Small Business Start-Ups- High Risk/High Reward- We Can Help You![/caption]
Over the years, I’ve seen many small business owners who used their hard-earned money, sweat, and time to try to build their small business or franchise.
Risk v. Reward
Opening a Franchised business, like any start-up, is risky. Franchises often have higher success rates than other start-up businesses. Some reports list the failure rate at close to 20%. https://www.entrepreneur.com/article/246314. The most common cause of failure is not enough cash to keep it going. If the owner is able to keep the business going for more than a few years, the chances of success are much greater. Approximately 20% of all new businesses fail within the first year. https://www.usatoday.com/story/money/business/small-business-central/2017/05/21/what-percentage-of-businesses-fail-in-their-first-year/101260716/ After 5 years, 50% of new businesses still fail.
Funding Options- Can Be Risky
While it’s best to have the capital saved to start a business venture, many entrepreneurs either use their savings from a 401(k) retirement plan, or use business loans to finance their purchase and operating expenses in the short term. Many business starters turn to the Small Business Administration, SBA, which partners with local banks to give guaranteed loans at favorable rates. But, those loans have many restrictions and are difficult to get. So other entrepreneurs turn to fast funding options, like On Deck and others. While this may seem like a good idea at first, these lenders often require the business to pay from its sales every week, often thousands of dollars each WEEK! So, while it sounded like a good idea to get some quick cash, it can quickly bury a small business.
Collateral is Key
Remember that these loans, whether SBA or other “quick funding” solutions, are not simple loans. They require that you put your business, and sometimes your house, as collateral for the loan. What does that mean? If you don’t pay the loan, they can shut down and sell everything in your business, the whole business, or your house! And, bankruptcy won’t eliminate that part of the contract! So small business owners have lots to lose!
3 Things for Sure- Taxes, Taxes, Taxes
When small businesses start struggling, many owners struggle to pay their taxes. Three types of taxes can fall by the wayside.
First are payroll taxes—these are called “Trust Fund Taxes” for a reason. Those are taxes that the business is required to withhold, and have in trust, to pay the IRS and State. In other words, those are not the property of the business or its owner, but rather that of the Federal or State government. So, regardless of whether the business is a corporation or not, and no matter how old the taxes are, the owner(s) of the business are liable for that tax. Bankruptcy will not eliminate these taxes, ever!
Second are Income Taxes—both business and personal. First, the business and its owner MUST file taxes each year to know how much is owed. If the Tax Returns are not filed, the IRS and the State will estimate how much is owed—without any deductions—and it’s guaranteed you won’t like it, because it will be more than if you actually file your tax returns on time. Secondly, you need to get on an installment plan with the IRS or State, because if you do not, these agencies will move to levy (attach a demand to pay) on your property, or on your bank accounts so that you can’t do business.
Third are Sales Taxes—In Illinois, retail businesses need to pay their sales taxes, and, if they fall behind, the state will literally come in and shut the business down. That’s a sure-fire way to failure!
You Are Not Alone!
Get help from trusted professionals- accountants, lawyers, financial advisors— early and often. The small business owners I’ve seen and counseled have been some of the most energetic and optimistic people. You are also some of the smartest, most resourceful people. You cannot always dig yourself out alone. And you are not showing weakness to call someone in for help.
Over the last 25 plus years, I’ve been able to help advise and counsel them out of many financial situations. Call if you have questions about your business’ financial health or if you are struggling with some of these problems.
Daniel J. Winter
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois