In a world full of lawyers, IRS agents, and people just like you trying to live the American dream, owning a business is much more than selling a product or service and getting paid. As a business owner, your ignorance isn’t bliss. If you make one of these mistakes and claim that you didn’t know, the lesson you will take away from it is a stiff financial penalty at best or bankruptcy at worst.
Insurance and Government Programs
Depending on the nature of your business, you will most likely need some type of insurance. If you have employees, you’ll need workers compensation, general liability insurance, and you will most likely have to pay in to unemployment. In addition, if you have a home improvement business, for example, you will have to have even more liability insurance in case you severely damaged a customer’s property. These types of costs can get high which is why it appears at the top of our list.
Your Business Name
Congratulations on finding a unique and catchy business name that encapsulates what your business is about. Did you check to see if somebody already owned a trademark on that name or if the state has already registered another business with the same name? If you have already put a lot of work in to your branding by hiring graphic designers, sign makers, and others, this mistake could be costly. Let’s also not forget that infringing on a trademark can result in a lawsuit.
Underestimating Startup Costs
Starting a business or launching a new product always costs more than you think. If you haven’t worked an extra 10% to 20% in to your budget for the unknowns, you may find yourself unable to get your product to the market because you ran out of money. What’s worse, you’ve already invested a substantial amount. Ask for help when constructing a budget and make sure you have more money than what you think you need.
Not Charging Tax
Your argument may be that it’s the customer’s responsibility to pay sales tax but you probably won’t win that argument when the IRS comes knocking on your door. Laws vary by state but in most cases if you’re selling services from a brick and mortar site, you must charge a customer sales tax. This is an instance where you consult a tax attorney if you believe there is any question as to what you should do. Tax law varies by state so don’t assume anything.
Not Registering Your Business
Again, states vary when it comes to requirements for registering your business but in most cases you have to register. Some states only ask that you register if you hire employees, lease property, or charge sales tax but it’s your job to know. There are a variety of services that can register your company for you at a very low cost.
Don’t find yourself in legal trouble because you forgot to do one of these tasks or you assumed that it didn’t apply.