A Business Owner Named Bill, a Cautionary Tale
This is a cautionary tale based off of a true story.
A business was started. Bill, the owner, sort of “fell into it” – it was his passion and people came to him asking for more, and over time a business was born. It was incredibly popular – lots of customers, lots of products available, very high demand. He needed workers to produce all of these products. For numerous reasons, he chose to hire independent contractors rather than payrolled employees.
This continued for years.
Then the IRS decided that his workers were, in fact, employees rather than independent contractors. (Here is an informative article about the difference between the two.) The IRS frowns pretty heavily upon employers who have classified employees as independent contractors. Bill now not only had to start paying payroll taxes, unemployment insurance, etc., but also had to pay back taxes and steep fines.
He continued business as usual.
Oh, he attempted to bring in more money to pay the fines, so he ran some specials on products, and he even had people pre-purchase products not yet available, at a steep discount. His products were expensive. He sold many of them. He had hundreds of employees producing the products. Money was most definitely coming in. But it was not managed well.
Eventually Bill could not pay his employees. So he didn’t. Yet he still collected money and claimed that products would be available. His employees continued working on his promise to pay them in a month.
The month deadline arrived. On that same day Bill announced to his employees that he was shutting the doors of his business for good. Payroll still was not met, products were not delivered, and the customers who prepaid would not receive what they paid for. By the end of the day the employees’ business emails were disabled and the website was gone.
Bill meant well, but he did not foresee the consequences of his poor business decisions. Now his business is gone and his personal credibility is shot.
Don’t be like Bill.
What can we learn from this cautionary tale?
1. It’s important to get sound business advice from the very beginning. I firmly believe that if Bill had had a good bookkeeper, a good tax planner, and a good overall business planner, he would still be in business. Even if these people cost you money, they are worth it.
2. It seems that Bill thought that if he just pretended none of his problems existed, they didn’t. He was trying to dig his way out of a hole with a spoon while a bulldozer was shoving dirt in around him at the same time. Even if he didn’t start out with expert help at the beginning, at the very first sign that thing were going south, he needed to get a team of experts to examine his financial records and tell him the best course of action.
3. He needed to FOLLOW that team of expert’s advice!
4. Bill needed to communicate, communicate, communicate…first with his employees, and then with his customers. Other businesses in his industry rallied around him to try to pick up his slack, and no one blamed him as a person per se. But his reputation is ruined. And really, is it another business’s responsibility to make up for his poor business decisions? Had he communicated even just a little bit, he could have gotten some assistance from his employees and customers, and at a minimum he would at least look like he had tried. Transparency and honesty go a long way.
5. Don’t skirt the law to save a buck. The law may be completely dumb. But the way around the law is to work to get the law changed, not by just not obeying it. It cost Bill much more money (and more!) by not following the law than it would have had he followed it properly in the first place.
I’ll say it again. Don’t be like Bill. Get a financial support team in place from the get go. Bill apparently thought he knew what to do regarding taxes and business bookkeeping. However, they sometimes are not logical and seem to not make sense. Bill didn’t realize that there were things he didn’t know enough about to know that he didn’t know them. But experts do and could have helped.
I am here to help with the bookkeeping. And I have tax planners/preparers and business advisers that I can recommend. If you read this cautionary tale and found that it hit a little too close to home, please schedule a consultation with me, and I will see what I can do to help so that your business does not end up like Bill’s.