property or services. You give a customer a product or service and the customer pays you. Think of Retail or e-Commerce, You go to the store load your cart up with groceries and check out. The cashier rings your groceries up and you pay the bill for the groceries and leave. Same with e-Commerce, you order something online the online shop takes your payment and ships your order to you. On of the biggest down falls in this method is it does not match the expenses you pay out to the sales you bring in. Let say you pay for a year of insurance. Money leaves the bank to pay the insurance company right away. You are now covered for insurance for the year. In actuality you have not used a years’ worth of insurance up yet. It skews your income because it is not matched to what you paid out in insurance compared to what you actually used. The Accrual method is related usually to when a company extends credit to its customers. The biggest difference is transactions are matched to the time frame they occurred. Take the same example as above for the insurance. You paid out for a year of Insurance. Instead of it being recorded all at once as an expense. It is put aside as a prepaid expense. Even though the insurance was all paid for up front. The expense is moved a little at a time from the prepaid expense to the actual expense as insurance is used, usually every month. It matches the expensed insurance to the insurance that is actually used in the same period. The normal skewed income is now allocated proportional to the amount used. Let’s say that you allow your customers 30 days to pay for services they receive. You are extending credit. They received your services and you have not been paid yet. You may have paid for supplies and materials already on your customers behalf. It seems much more logical to match the expenses you paid for on your customers behalf to be able to match them to the income that is due in 30 days from the customer. This is where the accrual method works better. It can also be related to long term contracts such as with Boeing Aircrafts for example. Boeing may get a contract order for a aircraft. The aircraft is not built yet, but the contract has a dollar value. The value may be recorded as unearned sales or revenue. As the plane is built Boeing could move the unearned portion towards sales and possible invoice the customer for the work that has now been completed to earned revenue or sales. The process would continue until the plane is complete the contract complete and Boeing has received all the money related to the sale. The question remains on which accounting method servers your current business needs and your future business needs. The decision should be completed before your first set of business taxes or individual taxes depending on your business structure. You should relay your accounting method you selected to your tax professional who is going to do your taxes. Author: Fred Pugaczewski, BC&FS

Why is it so hard to evaluate what it is going to cost to hire someone to help with my accounting needs? There are tons of accounting and tax firms for you to choose from. But there are all similar issues that change the degree that it will cost you. Some accounting firms will charge you hourly fees, while other may charge you fixed fee pricing. Other tax preparation firms may charge a flat fee and or per form required. There are many variables in determining the costs that you may end up paying. The complexity of your business requirements. What is expected for the firm to provided as a service. What the firm is willing to provide as services to you. But there are also underlying issues that are up to you. If you are not providing necessary information to the firm you hired, you can expect to pay more. Why? Because if a bookkeeper, accountant, or tax professional is taking the time to contact you constantly for things they need, then that time is taken away from either doing the work that is required for you. Or taking the time away from delivering services to other clients. Why not just add an accountant or bookkeeper as an employee? Usually new businesses can not afford to hire an employee with these skill sets on even a part time basis. Even at the low end of just a part time bookkeeper, then comes the same issues for taxes that bookkeepers typically will not touch. Simply put it cost more in Wages, Employment Taxes, and the added costs of Payroll and or accompanying software. Where again, looking at the averages, the outsourcing costs are far better than the hiring options for an employee that is not bringing in any sales. Especially in today’s world with unemployment at all time lows and inflation hitting all-time highs. The fact is most bookkeeper, accountants, and tax professionals already know a lot about businesses and markets. They understand that the resources they can provide are instrumental to businesses and frankly sometimes required. They are aware that the average small business will pay between $5,000.00 -$10,000.00 annually for the services they provide. Think of publicly traded companies such as Amazon, Walmart, or Lowe’s. They all combined, contribute millions of dollars for preparations of there financial reports and audits that must be filed and are required for their investors. Although, like all businesses there are some that are better than other. Like all industries there are the bad apples that really only care about getting your money. Then there are the good apples that really want to deliver great services that makes you happy. Then there are the pristine apples. The ones that want to truly help you succeed, take you in as part of a family. Willing to teach and educate you just as we learn from you through our experiences with you. Strive to constantly deliver client support that has never previously been experience without a price tag that is unsustainable to your business. The choice of Apples is entirely on you. Regardless of where you go or who you hire, you understand where the average range is. Don’t think for a second you have no control on how much bookkeeping, accounting and tax preparation services cost you. If you are unwilling to do your share and part, then you are part of the problem instead of part of the solution, and you will pay more no matter where you go. Where you fall within the average range is entirely up to you. These are the primary reasons why it is so difficult to narrow down the costs that each individual small business may have to pay for outsourcing these types of services. The fact that there are many more than a single pricing structure used, all with different built-in variables, that these types of companies have implemented in the determinations of what they charge you for the services they provide. The fact that individual behaviors, and participation are a driving factor. Author: Fred Pugaczewski