Easier way to start a business

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Barbara Ruben

Gene Zaino founded MBO Partners to take care of “back office” financial and administrative tasks for people starting up their own businesses or becoming independent contractors. In this region, it has found a special niche helping government and corporate retirees transition to self-employment with low start-up costs.
Photo by Frank Klein

After working a 9 to 5 job for decades, whether for a big company, the federal government or both, taking the leap to become an independent contractor can feel liberating. No more mind-numbing commute or bosses parsing the minutia of every project. Perhaps there might even be room for a Friday morning round of golf.

At least, that’s what Ward Mannering was hoping when he decided to take his years of experience in human resources for the CIA and large contracting firms and parlay them into his own consulting business.

“You’re a hierarchy of one,” he said of one of the main advantages of becoming an independent consultant. “So you can sort of ask the question and answer it in 30 seconds, whereas in a large company, there’s a lot of socialization of ideas. They’re a lot less spontaneous than you can be.”

Administrative headaches

But Mannering, who is 61 and lives in Vienna, Va., soon discovered that being on your own has pitfalls as well.

From 1099s to W2s to 401(k)s, the tsunami of paperwork to become an independent contractor can be crushing. So can such crucial tasks as billing clients to ensure a steady paycheck and finding health insurance on your own.

The administrative and financial headaches independent contractors face is what led Gene Zaino, of Reston, Virginia, to create MBO Partners (initially called My Biz Office) almost 20 years ago.

MBO serves as a “back office” for independent contractors — doing the billing, dealing with tax matters, writing contracts and setting up retirement plans.

Independent contractors who work with MBO — about 20,000 of them across the country — are officially employees of MBO, which in turn handles all their invoicing and charges them 5 percent of their billings. MBO itself has about 90 employees, not counting the contractors.

When Mannering branched out on his own two years ago, he signed up with MBO. “It gives me a lot of peace of mind that the administrative side of things is handled competently and in a timely manner,” he said.

Mannering, who works 24 to 28 hours a week, takes Mondays and Fridays off as he transitions into full-time retirement. He is currently developing internal policies on personnel management for the Defense Intelligence Agency.

Ideal for boomers and seniors

Boomers like Mannering make up a “large segment” of MBO’s customer base, said Zaino, who at 55 is a boomer himself.

“Boomers are actually ideal for consulting, and the reason is they’re at a point in their career where they’ve accumulated a lot of knowledge, they’ve accumulated a network of relationships.

“They’re generally at a point in their life where they want to do something different, something they have more control over,” said Zaino.

And for many, retirement simply isn’t an option. “Retirement in my view just doesn’t exist anymore,” he said. “I think people will have to continue working, not only from a financial point of view (because financial needs are greater than what traditional retirement plans are able to provide), but just purely from a work style or lifestyle perspective.

“They’re not ready to just stop and not do anything. They want to continue to keep their mind active and contribute to society, but at the same time take time off, take their project to another part of the country or world if they want.”

Technology — from email to Skype — has helped facilitate that kind of mobility.

Zaino is a certified public accountant who began his career working for consulting businesses before starting his own consulting firm. Once he sold that company, he launched MBO Partners.

“Having been in the consulting world, I knew there are a lot of areas that are just minefields for independent contractors,” he said. “I decided there has got to be a way to create a pool of services to fulfill their needs. They need support for their businesses, including invoicing, benefits, retirement plans.”

The number one stumbling block for neophyte independent contractors, according to Zaino? Taxes.

“They’re not prepared to deal with all the tax implications. Oftentimes they do estimated taxes incorrectly. At the end of the year, they get hit with a large tax bill that they’re not prepared to pay,” he said.

As employees of MBO, consultants get W2 forms that summarize their earnings and deductions rather than 1099 forms that are more commonly sent to freelancers and independent workers.

This helps contractors in several ways, Zaino said. The IRS is cracking down on companies that seem to be outsourcing work to avoid paying benefits, detecting this through the 1099s that companies send to their contractors.

But since those contractors working through MBO are technically employees (and therefore have the required tax deductions withheld by MBO), companies feel more comfortable about using their services.

And getting W2s at year end, rather than 1099s, helps MBO’s contractors obtain mortgages and other loans and can simplify doing tax returns as well.

MBO also uses its large size to negotiate deals for health insurance, as well as corporate discounts for hotels and rental cars.

Zaino said that with the prolonged recession, companies that have grown leaner want to hire people to work on a per-project basis rather than full-time employees. That’s helped fuel a 35 percent increase in MBO’s business each year for the last few years.

“I think this is a permanent, structural change,” he said. “I feel we’ve been on the edge of a shore waiting for the wave, and the wave has hit,” he said.

A declaration of independence

For Carolyn Frey, who does information technology work for government contractors, having MBO take care of administrative work frees her up for more substantive tasks.

“I think the most important thing they provide for me is that they are the face for my customers’ back offices, so when a customer sees me, their first thought isn’t about the invoices or the payments. There’s somebody else who handles that for me,” said Frey, who is 46 and lives in Herndon, Va.

Frey’s career took her from working for the Postal Service to a financial company to government contracting with a firm. Discovering MBO two years ago helped her decide to branch out on her own, she said.

“It’s a nice stepping stone or a nice medium between being totally independent and working for a company,” Frey said.

Minimal start-up costs

And start-up costs for consulting are relatively low, unlike opening a store, both Frey and Zaino said.

“To do consulting, your capital is your own intellectual capital that you’ve been able to build over the years. Oftentimes, that gets overlooked,” Zaino said.

“So people that are at a point in their life where they’ve accumulated a tremendous amount of experience and a tremendous amount of relationships in terms of their network, they need to look at that and say, ‘How can I capitalize on that without digging into any of my funds or wealth I’ve accumulated over my career and take advantage of that while being in business?’”

Zaino said many independent consultants can launch their businesses for under $5,000. A home office, a computer and marketing materials are the main requirements, he said.

“It’s a different concept,” he said. “People think they need cash to go into business, but for those who have been working in their fields for a number of years, they really have what they need, something money really can’t buy — a wealth of experience.”

Mannering has no regrets about leveraging his years of experience to become his own boss. He golfs on Mondays and Wednesdays and takes care of errands during the week when the roads and stores are less crowded.

But he says he does sometimes wish he had the camaraderie of having coworkers.

“I kind of miss the colleagues in a consulting firm,” Mannering said. “Working in that setting, you’re really working with a lot of very bright, energetic people. I kind of miss that and that you’re not always able to reach for the highest, most intellectually challenging work.”

To compensate, Mannering says he takes advantage of MBO Partners’ networking events to meet other consultants, as well as its new online social media and networking site. He has also attended MBO seminars, such as one on how to improve your LinkedIn profile.

“A lot of guys who retired [from the CIA like I did] and then go to work for a company are driven by their inbox,” he said. “I didn’t want to make the effort to have a second career.

“I’m glad to be sort of lighter on my feet about things and not bound up in the internal stuff. This was definitely the right decision for me.”

For more information, visit www.MBOPartners.com or call (703) 793-6011.