20 June 2011

Why do so many small businesses fail?


There are many reasons small businesses fail.

  • Lack of business plan
  • Lack of documentation
  • Poor tax planning
  • Not understanding the laws
  • Only focusing on the work part of the business
  • Many, many others.
I was informed by my mentor who has run a successful business in Real-Estate and Accounting for over 40 years that there are many reasons that a small business fails but, their are two in particular that handicaps a business litereally before it gets started and they are:


Federal Unemployment Tax Act (Futa)

State unemployment Tax Act (Suta)


Not to be confused with Federal Insurance Contributions (fica). Suta and Futa are a tax in addition to fica. What does this mean to a small business owner with employees? It means in addition to employee wages 10% to 15 % of the employee income must be paid to the State and Federal Government. If an employee earns $2000.00 dollars a month, at least $200 dollars goes to pay fica, Suta and futa. The unfortunate fact is many small businesses don't pay the payroll tax (fica, suta and futa). Some of the reasons for not paying the payroll tax are…..

  • Unaware of the taxes exist
  • Can't afford to pay the employees and the taxes
  • Just flat out don't want to pay the taxes
  • Convinced business will increase so they can catch-up on payroll tax
  • Accepting bad advice from non tax professionals (friends, family members and co-workers)
Whatever the reason for not paying the payroll tax the outcome is the same. The employee/s  of the small file their tax return and a couple of months later the IRS sends the employee a bill for unpaid taxes. A phone call is made; the IRS shuts the business down for unpaid payroll taxes. The time frame for this to take place is from a year to six months of starting the business.

A word to the wise, if you are going to start a business consult a tax professional, law attorney or accountant before doing so. The information they provide will be well worth the time and money invested.