Small business lenders face the frequent frustrations of clients who live a life in a haze of financial mystery. “There’s money in the bank, so I must be earning a profit!” Those words were actually said to me by some poor yahoo who mistakenly thought I was going make him a loan. Wrong.
1. Not keeping financial records up-to-date. This is the number-one mistake small-business owners make and also the most important to remedy.
2. Skipping the annual budgeting and financial forecasting. If you don’t have something to measure against, how will you know if you are on track?
3. Not meeting with an accounting professional regularly. Remove some of the burden by working regularly with an accounting professional and use their expertise to your benefit.
4. Misclassification of employees. This issue is becoming increasingly important as more businesses outsource jobs to contractors. It is also something the IRS has been paying close attention to.
5. Not incorporating your business. Not incorporating is not an option. Most SMBs choose an S Corp or LLC filing because of tax purposes — meaning that you file your business taxes at the same time as your personal income taxes, but the entities are kept separate.
6. Incorrectly filing your business. Choosing the right business structure (i.e. LLC, S Corp. or Corp.) can be confusing, but it’s worth putting some thought into.
7. Mixing personal with business expenses. Small businesses are afforded tax breaks and write offs that are typically unavailable to the general population. These include home office deductions, mileage, some business meals, utilities and travel expenses.