6 Common Mistakes Made By Start-Up Businesses
For start-up businesses, even small mistakes can be costly. These 6 common mistakes, however, will kill your business before it gets off the ground.
These Mistakes Can Ruin Your Start-Up Business
Running a business is hard, but starting a business is harder. You take a lot of risks and you don’t have a lot of money to spare on mistakes. For start-up businesses, there are many common mistakes that people make. According to Stapley Accounting, these are the ones you most want to avoid.
1. Bad Record Keeping
Bad money management is one of the four most common reasons businesses fail within their first year. Managing money properly is super important, but you cannot manage money properly without good records. Document every expense and every bit of income, no matter how small, and have an organized system to find them when you need them. If you don’t have experience in bookkeeping, it’s worth it to hire someone who does. Bad record keeping will ruin a business very quickly.
2. Not Paying Quarterly Taxes
Most businesses are required to pay quarterly taxes, but it’s not required for the first year of business. This leads many start-up businesses to make the mistake of not paying them. You may not be required by law – at first – but not paying them will put you in the habit of not paying them. When you are required to pay them after the first year, it’s easy to forget because you’ve been skipping out already. This gets many businesses in trouble. It’s better to make a habit of paying quarterly taxes from day one.
3. Not Knowing The Tax Codes
The tax code is complicated – needlessly so, but that’s what we have to live with. There are lots of expenses that you can deduct from your taxes when you run a business and some of them aren’t obvious. There are also tax credits which may apply to your business to help you get started. A lot of start-ups file their taxes without fully knowing what deductions they can take advantage of, leading to them paying a lot more in taxes than they need to. While this might not kill your business, it does add extra expenses that could have been spent reinvesting in you business to grow. As with bookkeeping, if you don’t have someone with accounting experience, hiring someone who does is a must.
4. Not Tracking Supplies and Equipment Separately
Equipment and supplies are tracked differently in your taxes. Equipment is something your business uses over an extended period of time: things like printers, computers, or manufacturing equipment. Supplies are things you buy regularly and use up, such as printer ink, notepads, pencils, and so on. Equipment has unique eligibility requirements that supplies don’t. Not knowing the difference can cost a lot of little expenses that add up over time.
5. Misclassifying Employees
The gig economy is rife with abuses. Many employers have tried to get out of payroll taxes by declaring their employees to be independent contractors. However, this has been stretched too far and the IRS is starting to crack down on it. If you are telling someone when and how to work, what equipment they can use, or generally imposing any control on their activities aside from expecting the work to get done on time, they’re an employee. If you misclassify them as independent contractors because you’re trying to save money - or even just by accident - the audits and fines will quickly take away the savings you might have made. If you do it by mistake, you’ll still face the same audits and fines. Make sure you are declaring your employees properly.
6. Mixing Business and Personal Finances
This is the biggest mistake businesses commonly make. It becomes tempting to use a business credit card in a personal purchase for convenience, but that then puts that personal expense on your business record. When tax filing rolls around, that expense has to be tracked down and removed from the business expenses because it’s illegal to declare personal expenses as business expenses. If you forget to do this, or it gets missed in the check, you face fines. Conversely, if you use a personal card for a business expense, you may miss filing it and have to pay more taxes than you should. If these mistakes happen on the regular, you can even face lawsuits for it.
Always – always – maintain separate accounts for business and personal finances.
Keep Your Start-Up Business Strong
There are a lot of mistakes you can make early on in your business’s life. Some are worse than others. These six common mistakes are the sort that can ruin your business if you make them. Even if they don’t end your start-up business, they’ll still create lots of hassle and additional expense that you don’t need. Avoid them so your business can get the strong start it needs to find long-term success.
Cover photo by Andrea Piacquadio