Call In the Pros
Step one in starting a business: Admit you don't know everything.
Q: I am in the process of opening my first business and will be ready to hire employees soon. I will be paying all employees on a commission basis, and the business is an LLC. Could you tell me which federal and state tax forms I need to file for paying my employees? Would it be best to talk to an accountant for this advice?
A: Frankly, I don't know what forms you need to fill out for your employees. The short answer to your question is, yes, it would be best to talk to an accountant. That said, I want to say a bit more about the use of professionals like accountants, lawyers and the like.
Let's talk about your specific question first. The tax laws in this nation are numerous, often confusing and frequently changing. On top of the federal laws, there are state (and sometimes local) rules and regulations entrepreneurs need to deal with. Just this year alone, the federal tax rates changed, as did the rules for subchapter S corporations. It would be very difficult, at best, for any entrepreneur to keep up with what you need to know to comply and have any time (or energy) left to start or run a business.
So the big question is, Why do so many entrepreneurs (particularly at the starting-out stage) resist turning to professionals? I don't have an easy answer, but I'm assuming many of you think you can easily handle these issues and figure, "Why waste the money hiring someone to do the job?" If so, you're wrong. So wrong, it could cost you your business.
I assume you (and anyone else reading this column) started a business in an area where you have some amount of knowledge and expertise. Accountants, lawyers and marketing pros are all people who have specific knowledge and expertise about their lines of work. When our cars break down or our computers stop cooperating, most of us don't attempt to fix it ourselves-we call the pros.
Many new or about-to-be business owners realize they'll need to call in the professionals at some point in their business's lifecycle. But when you think about it, it's when you're formulating your business, it's when you're taking what you wrote in a business plan and trying to make it reality, it's when you actually start doing that you need as much help as possible. This is the time to consult with as many people as possible-not guess at what's right.
Let me give you a real-life example. A woman I knew had been running a successful business for years. For tax and other reasons, she classified her employees as independent contractors. However, her employees actually were employees and not independent contractors. She was "caught" during an IRS audit and nearly lost her business. She wasn't trying to cheat on her taxes; she honestly didn't know the IRS has strict independent contractor rules. An accountant would have.
This situation doesn't only apply to accountants and lawyers. Some start-up business owners try to do their own marketing or advertising campaigns. This is fine-if you have some talent for it. Unfortunately, all too many do not-and it shows. If cash is truly an issue, try bartering your services for that of a pro's. For instance, let's say you're a graphic designer. You could trade your design skills for someone's accounting acumen. Or to a lawyer. Or to just about anyone else. Just remember, the IRS considers barter services income, so be sure to keep excellent records and report everything.
Above all, don't make the mistake of thinking you can't afford to hire consultants. That's penny-wise and pound-foolish reasoning. Spending money wisely upfront may save you countless dollars later. It may even save your business.
Rieva Lesonsky is a small-business expert and a senior vice president and editorial director at Entrepreneur Media Inc.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.