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Business Services Industry

Double Up

Entrepreneur, April, 2001 by Jacquelyn Lynn

Use your existing infrastructure to support your second business.

Your first business is humming along, and you've got an idea for a new enterprise. You can start from scratch, or you can kick-start your new company by using as much of your existing infrastructure--computers, office furnishings, communications equipment, even staffing--as possible.

"If your current business owns equipment and resources you need for the new operation, it doesn't make sense to spend the money duplicating what you already have," says Vicki L. Helmick, a CPA in Orlando, Florida. "Instead, invest your capital in marketing, manufacturing or doing whatever the new business needs to succeed."

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But Helmick offers one important caution: "There are some things businesses can't share. Make sure each business has a separate set of books and its own bank accounts, and don't do any commingling."

With the separate identities established, how do you then share an infrastructure? Helmick says the easiest way is for the second business to pay a management fee to the first for use of facilities, equipment and staff.

"You can't deduct the same expense twice, and it isn't practical to split depreciation between two companies," she says. "Make a fair and reasonable estimate of how much of the resources the second company is using, and have it reimburse the first company."

Building new companies on an existing infrastructure has worked very well for Edward A. Roth, 44, founder and CEO of Beauty-merchant Corp. in Fort Lauderdale, Florida. He says this approach works best when the companies are related in some way. He started with a home-services company, he then developed an Internet retail operation selling cosmetics and other personal-care products, and he's now working on building a chain of personal-care salons for women. "Most of the companies we have or are interested in at this point have a common thread. Operating companies that are not directly related is not an easy task." His advice: Before you start the second company, figure out how much of your assets can go toward the new operation.

While sharing resources can help you get started, recognize that there may come a time when the companies should separate. Helmick says, "When it becomes evident that one company is interfering with the other, or that the shared resources are not sufficient to support both operations, you'll need to establish separate infrastructures."

For more on sharing resources, log on to http://mags.entrepreneur.com, click on "Past Issues" for Entrepreneur, then "March 2001" then "Cutting Edge."

Jacquelyn Lynn left the corporate world more than 14 years ago and has been writing about business and management from her home office in Winter Park, Florida, ever since.

Business Services Industry

Double Up

Entrepreneur, April, 2001 by Jacquelyn Lynn

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