Contract Pilot checklist:
- Decide to go freelance...............................Confirmed
- Draft a Business Plan..................................Initiated
- Construct your business model.................Uhhhhm, Where do I start?!?!?!
Habit 2: Begin With the End in Mind® -Steven Covey1
(One of the Seven Habits of Highly Effective People)Save Post
In the second installment of the series, we addressed building a roadmap for your freelance pilot venture: The Business Plan. Now, we'll discuss setting up how your firm is structured. But wait, shouldn't we have taken care of this already? Maybe. As we spoke about in that module, however, a business plan is a living document/concept. It is iterative and the moving parts continue to move as the business evolves. So the blueprint is the draft started last time. Now it's time to pour the concrete and create a solid foundation.
An integral part of any going concern is its entity characterization, such as Sole Proprietorship, Partnerships, Limited Liability Companies, and S & C Corporations. (IRS 2 and SBA 3 spell out the details of each.) How it is structured is largely driven by several factors addressed below: Management of the Firm, Liability, Taxes, Scaling, and Succession/Business Continuity. There are benefits and pitfalls to each. Here's a table which highlights some of the differences: Business structure table.pdf 4
As you can see, the three major factors addressed are management of the firm, liability *, and taxes **.
Especially when starting out, it is likely that the new freelance pilot will fulfill the roles of Chief Executive Officer, Chief Marketing Officer, Chief Financial Officer, Chief....well, you get the idea. However, having a vision of what the business looks like a year, 5 years, and even 10 years down the line may offer the opportunity to outsource and automate many of these functions. There may also be an opportunity to build capacity from the start, should you wish to expand (addressed in Scaling section, below).
Liability (Please talk to a professional attorney about the implications in different business structures.)
When designing your business, it's important to address risk associated with the decision to venture out on your own. (Risk will be the topic of the next in the Series.) Some business structures are inherently designed with risk in mind. (i.e. the LLC, a Limited LIABILITY Company). However, not all states allow for LLCs, so talk to a lawyer.
Taxes (Please talk to a CPA or a tax professional about the implications in different business structures.)
Pass-through, double taxation, state taxes, federal code, Schedule C, 1040..........all jibberish. Talk to your tax pro about which one is appropriate.
It's important to note that there are many attorneys and CPAs that are "dual-hatted" and specialize in helping folks choose and set-up the right business structure for your particular situation. PLEASE, PLEASE, PLEASE, don't do a cookie-cutter, online plan!
Day 1: So, now you've done it. You're out on your own. No clients, no work, scared, anxious, excited, and motivated.
Year 1: You've built up a steady stream of clients. Your reputation as a competent, safe pilot and astute businessperson is blossoming.
Year 3: You have to turn down work. Your business processes are largely automated. You're running into tax challenges now, because you're in a higher marginal tax bracket than you've ever been in before. "Hey, this is kinda fun!"
Year 5: You still love to fly, and you're still having fun. But you have other pursuits that need attention (i.e. being on the board for the non-profit that helps students, professionals, and career-changers break into the aerospace industry [https://pathwaystoaviation.org ], taking a cruise to BVI with the significant other, etc.) Your time is now more important than the money.
Depending on your vision when trekking out to contract work, you may have known from the beginning that you make take on other pilots to fill contracts. You may have folks that handle the administrative end of the business such as scheduling and contract negotiation (hopefully and attorney.) While it is outside the scope of this post to detail how getting bigger works, some entity structures lend themselves better to growth by design.
Year 10 (or 15, or 20, or...): You've made a good run of it. Now it's time, however, to close this chapter and move on to the next.
It's inevitable, eventually a going concern goes no more. Either by choice or circumstance, monumental change comes to EVERY business. The path may be divestiture, sale, planned gifting, or you guessed it....death. It's better to have a plan for this than not. And that starts now, before you ever push the throttle up for take-off on your first contract assignment.
Your career as a contract pilot can be whatever you make it. The key is to build it.....with the end in mind.
* Please consult a professional attorney in appropriate state to draft any documents to establish your company.
** Please consult a qualified tax professional for advice on implications of different forms of business structure.
Image credit: https://www.freeimages.com/photographer/jabsandrew-37495