Boerger Law

A Practical Guide to Avoiding Common Business Mistakes

I have been blogging now for more than two years and this is the second time I have addressed this topic.  The first time, back in 2010, I listed five mistakes I had regularly seen made.  While my earlier blog post is still accurate and relevant – the following is a simplified practical guide for avoiding typical mistakes I have seen business owners make over and over again.

  1. Don’t sign any document you have not read!  Whether it is a loan document, a lease, a supply contract or anything else in writing – if you have not read it – or had your lawyer read it for you – do not sign it.
  2. Don’t classify a person working for you as an independent contractor unless you know what you are doing.  It is a common practice to treat a person as an independent contractor instead of an employee to “save money.”  Unfortunately, the amount of money you save may not be that significant and any savings will pale in comparison to the back taxes, penalties, and interest you will owe if the Commonwealth audits you and determines your classification was wrong.
  3. Don’t loan money without an agreement and security.  If you decide to help out a customer by loaning them money, make sure you have the terms of the agreement in writing and if at all possible get security (e.g. a mortgage on some real property they own).   If you do get security, make sure it is worth something.  For example, if a customer gives you a mortgage on their house – and yours is the 4th mortgage where the total debt secured vastly exceeds the value of the house – you really don’t have much.
  4. Keep good books!  Although this is much more of an accounting rather than a legal issue, I meet with too many business owners who do not have good records and do not understand the finances of their business.  Many times people love what they do – but don’t really like the “accounting” end of the business.  Keep good books, send out your bills promptly, and stay on top of your accounts receivables!
  5. Always, Always Pay Your Trust Fund Taxes.  Paying your taxes is important but paying your trust fund taxes is very, very important.  The most common trust fund taxes include sales/meals  tax and the employee portion of withholding taxes.  The government views this money as their money – and if you don’t pay it to them as required it is considered theft.  If you are unclear about what I am talking about – you need to get a good payroll company and bookkeeper now.
  6. Have a written agreement with all co-owners.  If you have others who own a part of your business you should ALWAYS have your agreement in writing.  It does not have to be a 30 page agreement that your lawyer will charge you a fortune to prepare but it should be long enough to cover the core terms: What is the percentage of ownership by each owner?  Who has the power to make decisions?  What happens if an owner wants to leave – or leaves unexpectedly (e.g. dies or is disabled)?  How much are the owners paid for working in the business?  What happens if the business must have an infusion of cash?  These are all questions you should address in writing when there is more than one owner of a business.
  7. If it seems too good to be true it probably is.   This is a very old saying but it is still true.  I regularly read a good blog about business practices in China.   Dan Harris of  Harris & Moure of Seattle Washington put it very well when he stated in part as follows: “We love to write about the China scams (e.g. too good to be true) because they make great cautionary tales for our readers.   We always get comments about whomever it was who was duped was ‘incredibly stupid.’  I disagree. What usually has happened is what always happens.  I do not see these things as hinging so much on one’s intelligence. I think these sorts of things happen when the ‘making money portion of our brains’ takes over and overwhelms the deep thinking part of the brain and thereby renders it fairly useless.  I do think it happens more often to those new to international business and overly excited about its prospects. These are the people who ‘check their brains at the gate’ when arriving in China.”  Make sure that the “making money” portion of your brain does not overwhelm the “deep thinking” part of your brain.  No matter what the transaction – be sure not to “check your brains” when analyzing if it will be a good deal.
  8. If you don’t have a business attorney you can regularly confer with – get one.  It is impossible to be good at everything you do.  Skilled business owners know what they are good at and know when to bring in expertise to assist them, whether that is a good payroll company, bookkeeper, or attorney.  Having a good business attorney to consult with as needed is essential in helping to insure that your business not only continues but thrives.

Following each of the above 8 steps will help keep your business on track.

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