Two experts in the field of financial planning and taxes, Kayce Halley and Donna Remer, who have worked with lots of businesses told about the common mistakes that new and small business owners make. Halley is a tax partner at Eide Bailly, while Donna is the owner of Remer accounting PC.
These are some of the common mistakes that these business owners make, according to the duo.
Entrepreneurs are often the passionate lot who work towards implementing an idea, but often they are not strong on numbers or the financial aspect of the business. Thus, they need to find someone with strong business sense so that while they are working on their passion they don’t falter on the financial front.
Often the new businesses get too optimistic or they try to grow too soon taking decisions on their own without proper legal consultation. Once you grow, you need dedicated people to take care of the business needs like an accountant or a payroll provider, an attorney and tax consultants.
If you start a business without proper planning, it is bound to fail. You should have adequate capital to take care of all your financial needs till the time breakeven point is achieved. There should be contingency funds available to you because in real time scenario things can go wrong anytime.
In business, all decisions should be taken keeping the business in focus. Spending money to reduce tax liability should never be the main aim especially at the end of the year when taxes are to be filed.
Often people don’t distinguish between revenue and profit. Using business income for personal activities is a sure shot recipe for failure. Proper records of expenses and income should be maintained and personal expenses should be met only from the net profit and not the revenue.
The most common mistake that owners make is to quote employees as independent contractors. “If an employee is misclassified as an independent contractor, a small business is at risk for employment taxes — for both the employee and employer — plus interest and penalty related to the compensation of the misclassified employee”, clarifies Halley.
Also, if you are doing business in areas that are close to state borders then you need to ensure that your employees who live across the borders are also reported for tax purposes. This point by Remer is especially applicable to people operating from the areas like Minnesota, Grand Forks, Fargo and Moorhead etc.
Sometimes the entrepreneurs either underpay or overpay themselves. They should fix a proper salary for themselves keeping in mind their experience, efforts, and their market value.