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Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz. For more biz answers go to Coffee Talk Answers.

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Featured Biz Question

How do you go about setting up a business group or association of independent businesses? I'm a landscape designer, and wish to create a form of business -- a GROUP or ASSOCIATION of independent businesses who are in the same industry: landscaping.

This group would have a name like "The XYZ Garden Group." We'd all keep our offices, finances & taxes separate, but we would refer clients to each other, work together to schedule jobs and generally be thought of as a design/build group of contractors. I want to put together a group instead hiring all the different people myself, or becoming a legal partnership. The group would include a stone masonry contractor, a deck and fence builder, a concrete specialist, and a planting crew from one of the local nurseries. I already have an informal heads up from two of the above mentioned contractors, but before I go any further. I'd like to know more about how to set up this group, what kind of legal issues I may have to deal with and what kind of similar experiences others have had.

Maureen S.
Native Design

Answer from our Guest Expert Peter Hupalo of Hupalo Ltd.

Hi Maureen,

Essentially, it looks like what you'll be doing is hiring many subcontractors to outsource work that's related to your company. While I've never put together an association or group of related businesses, I'm not sure if forming a formal association will really benefit you or is necessary.

First, let me ask some questions:

  • Will people expect to be able to hire the XYZ Garden Group to perform garden landscaping projects? If so, who will oversee a project referred to XYZ?
  • Are the people planning to join the group already independent contractors (ICs)?
  • What benefits do you anticipate by forming a formal association?

Let's assume a client comes to you and needs landscaping done. Part of that job includes putting up a fence and a deck. Even if you and the fencer are both members of a formal association, you'll need to develop a contract between your two companies to subcontract the work and negotiate pricing, etc. So, you won't save any formalities or paperwork by forming an association.

While there'd be no reason to form a formal partnership, you'd need to also address the issue of whether the people to whom work is being outsourced are ICs and not employees. If you had full control over their work and they only worked with your company, my guess is the IRS would classify them as employees (which opens up a whole can of worms paperwork-wise). Forming an association wouldn't prevent the IC versus employee problem. And, if they are subcontractors, why not simply subcontract out the work? Similarly, any conflicts that could arise between you and a subcontractor probably wouldn't be resolved by both being a member of an association -- unless it's a larger association with rules of arbitration and such.

Even without a formal association, many contractors work regularly with subcontractors and other groups and exchange referrals through an informal network of contacts. You could meet regularly with members of your selected group, and likewise, exchange information. Do lunches and dinners together; stay connected. Unless you wanted to broaden membership, I'm not sure a formal association would be advantageous overall.

Often, business associations are started when members of an industry share many common goals, ranging from political objectives, to seeking better prices on such items as insurance through group buying, to exchanging information at meetings and creating networking opportunities among the members. And industry associations can become very powerful players in an industry.

I hope this helps, Maureen. Good luck on your landscape networking idea!

Peter Hupalo

Author of Thinking Like an Entrepreneur

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About the Expert

Peter Hupalo
Owner of HCM Publishing, Inc.
Peter investigates the latest computer-programming technologies and researches companies for investment. He also writes a column about entrepreneurship and small business for iSyndicate.com and reviews biz books. Peter wrote Thinking Like An Entrepreneur, about how to make savvy business decisions and take real control of your financial destiny. more