There is nothing like starting your own business. You are good at what you do, and you are in control. The sky is the limit. The harder you work, the more successful the business will be, right? Well, maybe. Hard work is necessary to a successful business, but there is so much more that a business needs to survive.
When you don’t know what you don’t know, you can end up in serious trouble. Below are five mistakes that can prove devastating to any business, especially first-time business owners. There are many more mistakes, traps and obstacles that can get in the way of success. Accounting practices are critical. Are you experienced with advertising, marketing, networking and branding your business? Is your business suited for your location? Do you have or know where to find a team of professionals to help support your business, maybe for little or no cost? Have you complied with all governmental regulatory requirements?
The attorneys at Bellenot & Boufford LLC can help you get off on the right foot, making sure you have the greatest chance of succeeding in the beginning and in growing your existing business. We make sure you stay safe and know how to stay out of trouble. The cost of doing things correctly is nothing compared to the cost of stumbling because you just didn’t know.
- DON’T FAIL TO INCORPORATE OR ESTABLISH AN LLC
Incorporating or establishing a Limited Liability Company (LLC) is an important consideration for anyone starting a new business. It is equally important for any small business owner operating as a sole proprietor to consider. Establishing a corporation or LLC creates an entity separate from the business owner. This will protect the business owner’s personal property:
- Bank and other financial accounts
- Income from other jobs or businesses
- Collectibles and hobby equipment
- The business owner’s personal credit profile
- And most other personal assets.
If not incorporated or an LLC, and anyone decides to make a claim or sue a business for any reason, the claim would be made against the individual sole proprietor, subjecting the owner’s personal property and credit profile to be at risk.
If the business is a corporation or an LLC, the claim would be made against the business entity, putting only the business’ assets at risk. The separate entity acts as a “Corporate Veil” shielding the owner’s personal assets from attack. Bellenot & Boufford LLC can help small business owners not only protect their personal assets but learn how to limit the risk of losing business assets. Incorporating or establishing an LLC is the best insurance to protect your personal assets, but you must maintain traditional insurance as well.
- DON’T BREAK THE CORPORATE VEIL
Now that you have established the “Corporate Veil” it is important to protect and not break the veil. It is critical that the separation between the business owner and the corporation or LLC be complete and uninterrupted.
- Never pay business debts or expenses with personal funds.
- Never pay personal debts with business funds.
- Never commingle business and personal assets.
If a business owner breaks the corporate veil, the owner’s personal assets can be reached to satisfy any judgment that may be held against the business. It will also severely damage the owner’s credit. Bellenot & Boufford LLC can help educate business owners to avoid this disastrous outcome.
- DON’T GET BY WITHOUT WORKERS COMPENSATION INSURANCE
This can be one of the most devastating mistakes a business owner can make. Every employer is required to maintain workers’ compensation insurance. If an employee is injured while in the course of his/her employment, the workers’ compensation insurance will pay for the employee’s medical expenses, out of work pay and much more. If the employer has such insurance, it cannot be sued even if it was negligent in causing the injury.
If the employer does not have insurance, the State of Connecticut’s Second Injury Fund will act as Workers’ Compensation Insurance. It will pay all the employee’s medical expenses, out of work pay and other expenses. There will be a lien on the business owner and all his/her property for everything the State pays, even if the business is incorporated. Sanctions and penalties will be assessed against the Owner. None of these expenses, fines and liability to reimburse the State are dischargeable in bankruptcy. There are cases where a small business owner is liable for more than $1,000,000. Even in cases with minor injuries the sanctions, penalties and legal fees will cost many thousands of dollars.
- DON’T SKIP PAYROLL AND STATE SALES TAX PAYMENTS
It is a crime to not pay over sales tax and employee withholding tax when due. A business owner who doesn’t pay these taxes is subject to arrest, conviction, jail and a criminal record. The owner will still be liable for the tax in addition to fines, penalties and interest.
- MIS-IDENTIFYING AN EMPLOYEE AS A 1099 INDEPENDENT CONTRACTOR
Small business owners must be careful to not mistake an employee as an independent contractor. The owner and contractor do not determine this relationship, the IRS does. Not only will the owner be exposed to the workers’ compensation violations listed above but will also be liable for all withholding taxes for as long as the working relationship existed, plus fines, penalties and interest.
More than 28 years of experience qualify the attorneys at Bellenot & Boufford, LLC to help you get off on the right foot, making sure you have the greatest chance of succeeding in beginning and in growing your business. We make sure you stay safe and know how to stay out of trouble. Remember, the cost of doing things correctly is nothing compared to the cost of doing things incorrectly, because you just didn’t know.