It’s not just the American Dream.Many would say it’s our birthright: Entrepreneurship. Ironically, sometimes success leads to failure.
“It doesn’t matter what kind of business it is,” says Michael Stevenson, a CPA in Bakersfield, Calif. (opens in a new tab)“risk fail One big question mark should always be kept in mind: ‘What, if anything, might I be doing wrong? What did I miss?The answers to these questions spell success or fail“
Agree with his colleague Dr. Diwu (opens in a new tab)chair and associate professor of accounting at Cal State University Bakersfield, argues strongly, “It’s critical to understand what sets start-ups on the path to failure.”
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That’s what we see in today’s story: How some business owners shut themselves down due to the following issues.
Wu: They trust every statement of support from family and friends for their product or business idea.
you almost always hear tomorrow Compliments from those close to you on how definitive your product or service idea is. But feedback from ordinary people can easily vary widely and to the point.
Stevenson: They rush into the market with a great idea or product without looking to see if anyone is already doing it or has a patent on it.
There is very little in the world that no one else has done. For example, a client has a great software idea and rushes to bring it to market, only to find out that another person holds a patent for the exact same type of software, thus losing thousands of dollars for not doing something as simple as a Google search See if there is already a similar product on the market.
Furthermore, only patented do not guarantee You are the only one who can make or sell the product. Your patent is only as good as your ability to defend it. So, if you don’t have the financial means or ability to bring legal action, you really can’t defend that patent.
Wu: Business owners need to know their limitations. “Don’t be stingy!”
When you leave your field of expertise, hire people who have the ability and ability to give you what you need. For example, if you’re bringing in a partner, hire a lawyer to draft a partnership agreement that suits your business needs – don’t just grab what you find on Google or do it yourself! You may end up spending more money to fix the problem later.
Stevenson: Success can be a ‘curse’ that leads to ‘lifestyle creep’, This can destroy your business and everything you hold dear.
Accountants often witness what happens when a business or professional (lawyer, doctor, or even a CPA) becomes hugely successful, generates a lot of cash flow, and starts spending like crazy!
They go from eating top-shelf ramen in a studio apartment, to buying mansions and expensive toys, and spending weekends in Las Vegas or something like that, and they start hanging out with people who are richer than them and think, “Well, this guy There’s a 32-foot fishing boat. I want a boat!” They bought one, which was later given to them sinking feeling If their spending reaches a point where the business cannot generate enough money to sustain this lifestyle creep.
As a result, owners began borrowing against the business to support their lifestyle; their business was neglected, and if left unchecked, it could lead to the failure of the business and, with it, the family.
Wu: They failed or refused to live within their means.
The economy is never stable. Just look at the Great Recession of 2008 and what we are facing now. Home and small business owners spent every penny they earned and were and still are in some trouble.
Persons whose standard of living is well below their income level – maintaining six months or more Or income in a savings account – being able to weather these storms without worrying about what’s on the table.
Stevenson: They get into tax trouble by treating their employees as independent contractors.
One surefire way to get into serious trouble with the IRS and state tax authorities is to treat your employees as independent contractor, Employment taxes, workers’ compensation insurance, and other costs owed to the employer are thereby not paid.
This could result in significant payroll tax savings—until employees walk into the H&R Block to complete their taxes and hand over their employer’s 1099-NEC (Non-Employee Compensation Form). Then the H&R Block employee said, “We’re filing taxes as employees, so you get another $5,000 back.”
The result is that the employer is flagged red by the IRS And could end up being audited and assessed for payroll tax delinquency and penalties exceeding 100% of the delinquent tax, resulting in a possible loss of their business – even after bankruptcy, the business owner will still owe the assessment.
Stevenson: They invited the family, which is probably asking for trouble.
Families complicate matters, and often family members feel that if they are employed, they should be equally involved in the success of the business, while unrelated people often have no such expectation.
If you plan to involve family members in the business, it’s important to set expectations and boundaries up front to reduce the chances of future problems. Don’t forget about control over cash or product just because your employees are related to you. Many times, we see business frauds that do not consider family ties.
Where to get sound advice before you start your own business
So how do you avoid these pitfalls? “Take the time—at least six months—to learn how a business works,” advises Stevenson and Wu Du, adding, “The Small Business Development Center (opens in a new tab) Distributed across the country is a great resource. “
“Additionally, a foundational course in accounting is very beneficial,” Stevenson notes.
In my opinion, it is absolutely essential that almost every university in the US offers a business law program.
Dennis Beaver, practicing in Bakersfield, California, welcomes reader comments and questions by fax to (661) 323-7993 or by email at Lagombeaver1@gmail.com. must visit www.dennisbeaver.com (opens in a new tab).
This article was written and expressed the opinion of our staff of consultants, not the editorial staff of Kiplinger.you can use it SEC (opens in a new tab) or with FINRA (opens in a new tab).