Launching a product that has insufficient demand and targeting the wrong audience are among the most common reasons for a business to fail. A less common reason they go under, but one certain to kill a business that makes them, are tax mistakes. Small errors can be corrected if discovered soon enough, but many common tax mistakes literally compound with interest and fees until the firm is shut down. Here are the three most common tax mistakes small businesses make.
Not Handling Withholding Correctly
Unless you are running a company with only contractors and partners, your company needs to withhold income taxes, Social Security taxes and FICA taxes for your employees. Failing to do so will result in penalties. Withholding the money without sending it on to the IRS leads to major problems, and if they think it was done deliberately, you risk criminal charges. Conversely, failing to segregate the tax withholding funds in a separate account could result in someone spending the tax withholding funds by accident. A tax expert with an accredited master in taxation can assist you with this.
Not Handling Sales Taxes Properly
Find out if you need to deal with sales tax before you start selling your product or service. If you are obligated to collect sales tax, you will probably have to register for a sales tax permit. Then you have to set up your online shopping cart and cash registers to charge the right amount of sales tax for every transaction. Complicating matters are the complex rules regarding what is taxed and at what rate.
For example, many states exempt food from the sales tax, but disagree on what is classified as food. Thus the salted peanuts sold by your store aren’t taxed, but chocolate coated and honey roasted peanuts probably are. If you’re selling a variety of taxed and untaxed products, you’ll need an inventory management system that can track the tax rate based on the product’s inventory number.
Online shopping carts typically don’t have a sales tax associated with the purchase unless the buyer is in your same state or you’re lucky enough to live in a state that doesn’t charge sales tax, but you still need to track the sale amount for income tax purposes later. Someone who has earned an online master in taxation degree can help you do this.
Failing to Send 1099s
Even if you set up your business so that it consists entirely of partners and contractors, you can’t avoid filling out at least a few tax forms each year. You are legally required to send 1099 forms every year to individuals and partnerships you pay each year. You are required to send a 1099 form to both the contractor and the IRS if the transactions totaled over $600 over the course of the year.
Keep your personal and professional finances separate from the start to protect yourself. Piercing the corporate veil to pay your bills out of the business account puts you at risk personally in case of business failure, while trying to pay today’s bills out of the tax withholding accounts risks criminal prosecution.
Managing projects in your startup is a major component in running your new company successfully. Yet, there are many project management styles. How do you know which one to choose? The answer is to understand the differences between the waterfall and agile methods to select the right one.
The traditional method of project management, also known as the waterfall method, has its origins in software engineering. In this system a project is broken down into stages, and the project only moves to the next stage upon completion of the previous stage.
Typically the stages focus on planning, design, development, testing, production, and deployment. This method evolved out of production processes in which it would be too costly to re-do a stage once the project had moved on to the next stage.
Pros and Cons
The waterfall method forces you and your team to plan projects with great detail, which means you’ll discover a lot of issues before you ever start building and testing, and can modify the project’s design accordingly. You also end up with a lot of documentation in the waterfall method, which is especially valuable in the hectic beginnings of a startup company.
A major con of the waterfall method is the lack of testing through the process. Whether you’re designing software or working on a new marketing campaign for your startup, testing happens near the end of the waterfall of stages. If you’e missed any huge bugs, you basically have to start over. Similarly, if any stage wasn’t completed well you can’t go back and fix it in the waterfall method.
The Agile Method
The agile method was a response to the waterfall method’s inflexibility in certain areas of planning and development. Instead of creating a detailed plan and tackling each stage at once, the agile method starts with a simpler ideas and runs it through iterations called sprints. Each of these sprints is run from planning to testing, and then progress is evaluated at the end before moving to the next sprint.
Pros and Cons
The agile method is probably more comfortable for most startups because it allows transparency, constant testing and evaluating. Everyone knows exactly where the project is and how it’s faring, and it opens up considerable communication amongst your employees.
However, the agile method may not provide enough direction in a startup with limited resources. Since the ideas don’t start off with the severe planning that happens in the waterfall method, you may feel that the team is worrying too much about ideas and not about results, or that a project is stuck in sprints that aren’t working out all its issues.
Where Do You Fall?
When both methods have such clear pros and cons it can be hard to figure out which will work best for your startup. If you aren’t sure what will work, look into hiring a consulting firm like Routa Consulting; they’ll give you insight into the processes and into what your company needs to grow. Making these decisions early and developing workable techniques for managing projects at your startup is invaluable for its success.
Welcome back to our journey towards overcoming the plight of the creative entrepreneur. Up to this point we have been working hard to understand why, how and what we really do. We’ve also been working to understand our worth and figuring out how to charge for it. In this, our final installment, we are ready to jump into the abyss of finding the right clients with whom to partner to raise their value while charging our worth.
Out with the Old
One of the questions I get the most from other or aspiring creative entrepreneurs is “how do you find clients?”. My answer is always the same, “I don’t… they find me”. Sounds like a dream, right? Sounds like something you can only do after mastering your craft (which I haven’t), and working for tons of people on tons of really cool, high profile, projects.
They say a business partnership is like a marriage. And a bad one can have repercussions that lasts for years. So, just like a marriage, you ought to make sure the qualities and characteristics of your business partner are compatible with your values.
You’ll probably leaving a ton of money on the table by not getting out and attending seminars and conferences. We all know the expenses involved but the payoff can be huge and often in ways that we cannot predict. Read on.
I decided to attended a subscription site seminar in Boston, hosted by Tim Kerber and MemberGate. I really was not sure if I was going to attend as I have my hands full of “way too many” projects now but I am making it a priority to actually go to events to learn and network (in that order). Now that it’s over I am super glad I attended. It would take another 50 emails to share what I learned and further got to meet some “super successful” entrepreneurs who were more than happy to share some of their “secrets.”
We both know these things are not cheap. You have to pay for room, meals, flights etc. etc so it adds up. However, you have to look at the long term payback. From the what I learned and the contacts I made I would say the conference will easily pay for itself in just a month or two.
Of course, all that knowledge has to be implemented not just shoved in binder to “reference” someday. I heard this time and again at the seminar – “just get it done and out the door” I mean (me included) how many times do you labor over something and it grows into this 3 armed and 4 legged monster.
Funny, was just speaking to a coaching client and we talked about this very issue and how I recommended he go down a path of much less resistance on this particular project. I insisted he just “get it done” and not be distracted with “frosting”.
So, 2 things:
1. Save, scrimp, beg, borrow (within reason) but get yourself out and about and attend some of these conferences. I guarantee you’ll thank yourself many times over.
2: Get in the mode of getting things done fast. You’ll increase your productivity 10x and the result will be many more dollars coming your way.
One speaker very succinctly summed this point up with this mantra, “Fail fast, fail often and success is assured”