10 Mistakes New Business Owners Make

Being a successful new business owner means avoiding mistakes, making effective finance decisions, understanding your customer and how to market to them, and choosing and keeping the right employees. Business owners must choose the correct business entity and devise marketing, business, and financial plans that structure the goals of the business.
While there are no set-in-stone plans that guarantee success for your business, there are some common mistakes that new business owners make during the start-up phase. Here we discuss the 10 most common mistakes new business owners make, and how to avoid them.

1. Not Forming the Right Business Entity

Choosing the wrong business entity, or not establishing one at all, can have serious consequences. The business entity is one of the most important decisions you will make especially when considering the risks and liabilities of the products and services you offer. Sole proprietors and partners are personally responsible for business liabilities. Limited Liability Companies (LLCs) carry annual tax/reporting fees, even if they don’t turn a profit, and though Corporations protect owners from personal liabilities, they are required by law to keep certain records and to conduct business in a specific way. One example of such record-keeping are the Annual Requirements due by LLC’s and Corporations. A reputable Registered Agent can help maintain your good standing and authority to transact business.

2. Skipping Planning

Starting a new business begins with planning. Not only will you need to devise a solid business plan, especially if you are planning on getting start-up funding through investors, you will also need a financial plan and a marketing plan. Without this planning, and the understanding that it will help you gain, you will be operating a new business without a thorough understanding of your situation, how you are using and will use money, and how you will reach and motivate your customer base. In other words, you will be operating a new business in the dark. You have to have some idea of the market you are entering and how to use the market to achieve your goals.

3. Planning on Early Profits

Most new businesses do not realize a profit in the first few years, leaving business owners with the pressure of figuring out how to deal with cash flow problems, and how to pay the bills, before the business can generate enough money. Plan for this, and be sure to have secondary source of income that you can rely on to help sustain you and your business for those first years. Business owners that borrowed a large amount to start up their business may be facing large monthly payments and feel pressured to turn a profit quickly, which can lead to bad business decisions.

4. Overspending and underspending

A common new business error is overspending or underspending during the start-up phase. Too much money can easily be spent when buying office furniture, equipment, and marketing materials. Make cost effective purchases that will work on a shoe-string budget.
Hiring employees is another common mistake for new small businesses. When you hire a permanent employee, you will be responsible for withholding taxes, paying unemployment taxes, paying for worker’s compensation insurance, and keeping employee records. If you fail to do these things, or you do them wrong, your business will be liable. Instead of hiring fulltime permanent employees, look into independent contractors or hire from a temporary agency when you need help in the beginning.

5. Sales, Credit, and Collecting

If you forgo planning, you may find that you are undercharging for your products or services. You may think that focusing on sales, or offering prices below your competition will help you gain an advantage, but instead you will realize poor cash flow and reduced profits, at a time when every penny counts. You will also be your own debt collector and will spend valuable time collecting what is owed to your business.
Another faux pau that new business owners may make is extending credit. Yes, every business has customers who pay their debts late or even not at all, but it is your job to reduce the number of slow/no paying customers you have. You cannot afford to give your product or services away for free.

6. Not thinking about taxes until it’s time to file

While nobody really wants to deal with taxes, business owners should get professional advice and develop a tax strategy before you begin taxable activities. Working with a professional and learning how to minimize the amount of taxes you owe each year

7. Choosing and Keeping Employees

Ineffective hiring and management of employees is another common mistake. Your employees are your most valuable assets and they can help you attract and retain your customer base, or they can hurt your business and waste valuable time. Select your employees carefully, and reward those who do their job well.

8. Servicing Customers

Excellent customer service can do more for the success of a business than most new business owners realize. Just like customer service blunders can cost your business, (in profits and reputation) customer service that goes beyond the norm can set you apart from your competition and help your profits grow.
Today, customers use the web to review businesses and their products or services, and a bad review written on a popular site can cause serious damage to your reputation. Deal with customer issues quickly and thoroughly to prevent negative publicity and enhance your reputation.

9. Managing your business

Sometimes new business owners can be so determined to keep customers, that they spend far too much time (and therefore money) trying to please a customer that just can’t be satisfied. Letting go of customers who drain your resources may be better for the life of the business, and will free up those important resources for more valuable customers.

10. Leading your Business

As the leader of your business it is up to you to learn as much about your market, and your competitors as possible. You must learn who your customers are, how to reach them, and how to motivate them. You should know your competitors offerings, as well as how they reach and motivate their customers. You should remain flexible, and prevent emotions from influencing your decisions with your products, services, or customers. Also, ensure that your business does not become dependent on any one group of customers. It is imperative to the success of your business to continually grow your customer base so that you are not financially harmed if your customers move to another business.

The advice purported here is as valuable to new business owners as it is to those who are past the start-up phase. It is hard work, but you must stay committed to your goals to realize success.


7 Affordable Businesses You Can Start With Little or No Money

Finding enough capital to start your own business may seem like a daunting task, but depending on your interests, these 7 affordable businesses that you can start with little or no money may be exactly what you are looking for.

1. Landscaping

Though it is seasonal work, landscapers are always in demand. Sometimes mowing and yard work are included under the umbrella of landscaping, but if you want to stick to actual landscape and design, you will find businesses and homeowners that need your work. Word of mouth referrals are the gold standard for landscaping, though other marketing avenues can be just as simple. Place a well-made, professional sign at every job, and the calls will start coming in. Startup costs are low, especially if you already have your own equipment.

2. Handyman services

From leaky faucets to wiring, from broken windows to storm damage, everyone needs a good, reliable handyman to help them keep up their homes and businesses. Marketing your services may be as simple as few well placed ads, flyers, and word of mouth. Startup costs are low if you have your own tools and transportation.

3. Consumer convenience services

Consumer convenience services are forever popular (think auto detailing, house cleaning, office cleaning, etc.,) and in demand. It’s these types of affordable conveniences that consumers look for to help make their lives easier. Startup costs are low if you have your own cleaning tools.

4. Pet Care

Pet owners spend billions every year on pet supplies, pet care, and pet services. Pet sitters, pet walkers and pet groomers are businesses that just continue to grow. In fact, according to the American Pet Products Association owners spent more than $55.72 billion on their pets in 2013, and over $4 billion was on grooming and care. Startup costs include your initial marketing costs, and tools if you don’t already have them.

5. Specialty food services 

As consumers become more health aware, and food allergies and intolerances become more prevalent, home-based specialty food businesses are becoming more popular. Check into your state’s requirements for licensing and inspection before you startup. Initial costs include supplies and advertising. 

6. Child Care/Tutoring/Products

Children are big business, and there is always room for someone who has something of value to offer. Operating home-based day care can be very fulfilling as can tutoring. How much you make is only limited by the number of children you want to care for. If you want to have a child products business, your only limitations are the ones you set for yourself. Startup costs may be higher for child care services then some of the other businesses because you will need toys and childproofing/safety devices.

7. Internet business

You don’t need very much money at all to open an web-based business. Service businesses like SEO consulting, social media expert, professional writing, graphic design, and web development cost nothing to start. You only real startup cost is the price of your domain and website. 


Employee vs. Independent Contractor: Essential Business Law You Need to Know

While knowing if your staff and workers are considered employees or independent contractors seems easy enough, there are situations in which the lines between the two can blur. However, the rules of business law, and the IRS, require that business owners determine how to classify their “workers” before issuing a payment for their services. In fact, if you get it wrong, your business could be responsible for paying back employment taxes for that individual(s).

Business Law – Employee vs. Independent Contractor

The quick-and-easy way to determine if a worker is an independent contractor or an employee is:

  • Employees are told what work is to be done and how it is to be done
  • Independent contractors are told what needs to be done, but they are free to decide how it will be done.

The law however, classifies a worker based on the evidence of the degree of control and independence the worker has over the work to be done. This evidence is categorized as:

  • Financial: Who controls the business aspect of the work, such as how the work is paid for, if and how expenses are reimbursed, and who provides tools or supplies for the work?
  • Behavioral: Who has control over what work is done and how the work is done? A worker is generally categorized as an employee if the business directs and controls the worker. Factors used to help determine behavioral control include:
    • How instruction is given – employees are general told when, where and how to work
    • How much instruction is given – the more instruction given generally points to the business having control over an employee
    • Evaluations – employees are evaluated on how work is performed. Independent contractors are generally evaluated on the end result.
    • Training – workers who are trained for a job, or are required to attend periodic or continuing training, are generally employees, as independent contractors generally use their own training and experience to complete a job.
  • Relationship Type: Are there written contracts between the worker and payer? Are there employee benefits, such as health insurance, pension plans, vacation pay? Is the work being performed key to the business and will the relationship continue?

Business owners are tasked with weighing each of these factors when determining how to classify workers. While some of this factors may point to the worker being an employee, other factors may indicate the worker is an independent contractor. Unfortunately, there are no set guidelines for determination for some types of businesses.

Independent Contractor or Employee? IRS Form SS-8

It is important that business owners carefully consider each piece of evidence and document the results of each factor and how the determination was made. If after reviewing the evidence, a conclusion cannot be made, you can file Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS, who will then determine how the worker is classified. Be aware, it can take up to six months for the agency to make a determination.

Legal Repercussions for Misclassified Workers

If you categorize an independent contractor as an employee, you will probably pay more for labor (including overtime), file state and federal taxes, withhold Social Security and Medicare, pay into unemployment insurance, etc. It’s a costly mistake for the business.
If you misclassify an employee as an independent contractor, you may have to pay them for wages that you should have paid, pay back taxes plus penalties, and you may have to pay worker’s compensation benefits if they get injured, and provide the employee with any employee benefits offered by your business.

Independent Contractors

If you have determined that your worker is an independent contractor, then you must have them file out Form W-9 – Request for Taxpayer Identification Number and Certification. This form should be kept in your records for any future needs.
The independent contractor will use Form 1099-MISC to report their earnings to the IRS. Your business must send the independent contractor a completed copy of Form 1099-MISC if you paid them more than $600 in a year for their service. You must send the Independent Contractor the form prior to January 31. You must also send a copy of the form to the IRS by February 28.


If you have determined that you worker is an employee, you must:

  • Withhold Federal Income Tax from their paycheck
  • Withhold Social Security and Medicare Taxes from the employees’ wages. Your business will match the amount withheld
  • Withhold the Additional Medicare Tax from employee wages, though you will not match this tax
  • Report and pay Federal Unemployment Tax (FUTA) from your business funds (employees do not pay FUTA and it is not withheld from their wages
  • .

Correctly identifying your workers as employees or independent contractors can help your business run in a more cost-effective manner, while preventing you from having to pay hefty penalties and back wages and taxes.


How To File Corporation Taxes in 6 Steps

Corporate entities are owned by their shareholders and are run by a Board of Directors. Officers elected by the board manage these corporations and the day to day activities. Unlike in sole proprietorships, corporate owners are protected by limited liability, meaning their personal assets are protected from corporate debts and losses as the corporation is seen as a completely separate entity. However, there are two types of corporations and each has distinct tax liabilities.

Here we discuss S corporations and C corporations and the forms and tax returns needed to file your corporation taxes.

1. Choose S Corp. or C Corp Taxation.

Domestic corporations that have 100 shareholders or less and one class of stock are considered small business corporations or S corporations. These entities pass corporate income and losses, and credit and deductions to their shareholders, who report their gains and losses on personal income tax returns. These shareholders are taxed at personal income tax rates.

Any corporation that does not elect S status is a C corporation. C corporations are taxed on their profits when earned and shareholders are taxed when profits are distributed. C corporations can file for S corporation status at any time, however it can be a difficult endeavor to move from a C corporation to an S corporation because of different accounting requirements.

2. File an S Corporation Election.

Corporations use IRS Form 2553 to file an S Corporation Election within two months and 15 days after the tax year begin to be considered for that same year, or they can file at any time during the year for S corporation status for the following year. Form 2553 must be signed by all shareholders prior to submitting to the IRS.

3. Learn About Tax Deductions for Corporations.

To reduce corporate taxable profits, corporations can deduct much of the money that is spent on business expenses. Some of the deductions that corporations need to be aware of include:

  • Start-up costs
  • Operating expenses
  • Advertising
  • Employee salaries
  • Employee bonuses
  • Employee medical plans
  • Employee retirement plans

4. Pay Estimated Taxes.

The IRS requires C corporations to pay estimated taxes if they owe $500 or more. S corporations pay estimated taxes if they expect to owe federal taxes of more than $1,000.

The IRS divides the year into four payment periods for corporate estimated taxes. Each of these periods have a specific due date, and if your business fails to pay, or fails to pay enough, by each due date, you may be hit with a penalty. Estimated tax payments can be made through the Electronic Federal Tax Payment System (EFTPS) or through the mail.

S corporations and C corporations both report estimated taxes on Form 1120-W

5. File Federal Tax Return.

C corporations file their federal taxes on Form 1120, U.S. Corporation Income Tax Return. S corporations use Form 1120S or Form 1120S Sch. K-1 to file income tax returns. Employment taxes for both S and C corporations are paid through Forms:

  • 940 – Employer’s Annual Federal Unemployment Tax (FUTA) return
  • 941 – Employer’s Quarterly Federal Tax Return (for Social Security and Medicare taxes and income tax withholding) or
  • 943 – Employer’s Annual Federal Tax Return for Agricultural Employees (for farm employees).

Because it is important that corporations are able to keep some profits for future growth, the IRS will allow some corporations to keep a sum total of $250,000 in profits in the corporation without penalty.

6. File State Tax Return.

State tax rules vary widely across the country, however, much like federal regulations, businesses are taxed according to their structure. Corporations will file state income tax forms as well as state worker’s compensation insurance taxes and unemployment insurance taxes. Some states also require corporations to pay temporary disability insurance.

Some corporations will also have to file excise tax returns, depending on the type of business they operate. Some credits may be available to corporations, however these credits are subject to change. A professional tax planner will be able to advise you on what excise tax returns must be filed by your corporation, as well as what credits may be available to you.

Be aware that the federal government requires corporations with assets of $10 million or more and those that file at least 250 returns each year to electronically file U.S. Corporate Income Tax Return Form 1120 and 1120S for all tax years after 2007.

More information about filing corporation taxes, and the excise tax credits that may be available to you can be found on the IRS website, or your favorite tax professional can help guide you through the whole process.


Think You Are Ready To Start A New Business? Answer These 4 Questions First

Starting your own business takes courage and the ability to think ahead and stay focused even when under immense pressure. If you haven’t really thought out the purpose of your business and defined your goals, the odds of your success are low. Before you begin the startup process, take time to ask yourself the following four questions and find out if you are ready to start a new business.

1. Are you comfortable with financial insecurity?

In question 3, you are going to learn how sound financial, business, and market planning will help your business succeed. However, things seldom go according to plan. You have to be comfortable with financial insecurity, at least until you are firmly established in the market. It may take longer than you plan for your business to turn a profit, the economy could take a dip during a critical phase in your launch, or your customer base may not respond to your initial advertising and promotion strategies. Build as big as a nest egg as you can but know that it still might not be enough.

2. Do you have a team?

Every new business owner needs to have a support system in place, and your family and close friends will probably make up a great portion of that system. You will be bucking quite the headwind if your family isn’t in support of the risks you are about to take.

Another part of your support system should include an arsenal of business and marketing materials published by reputable and knowledgeable business experts. Read as much as information as you can about operating a business, marketing and promotion, and business finance.

Consider joining an online network of business professionals for real world advice and assistance.

3. Do you have a plan?

Business plans, financial plans, and marketing plans are necessities for any business. The information you research, collect, and analyze will give you a better understanding of your customers, and how to connect with them. This information will also help you determine:

  • if you need to secure a business location or if you can work from your home
  • if you need to hire staff, independent contractors, or get volunteer assistance from friends and family
  • who your competition is and how you will differentiate your business to help you stand out in the marketplace as well as your market entry price points
  • how much money you will need to support yourself, your business, and any employees you have hired until the business begins to turn a profit
  • how much capital you will need to cover your expenses, such as for utilities, equipment, furniture, taxes, wages, and inventory
  • if you need insurance, and of what type
  • how you will market your business and what type of advertising budget you will need
  • your specific goals and how long you can expect it to take you to achieve them
  • how to establish your legal business identity and what types of taxes you will have to prepare for

4. Can you handle setbacks?

Successful business owners know the importance developing a plan B for when things don’t go as expected, and they seldom go exactly as planned. If you run into a wall during the startup phase, will you have the flexibility and financing to take an alternate route? You need to know these things before you enter the marketplace.

Research, sound financial planning, understanding the market, and knowing the wants and needs of your customers is what builds a solid foundation for the success of your new business. If you have done the planning, and can answer yes to the questions asked here, then you are ready to start your new business.