One of the advantages of consulting is that you get to see others’ mistakes. And learn from them. I have made more than my fair share of mistakes. Yet, I still am surprised by how often the basics underlying how you run your operations are the most common small business problems.
Good administrative processes will support and enhance your ability to grow and succeed. Set them up early and properly to be effective. Boring work, probably. Critical, yes!
Financial literacy is quite low in the US.
Whether you are a financial whiz or barely understand cash flow, you need effective financial processes in your business. You need a system that is right for your size and work. But you also need to understand and use it. Get basic training. Or hire someone to help you set up your own chart of accounts and understand what your system can do for your business. Then add help to maintain it as needed.
Your ability to manage your cash flow is critical to your success. And your tax returns are far easier with a good system. So is your planning!
Yet… recently it was a long-time business owner whose bank account was overdrawn before he realized he had not seen his outside book-keeper in months and his employee was not entering everything correctly. Last fall it was a CEO who had not made payroll on time – again; but thought employees should understand good intentions!
And don’t even ask me what happens to firms which do not pay employee tax withholding on time – think locked doors, seized bank accounts, personal assets at risk.
How are you hiring and paying for services your business needs?
Do you have employees? Independent contractors? Contractors or consultants? Interns?
Tax and labor laws contain a lot of traps for those who do not learn about the rules. Pay attention to what you are doing when you bring in the help you need. Often solopreneurs and small organizations hire extra help or expertise on an “as needed” basis. But you do need to be clear about the “how” and “which” among your options.
If you hire via a company which provides such services, it is usually a nice clean transaction – business to business.
But if you hire someone directly, you need to be sure to keep it legal. And that is true even if you only hire the person for a few days or hours.
Check out this IRS guidance on hiring . Be sure the help you hire, no matter what they call themselves, is working with you to ensure both of you are in the clear legally on your payments to them. Get a W-9 form. Keep good documentation.
Do you have employees? The federal and state governments are cracking down on proper classification and payment of employees. They are looking at whether the organization is trying to call them independent contractors instead of employees to avoid paying taxes and mandated benefits. They are checking out wages and hours and whether the organization is trying to treat employees as exempt from overtime laws when the work done is actually not exempt.
And when you have employees, you need records of their employment status and how it starts and ends. People claim unemployment often when they really are not eligible. But if you do not have a record of hiring and termination, whether the person resigned or was in a short-term contract or internship, you may be charged and your unemployment insurance (UI) rates may rise.
Want to hire an intern? Lots of small organizations think of interns as free help. Not so! Generally you have to pay interns, unless you are working with an educational institution where the internship is a part of a class or program. Note: non-profits can hire unpaid interns more easily. See this DOL guidance. I see organizations all the time that want an unpaid intern to work for them but violate these rules – and get into trouble. Back pay, taxes, and fines are common.
Violations of these laws are quite expensive. You will need a good lawyer, probably an HR consultant, and be subject to financial penalties.
And don’t get me started on business planning!
We all know we should – but do you actually have a plan? Does it include realistic information on your revenues and expenses? SWOT analysis? (Do you even know what SWOT means?) Do you have an assessment of your market and potential targets? Do you have goals for the short and medium term? And, if you have been in business awhile, when did you last update or re-do it?
I have seen a lot of small organizations get into trouble because they overdid hiring or outside assistance when a simple business plan would have helped them think more clearly.
These ‘administrative basics’ are not what many of us want to do, we are too busy finding revenue. But they are worth your time and effort to learn and do correctly — so you can SUCCEED!