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Seven Small Business Risks You Might Not Know You’re Taking

4/13/2016

 
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ID 45253199 © Paulus Rusyanto | Dreamstime.com
Running a small business is often about taking and managing risks. Market risks are normal but business and tax risks are another thing altogether.

Most business and tax-related risks can be managed as long you know about them.

Here are seven small business risks you will want to make sure are covered.
Best Choice of Entity
 
Are you operating as a corporation, limited liability company, partnership, or sole proprietor? More importantly, is the entity you are operating under providing you with the greatest tax benefits and separation from personal liability? If not, you might want to explore the alternatives to make sure you are taking the amount of risk that is right for you.
 
Employees or Contractors  

Are your team members properly categorized when it comes to the IRS’s rules about employees versus contractors? Unfortunately, it is not about what you and your team member decide you want.

If you decide to hire contractors and the IRS determines they are employees, you could owe back payroll taxes that can cripple a small business. So you will want to do the right thing up front and make sure you and the IRS are in agreement, or be willing to take a future risk. (Check out this article for more information on proper classification of employees and contractors.)
 
Insurance

 
If you would like to protect yourself from possible losses through a disaster, theft, or other incident, insurance can help. There are a lot of kinds to choose from, and you will likely need more than one. At the minimum, consider if you need coverage through:
  • Business property insurance, renters insurance, or a homeowner’s rider to protect your physical assets
  • Professional liability or malpractice insurance, if applicable, to protect you from professional mistakes including ones made by employees
  • Workers compensation insurance, to cover employee accidents on the job
  • Auto insurance or a non-owned policy if employees drive their car for work errands
 
You may also want personal umbrella insurance, life insurance, and health insurance. Check with an insurance agent to get a comprehensive list of options.
 
Sales Tax Liability
 
Are you sure you are collecting sales tax where you should be? Each year, the states roll out new rules for liability. For example, if one of your contractors lives in another state, you may owe sales tax on sales to customers who live there even if you do not live there or have an office there.
 
Nexus is a term that describes whether you have a presence in a state for tax purposes. Having an office, an employee or contractor, or a warehouse can extend nexus so that you would need to collect and file sales tax for those states. Make sure to do your homework to ensure you are properly managing sales tax liability.
 
Underpricing
 
Most small businesses make the mistake of underpricing their services, especially when they start out. If you started out that way, it is awfully hard to catch up your pricing to a reasonable level. Knowing the right price to charge can make the difference between whether the company last six months or six years. You can mitigate this risk by getting cost accounting help from your accountants who can help you calculate your margins and determine if you are covering your overhead and making a profit.
 

Legal Services
 
Legal services can be expensive for a small business, so sometimes owners cut corners and take risks. Attorneys are needed most when it comes to setting up your entity, reviewing contractual agreements such as leases and loan agreements, settling conflicts, advising on trademark protection, and creating documents such as terms of service, employment agreements, and privacy policies. Just one mistake on any of these documents can cost a lot, so consider the risks before short-cutting these areas.
 
Accounting Services  
 
Incomplete or incorrect books are a big risk of doing your own accounting and taxes. You may end up paying more taxes than necessary if you leave out deductions you are entitled to. Worse, if you do your books wrong, you could end up overpaying taxes without even realizing it. A common bookkeeping error results in doubling sales, and while it might look good, you certainly do not want to pay more than what has been truly received.  
 
How did you do with these seven risks? If you need to reduce your risks in any of the areas, feel free to reach out for our help. 

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    Author

    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
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