Having a great idea for a business doesn’t necessarily mean you have a great financial IQ, and the fact that the two don’t always go together means many new business owners end up making financial mistakes early in the life of their enterprise that either stall the growth of the business or kill it off completely. If you want to ensure your business has the best possible chance of thriving, avoid these common financial pitfalls.
Taking on the wrong staff
As your business begins to grow and you realize you have the ability to take on your first employees, it’s all too easy to get carried away with the excitement and to end up hiring too quickly and too cheaply. Your employees will be one of the biggest assets of your business, so it makes sense to invest in the best possible people for the job at every level. Search out those potential employees who share your vision of the future and want to contribute to making your company as great as you would like it to be. Although such workers may cost more and take longer to recruit, they will be far more valuable in the long term and help take your business to the next level.
Failing to keep money aside for payroll taxes
As paying wages requires you to withhold taxes and the business owner is solely responsible for collecting, accounting for and paying said taxes to the IRS, some individuals get tempted to divert the money elsewhere instead.
The penalties for using money intended for taxes for other purposes can be severe. In the most extreme cases, such as that of Texas business owner Richard Floyd Tatum Jr., money that should have been used to pay employment taxes was instead used for his personal benefit, including taking trips to Las Vegas, France and Hawaii as well as making payments on a ranch. Tatum was sentenced to three years imprisonment and ordered to pay restitution in excess of $18 million.
If you find yourself unable to pay the IRS what you owe, you need to act as quickly as possible. Find a reputable firm of professionals who can provide you with the necessary help with payroll tax debt relief. The IRS can be especially aggressive when it comes to collecting these kinds of taxes, and any delay could have a devastating effect on your business.
Failing to have an emergency fund
From natural disasters to staff illnesses, every successful entrepreneur knows that, while you can never predict what is going to happen in future, you can certainly plan for it. Keeping some money back as a contingency fund in order to help the business transition short-term cash flow problems, changes in the market of unexpected delays with suppliers or manufacturers can be the difference between long-term success or failure.
A significant number of the startups that fail in their first year of business do so because they lack capital or the capital they had has been misused. Keeping small proportion of all your earnings in a separate, contingency fund means you’ll have far more flexibility during even the most challenging times.
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