Starting and running a small business has many benefits. When successful, small business ownership provides independence, creative freedom and a high degree of personal satisfaction.
However, small business owners also must steer clear of a variety of pitfalls. Here are two common mistakes small business owners make and how to avoid them.
Mistake #1: Not Doing the Work
When you start a small business, make sure you start with research.
Take time to thoroughly think through the problem you are solving, the customer you are targeting, and what will differentiate you from the competition.
Familiarize yourself with the best practices for managing a business in your field. This may include best practices for branding, marketing, business development, pricing, customization, customer communication, policies and procedures, quality control, inventory management, financial management and other operational activities.
And while paperwork isn’t necessarily fun, don’t neglect it. Be sure to complete and file proper business registrations, and apply for and obtain required licenses. Write a business plan to document your goals and strategies with realistic timeframes.
Remember that the market and competitive landscape is always on the move. Assess similar businesses in your area to keep your finger on the pulse of what opportunities exist in the market and competitive threats.
Most importantly, don’t do everything on your own — hire professional experts to help you. And be sure you hire experts who have the specific knowledge, skills and capabilities you need.
Mistake #2: Not Properly Managing the Books
Bookkeeping and taxes can be a big area of concern when starting and running a small business.
A common error that small business owners make is trying to go it on your own instead of hiring an accountant to help with your business finances and taxes.
It may seem costly to have help with bookkeeping and accounting, but setting up and managing your books properly and efficiently is absolutely key.
Once a bookkeeper or accountant is hired, you should keep in touch with them regularly — even when there isn’t a problem. Having frequent communication and a solid relationship can help you avoid financial and tax problems in the long term.
Some common tax-related issues that we see at Gift CPAs include:
· Not making estimated payments throughout the year or not adjusting your payments when your business changes. If your business income significantly increases or decreases during the year, you should make sure to adjust your withholding and/or estimated tax payments.
· Not collecting sales tax. Even if you set up a limited liability corporation (LLC) in a state where sales tax doesn’t apply (such as Delaware or Nevada), sales tax generally depends on where you do business, rather than where your LLC is formed.
· Shareholders in S-Corps not taking a salary. The IRS requires S corporations to pay their active shareholders a reasonable employment-taxed salary.
· Incorrect W-4 withholdings. When completing a W-4, be sure to account for your spouse’s income, or else you could face major withholding issues. If too little is withheld, you may face interest and penalties.
Want more tips? Contact Gift CPAs!
The Gift CPAs team is here to help you as you manage and grow your business. Our specialty is helping small businesses thrive. We serve as consultants and can help you avoid common mistakes.
We look forward to meeting you virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!