CPA & Former IRS Agent Explains:
Top Ten Mistakes Business Owners Make

If you could avoid the top 10 mistakes business owners make, wouldn't you want to know what those mistakes were? With three and a half years of experience as an IRS agent and eighteen years of running my own CPA practice, I am here to share with you what those mistakes are and how to avoid them.

1. The Most Pervasive Mistake Business Owners Make
   Some business owners think that they can take shortcuts when it comes to bookkeeping. But, when it comes time to show the proper documents for their tax refunds, they want special treatment when they can't provide the proper documents. If you don't keep good records, it is very hard for the accountant to give you those refunds or deductions.
   
   People try to come up with every reason in the book as to why they can't keep good records. They tell me that they don't have time or money to keep things in order and paying a bookkeeper costs too much money. They also tell me that Quickbooks is too complicated or that they never took accounting in school.
   
   Keeping good books and records should be one of the top priorities a business owner should have. Not only does it help in managing the business when its running, it also helps with planning an exit strategy or if you decide to sell the business. What if tomorrow the IRS comes knocking on your door and would like to do an audit? Would you be ready? What if you want to retire or pass away, would your family have the necessary materials needed to run or sell the business?
   If you are a culprit of bad bookkeeping, there is hope! If you want, you can stay up late 3 days in a when getting ready for the annual tax meeting with your accountant. You can purchase QuickBooks and try and learn how to use it. Probably the best thing for you to do is hire a bookkeeper or CPA so you can focus on promoting and operating your business.
   
   My advice:
   There is obviously a reason why big companies keep accurate accounting records and manage their business by the numbers. Follow suit and make things easier for yourself. I will take a little time out of your day, but save you from a big headache when tax season comes around.


2. Failure to Hire Professionals
   You are not doing yourself a favor by not hiring an attorney or CPA. Attorneys are needed to prepare notes for a loan officer, review agreements, business contracts and other legal documents. Having a CPA is around is good when it comes to entity selection, reducing taxes, and to help decide which retirement plan is most advantageous for tax purposes. A good CPA can also explain any financial statements and translate them to the owner in which will help bring in more revenue or cut costs.
   
   My advice:
   Yes, hiring a professional will cost money. However, the benefits can pay-off exponentially.


3. Falling Behind On Tax Filings
   On numerous occasions, I've been retained to file multi-year tax returns for businesses who get behind in filing their taxes. Try getting a business line of credit, SBA or other business loan without tax returns. It just won't work.


4. Improperly Financing Your Business
   The worst way to finance a business is by borrowing from the government by not paying payroll or sales taxes. The IRS, EDD (Employment Development Dept.), and SBE (State Board of Equalization) look upon this as stealing since the taxes were withheld/ collected from the employee or customer and the business owner was entrusted to make payments to the government entity. Don't make this mistake as it can be devastating or even fatal to your business.


5. Paying Your Tax Penalties Without Trying to Abate Them
   If a business or individual owes tax penalties, it's worth determining if one qualifies for penalty abatement. Under the Internal Revenue Code, there are reasonable grounds for filing or paying taxes late. Such reasonable grounds include destruction of tax records due to an accidental flood or fire, death or serious illness in the family, serious illness of the taxpayer, bad advice from a tax professional, and a taxpayer's drug or alcohol addiction.
   
   In order to qualify for penalty abatement, the facts must tie-in with one or more reasonable grounds for penalty abatement and supporting documentation must be available to support your claim. Don't get caught paying your tax penalties blindly without determining if you have reasonable grounds for abating the penalties. This can get you into even more trouble!


6. Getting Too Large of An Overhead
   If this recession has taught us business owner's one thing, it's to keep our overhead low and to be as efficient as possible. I know several professionals who, prior to the recession, leased expensive and large offices and are now struggling because they have to borrow money just to maintain them. Don't make this fatal mistake because once you have signed the lease, it's legally almost impossible to get out of it.
   
   I've heard many owners brag that their business grosses over $1 million, but the important part is how much they net. It's the bottom line that counts. The days of "fluff on the bluff" are long gone.


7. Grinding Too Hard
   I've made this mistake and have seen several other business owners do the same to the point that their business becomes their life. It's easy to fall into this trap since it's addicting to want to attain a certain lifestyle, maintain a certain lifestyle or have to pay-off debts due to various circumstances. To avoid this trap, schedule some time away from the office to refresh and recharge. From a distance, the picture will look clearer and you will be able to be more efficient rather than working yourself to the point of diminishing returns.
   
   No one on their death bed wishes they spent more time at the office. Find some balance.


8. Failure to Stay Connected with Your Customers
   Recently, I have discovered an email marketing service which allows me to send out weekly email newsletters filled with valuable tax-saving and financial tips. "Out of sight, out of mind" is a valuable statement that's especially important in this recession where client retention is essential.


9. Lack of Internet Marketing Efforts
   I've also made this mistake until I recently discovered that there are multitudes of ways to receive exposure from marketing one's business on the internet. From a website to YouTube videos, the possibilities are endless. However, some business owners are loathe to change and believe outdated methods still work. If they do for you, then stick with them. But in today's day and age, Google is now the yellowpages since that's where most people go to search for something they need.
   


10. Failure To Identify And Implement New Profit Centers
    We business owners all suffer from tunnel vision at some point or another. We get caught up in the day-to-day grind of working in our business rather than on our business and it's a very difficult balancing act.
    
    I'm sure someone can observe my business and tell me how to run it better. I've discovered that I have a knack for seeing potential profit centers that business owners can implement once they consult with me. One example is a restaurant owner who remodeled and built a VIP room. I asked him if he was doing catering. He replied, "No." I asked him what the cost of catering equipment would be to allow him to do so. He said, "About $3,500." Next, I told him to hire a woman, put her on the phone, and give her a script. The script I suggested was, "Hi, I'm so and so from XYZ restaurant. We are expanding our catering department and want to know if you would be interested in having us cater one of your future events? We would like to invite you and a few of your fellow principals for a free VIP tasting in our VIP room to sample various items on our menu."
    
    I also remember I spoke to a sports trainer who trains high school athletes so they can obtain scholarships in their sport. He indicated some of the kids who obtained college scholarships come home in the summer and train with him. I suggested that he consider hiring the college athletes to train the high school athletes and duplicate himself. This would create an additional profit center for him and the athletes he trained. He liked my idea and signed up with me as a client.

I hope that my article has provided some insight for you and can be used as a learning tool for either you or a friend. Feel free to pass it on and I hope you find much success and happiness in business and life outside of business.

Call now to get a free consultation at (818) 632-2053